With consumers tightening their wallets over economic concerns, crude oil will suffer its first annual decline in seven years, as supplies rise over decreasing demand.
On the New York Mercantile Exchange, prices fell 99 cents for February delivery of crude oil, settling at $39.03 a barrel. Earlier in the day it fell below $38 a barrel. So far this year oil prices are down by 59 percent.
Crude-oil inventory fell last week by 1.45 million barrels, while on the other hand, according to analysts' estimates, gasoline stockpiles are rising, with projections of an extra 1.7 million barrels added for the week ending December 26.
Also increasing were heating oil, diesel, and other distillate fuel supplies, adding 1.5 million barrels to the inventory.
On London's ICE Futures Europe exchange, Brent crude oil fell by 40 cents to end the session at $40.15 a barrel.
I don't see anything changing the primary fundamental of declining oil demand changing any time soon, and that should be the key element to watch with oil, barring any geopolitical problems that may unfold.
Tuesday, December 30, 2008
Tuesday, December 23, 2008
Warren Buffett Investing Heavily in ConocoPhillips
Regulatory filings show that Warren Buffett has been buying up shares of ConocoPhillips (COP) since the end of March. At that time Berkshire Hathaway (BRK-B) owned 17.5 million shares, while now they've acquired over 83 million shares.
That move by Buffett and Berkshire Hathaway make it the largest shareholder in Conoco at this time.
Other major investment managers have been making large share acquisitions of Conoco as well, including Chris Davis and Ken Feinberg's Davis New York Venture (NYVTX) fund. They believe investment in commodities will be a big part of increasing returns in the years ahead, even though they are temporarily out of favor.
"As developing nations add to worldwide incremental demand for commodities like oil and natural resources, we believe the long-term average price ranges for such resources could climb, notwithstanding the recent pullback in certain commodity prices. Consistent with our energy and natural resource-related investments to date, we will remain on the lookout for disciplined capital allocators who can generate attractive profits for shareholders given a stable price environment and windfall profits under more bullish scenarios."
For a good look at what differentiates ConocoPhillips from its competitors, Morningstar analyst Allen Good gives an indepth analysis of the company.
That move by Buffett and Berkshire Hathaway make it the largest shareholder in Conoco at this time.
Other major investment managers have been making large share acquisitions of Conoco as well, including Chris Davis and Ken Feinberg's Davis New York Venture (NYVTX) fund. They believe investment in commodities will be a big part of increasing returns in the years ahead, even though they are temporarily out of favor.
"As developing nations add to worldwide incremental demand for commodities like oil and natural resources, we believe the long-term average price ranges for such resources could climb, notwithstanding the recent pullback in certain commodity prices. Consistent with our energy and natural resource-related investments to date, we will remain on the lookout for disciplined capital allocators who can generate attractive profits for shareholders given a stable price environment and windfall profits under more bullish scenarios."
For a good look at what differentiates ConocoPhillips from its competitors, Morningstar analyst Allen Good gives an indepth analysis of the company.
Monday, December 22, 2008
Governor Palin Disappointed by Shell Decision to Cancel Drilling Activities in the OCS
December 18, 2008, Anchorage, Alaska – Governor Sarah Palin today expressed her disappointment in Shell Oil Company’s decision to cancel drilling activities in the Outer Continental Shelf (OCS) of Alaska’s Beaufort Sea for 2009.
The decision comes on the heels of a ruling by a three-judge panel of the Ninth Circuit Court of Appeals on November 20. “Alaska’s economic past and future are tied directly to the development of our abundant natural resources," the governor said. “The loss of this exploration activity will cost our state’s families hundreds of jobs next year.”
The governor also announced today that the state of Alaska intends to support Shell’s petition to the Ninth Circuit Court of Appeals for a rehearing in front of the full court.
The decision comes on the heels of a ruling by a three-judge panel of the Ninth Circuit Court of Appeals on November 20. “Alaska’s economic past and future are tied directly to the development of our abundant natural resources," the governor said. “The loss of this exploration activity will cost our state’s families hundreds of jobs next year.”
The governor also announced today that the state of Alaska intends to support Shell’s petition to the Ninth Circuit Court of Appeals for a rehearing in front of the full court.
Thursday, December 18, 2008
Oil Plunges to Lowest Level in Four Years
Today on the New York Mercantile Exchange, oil fell to its lowest level in four years, dropping to $36.22 at the end of the trading day. That was a 9.6 percent or $3.84 plunge per barrel for January delivery.
While trading volume was higher for February, it still fell $2.94 to finish the session at $41.67 a barrel on the NYMEX.
OPEC is of course panicking at the potential unrest that will inevitably come if prices continue to fall, and so cut production by another 4.2 billion more barrels a day on Wednesday, but that hasn't impressed traders much, as assertions and practical cooperation are two different things. Many countries say they'll participate in cutbacks historically, but full cooperation rarely, if ever, happens.
Price is the driving force behind the decline, as economic weakness is causing consumers to cut back on driving. If prices were to go higher at this time, consumers would simply cut back more. It's not a good time for OPEC, and it could become an even more dangerous situation going forward in a number of the countries that are part of the organization.
It'll be difficult to develop a supply/demand balance going forward, as economic uncertainty and the unknown continue to hamper stability. Whenever that becomes stable, the price range is expected to flucuate by around $15 a barrel.
January gasoline on Globex also moved down with oil, as prices drooped 5 cents to finish at 92 cents a gallon. Heating oil followed suit, ending down by 7 cents to $1.37 a gallon.
While trading volume was higher for February, it still fell $2.94 to finish the session at $41.67 a barrel on the NYMEX.
OPEC is of course panicking at the potential unrest that will inevitably come if prices continue to fall, and so cut production by another 4.2 billion more barrels a day on Wednesday, but that hasn't impressed traders much, as assertions and practical cooperation are two different things. Many countries say they'll participate in cutbacks historically, but full cooperation rarely, if ever, happens.
Price is the driving force behind the decline, as economic weakness is causing consumers to cut back on driving. If prices were to go higher at this time, consumers would simply cut back more. It's not a good time for OPEC, and it could become an even more dangerous situation going forward in a number of the countries that are part of the organization.
It'll be difficult to develop a supply/demand balance going forward, as economic uncertainty and the unknown continue to hamper stability. Whenever that becomes stable, the price range is expected to flucuate by around $15 a barrel.
January gasoline on Globex also moved down with oil, as prices drooped 5 cents to finish at 92 cents a gallon. Heating oil followed suit, ending down by 7 cents to $1.37 a gallon.
Tuesday, December 9, 2008
Platts Survey: November OPEC Oil Output Fell to 31.38 Mil. Barrels Per Day
LONDON, Dec 09, 2008 /PRNewswire via COMTEX/ -- Platts -- The 13 members of the Organization of the Petroleum Exporting Countries (OPEC) pumped an average 31.38 million barrels per day (b/d) of crude oil in November, according to a Platts survey of OPEC and oil industry officials just released. This is a decline of 880,000 from the October level of 32.26 million b/d.
Excluding Indonesia, which will leave OPEC at the end of this year, and Iraq, production from the 11 members bound by output agreements fell by 950,000 b/d to 28.16 million b/d from 29.11 million b/d, the survey showed.
This leaves the OPEC-11 with an additional 852,000 b/d of supply to remove if they are to reduce output to the level of the 27.308 million b/d output limit which came into effect at the beginning of November after the group agreed to slash production by 1.5 million b/d at emergency talks in Vienna on October 24.
"These cuts are nowhere near what analysts estimate is needed for OPEC to slash simply to catch up with rapidly receding demand," said Platts Global Director of Oil John Kingston. "Even if the full 1.5 million b/d cut was implemented, few now think even that would be enough to stave off tremendous increases in inventories, which will push prices down further. OPEC will have its work cut out for it at its upcoming meeting, with two main agenda items: how do we get to the cuts we agreed upon in October, and how much further do we cut from there?"
OPEC powerhouse Saudi Arabia accounted for the biggest single reduction, cutting its output to 8.9 million b/d from 9.4 million b/d in October. This leaves the kingdom still pumping more than 400,000 b/d in excess of its new 8.477 million b/d quota.
Kuwait and the United Arab Emirates (UAE) reduced output by 100,000 b/d and 150,000 b/d respectively, UAE output had been expected to decline as a result of field maintenance. Nigerian output fell by 50,000 b/d to 1.9 million b/d after new attacks on oil installations by rebels in the Niger Delta. Other smaller reductions came from Iran, Libya, Qatar and Venezuela.
Output from Angola, Ecuador and Indonesia was unchanged from October levels.
Iraqi volumes increased to 2.37 million b/d, reflecting largely higher exports from the south as well as an increase in internal consumption.
OPEC ministers are scheduled to meet on December 17 in Oran, in western Algeria, where several ministers have said an additional output cut will be on the table for serious consideration.
Oil prices have plunged by more than $100 per barrel in just five months, falling from record highs of more than $147/b in early July to under $40 per barrel last week.
Although some forecasters, including the International Energy Agency and OPEC, still see some growth in world oil demand next year, others, such as the Centre for Global Energy Studies in London and Wood Mackenzie in Edinburgh, see demand contracting in 2009.
* From November 1. Indonesia, which will leave OPEC at the end of the year, is not part of the October 24 decision to reduce the target by 1.5 million b/d to 27.308 million b/d. Previous totals have been recalculated as OPEC-11 totals to exclude Indonesia.
For production numbers by country, a table is available at http://www.platts.com/Oil/Resources/News%20Features/opec/prod_table.xml.
More information on OPEC is available via "Platts Guide to OPEC" at http://www.opec.platts.com.
About Platts:
Platts, a division of The McGraw-Hill Companies (MHP) , is a leading global provider of energy and commodities information. With nearly a century of business experience, Platts serves customers across more than 150 countries. From 17 offices worldwide, Platts serves the oil, natural gas, electricity, nuclear power, coal, emissions, petrochemical, shipping and metals markets. Platts' real time news, pricing, analytical services, and conferences help markets operate with transparency and efficiency. Traders, risk managers, analysts, and industry leaders depend upon Platts to help them make better trading and investment decisions. Additional information is available at http://www.platts.com.
About The McGraw-Hill Companies:
Founded in 1888, The McGraw-Hill Companies (MHP) is a leading global information services provider meeting worldwide needs in the financial services, education and business information markets through leading brands such as Standard & Poor's, McGraw-Hill Education, BusinessWeek and J.D. Power and Associates. The Corporation has more than 280 offices in 40 countries. Sales in 2007 were $6.8 billion. Additional information is available at http://www.mcgraw-hill.com.
SOURCE Platts
http://www.mcgraw-hill.com
Copyright (C) 2008 PR Newswire. All rights reserved
Excluding Indonesia, which will leave OPEC at the end of this year, and Iraq, production from the 11 members bound by output agreements fell by 950,000 b/d to 28.16 million b/d from 29.11 million b/d, the survey showed.
This leaves the OPEC-11 with an additional 852,000 b/d of supply to remove if they are to reduce output to the level of the 27.308 million b/d output limit which came into effect at the beginning of November after the group agreed to slash production by 1.5 million b/d at emergency talks in Vienna on October 24.
"These cuts are nowhere near what analysts estimate is needed for OPEC to slash simply to catch up with rapidly receding demand," said Platts Global Director of Oil John Kingston. "Even if the full 1.5 million b/d cut was implemented, few now think even that would be enough to stave off tremendous increases in inventories, which will push prices down further. OPEC will have its work cut out for it at its upcoming meeting, with two main agenda items: how do we get to the cuts we agreed upon in October, and how much further do we cut from there?"
OPEC powerhouse Saudi Arabia accounted for the biggest single reduction, cutting its output to 8.9 million b/d from 9.4 million b/d in October. This leaves the kingdom still pumping more than 400,000 b/d in excess of its new 8.477 million b/d quota.
Kuwait and the United Arab Emirates (UAE) reduced output by 100,000 b/d and 150,000 b/d respectively, UAE output had been expected to decline as a result of field maintenance. Nigerian output fell by 50,000 b/d to 1.9 million b/d after new attacks on oil installations by rebels in the Niger Delta. Other smaller reductions came from Iran, Libya, Qatar and Venezuela.
Output from Angola, Ecuador and Indonesia was unchanged from October levels.
Iraqi volumes increased to 2.37 million b/d, reflecting largely higher exports from the south as well as an increase in internal consumption.
OPEC ministers are scheduled to meet on December 17 in Oran, in western Algeria, where several ministers have said an additional output cut will be on the table for serious consideration.
Oil prices have plunged by more than $100 per barrel in just five months, falling from record highs of more than $147/b in early July to under $40 per barrel last week.
Although some forecasters, including the International Energy Agency and OPEC, still see some growth in world oil demand next year, others, such as the Centre for Global Energy Studies in London and Wood Mackenzie in Edinburgh, see demand contracting in 2009.
* From November 1. Indonesia, which will leave OPEC at the end of the year, is not part of the October 24 decision to reduce the target by 1.5 million b/d to 27.308 million b/d. Previous totals have been recalculated as OPEC-11 totals to exclude Indonesia.
For production numbers by country, a table is available at http://www.platts.com/Oil/Resources/News%20Features/opec/prod_table.xml.
More information on OPEC is available via "Platts Guide to OPEC" at http://www.opec.platts.com.
About Platts:
Platts, a division of The McGraw-Hill Companies (MHP) , is a leading global provider of energy and commodities information. With nearly a century of business experience, Platts serves customers across more than 150 countries. From 17 offices worldwide, Platts serves the oil, natural gas, electricity, nuclear power, coal, emissions, petrochemical, shipping and metals markets. Platts' real time news, pricing, analytical services, and conferences help markets operate with transparency and efficiency. Traders, risk managers, analysts, and industry leaders depend upon Platts to help them make better trading and investment decisions. Additional information is available at http://www.platts.com.
About The McGraw-Hill Companies:
Founded in 1888, The McGraw-Hill Companies (MHP) is a leading global information services provider meeting worldwide needs in the financial services, education and business information markets through leading brands such as Standard & Poor's, McGraw-Hill Education, BusinessWeek and J.D. Power and Associates. The Corporation has more than 280 offices in 40 countries. Sales in 2007 were $6.8 billion. Additional information is available at http://www.mcgraw-hill.com.
SOURCE Platts
http://www.mcgraw-hill.com
Copyright (C) 2008 PR Newswire. All rights reserved
Wednesday, November 26, 2008
Environmental Thugs Continue Attack on Consumers in Oil Lawsuit Frenzy
The environmental religion continues to produce attacks on regular, hurting people, as they sue oil companies every time a drilling lease permit is granted to them.
"Every lease that has been granted in the last several years has been immediately challenged in the lawsuits 100 percent," said Rep. Virginia Foxx, R-N.C.
This thuggery is hurting people and will damage the lives of human beings, as environmental crackpots continue their assualt against them.
These earth and animal worshippers would rather see human beings suffer through high energy costs and inability to heat their homes, than the lie that polar bears are endangered (which has proven to be false) and other bogus claims of endangerment.
It doesn't matter to these wackos, as lying to achieve their ends is part of their way of operating.
What's more evil about this is they know they can't win, they'll only increase the cost of doing business, which is always passed on to regular people.
These people aren't real conservationists doing this, rather they are elitest who care about their earth religion rather than human beings. People continue to be an insult to their sensibilities, and they would rather see them hurt than their earth-mother.
Screw 'em. Hopefully we'll start to see true conservation groups emerge who truly care about managing our resources. Hunters and fisherman are especially concerned and good at this, knowing we need to keep our resources managed properly.
These environmental terrorists need to be sued into oblivion, and associations need to be formed in order to make that a reality.
"Every lease that has been granted in the last several years has been immediately challenged in the lawsuits 100 percent," said Rep. Virginia Foxx, R-N.C.
This thuggery is hurting people and will damage the lives of human beings, as environmental crackpots continue their assualt against them.
These earth and animal worshippers would rather see human beings suffer through high energy costs and inability to heat their homes, than the lie that polar bears are endangered (which has proven to be false) and other bogus claims of endangerment.
It doesn't matter to these wackos, as lying to achieve their ends is part of their way of operating.
What's more evil about this is they know they can't win, they'll only increase the cost of doing business, which is always passed on to regular people.
These people aren't real conservationists doing this, rather they are elitest who care about their earth religion rather than human beings. People continue to be an insult to their sensibilities, and they would rather see them hurt than their earth-mother.
Screw 'em. Hopefully we'll start to see true conservation groups emerge who truly care about managing our resources. Hunters and fisherman are especially concerned and good at this, knowing we need to keep our resources managed properly.
These environmental terrorists need to be sued into oblivion, and associations need to be formed in order to make that a reality.
Wednesday, November 19, 2008
Global National Oil Companies Look for Oil to Drop to $40 a Barrel
National oil companies from around the world said in a recent meeting in Beijing that prices would probably fall to around $40 a barrel, according to Fu Chengyu, chief executive of China National Offshore Oil Corporation.
Fu added that the tone of the meeting was one on the verge of panic, as the reality of what is happening with oil is setting in.
Commenting on the idea of OPEC to cut back more on production, Fu said that it probably won't have any significant impact on the price of oil. The major reason for that is the economic climate around the world, which is making oil nowhere near the priority of consumers, who have cut back on travel and vacationing, and are spending only on necessities.
Another outcome of this is oil companies will cut back on investing in new projects, as the current and eventual price of oil can't sustain them.
Most extraction projects were initiated assuming a minimum price of $60 a barrel to break even, and up to $90 a barrel.
“When most of the oil companies budgeted their projects, they were using $70, $80, even $100 a barrel for their cash flow calculations,” Fu said. “For those projects that have started, certainly they will try to complete them, but for those projects that have not started yet they will delay or cancel. Simply, they don’t have enough cash to do all of those that they budgeted.”
Fu added that the tone of the meeting was one on the verge of panic, as the reality of what is happening with oil is setting in.
Commenting on the idea of OPEC to cut back more on production, Fu said that it probably won't have any significant impact on the price of oil. The major reason for that is the economic climate around the world, which is making oil nowhere near the priority of consumers, who have cut back on travel and vacationing, and are spending only on necessities.
Another outcome of this is oil companies will cut back on investing in new projects, as the current and eventual price of oil can't sustain them.
Most extraction projects were initiated assuming a minimum price of $60 a barrel to break even, and up to $90 a barrel.
“When most of the oil companies budgeted their projects, they were using $70, $80, even $100 a barrel for their cash flow calculations,” Fu said. “For those projects that have started, certainly they will try to complete them, but for those projects that have not started yet they will delay or cancel. Simply, they don’t have enough cash to do all of those that they budgeted.”
Saturday, November 15, 2008
OPEC Could Cut Production by 1 Million Barrels in Cairo
Fighting to stave off oil plunging below $50 a barrel, OPEC may cut production another 1 million barrels a day.
Expectations are at the next OPEC meeting on November 29 they will definitely cut production again, the question is only by how much. The 1 million barrels a day figure is expected by most analysts; although some have said it could be anywhere from 500,000 a day to 3 million barrels a day.
The problem from OPEC's standpoint is it's one thing to announce production cuts, it's another thing to implement them, as supply cut announcements from September and October are still in the process of being put into action.
Iran is calling for cuts between 1 to 1.5 million barrels a day.
Oil futures closed Friday's session down to $57.04 a barrel for December delivery on the Nymex.
Expectations are at the next OPEC meeting on November 29 they will definitely cut production again, the question is only by how much. The 1 million barrels a day figure is expected by most analysts; although some have said it could be anywhere from 500,000 a day to 3 million barrels a day.
The problem from OPEC's standpoint is it's one thing to announce production cuts, it's another thing to implement them, as supply cut announcements from September and October are still in the process of being put into action.
Iran is calling for cuts between 1 to 1.5 million barrels a day.
Oil futures closed Friday's session down to $57.04 a barrel for December delivery on the Nymex.
Friday, November 14, 2008
Enterprise Oilfield Group, Inc. Announces Third Quarter Results
Nov 14, 2008 12:28 ETEnterprise Oilfield Group, Inc. Announces Third Quarter Results
ST. ALBERT, ALBERTA--(Marketwire - Nov. 14, 2008) - Enterprise Oilfield Group, Inc. ("Enterprise") (TSX:E). Consolidated revenue for the three months ended September 30, 2008 was $8.7 million versus $8.5 million for the comparable period in 2007. The Company had EBITDAS_ of $1.6 million and a net income of $0.6 million for the three month period ended September 30, 2008 versus EBITDAS of $1.4 million and a net income of $0.9 million for the comparable period in 2007.
For the nine month period ended September 30, 2008 consolidated revenue was $28.1 million versus $32.1 million for the comparable period in 2007. The Company had EBITDAS of $4.2 million and a net income of $1.3 million for the nine month period ended September 30, 2008 versus EBITDAS of $4.5 million and a net income of $2.0 million for the comparable period in 2007. The Interim Financial Statements and the Management Discussion and Analysis have been filed and can be viewed at www.SEDAR.com.
Outlook
Management believes the long term outlook for its business segments is positive. Although year to date operational results have been positive in the face of volatile commodity prices, global financial and economic turmoil has added to near-term uncertainty for commodity prices. Weaker commodity prices have however been buffered to a large extent by the devaluation of the Canadian dollar relative to the US dollar. Continuing credit market instability will likely adversely affect the energy industry during 2009. However, Enterprise is positioned well due to the diversity of its business and strong performance of its infrastructure services division. Enterprise has a history of success due to the commitment of its field staff to provide excellent service to its customers regardless of industry conditions, and the commitment of its management to prudent financial management. Consequently, Enterprise will continue to actively pursue opportunities to enter new geographic territories and make strategic acquisitions. While the Company is uncertain of near-term movements in the financial markets, we are well-positioned to continue generating positive growth relative to our peers. Enterprise has positioned itself for improved levels of demand for its services and will continue to pursue opportunistic growth initiatives. Management is very encouraged with its high quality people, modern equipment, and service locations. Enterprise's position in the current market place is exceptional and believes that the remainder of 2008 and into 2009 holds tremendous opportunities for continued revenue growth. From the beginning, the Company's goal has been to increase the level of customer service with the best and safest practices, the newest equipment and the best field staff. And the plan is working with great success. Enterprise has paid down over $2.4 million in long term debt during the current year through its accelerated debt repayment plan, has purchased several pieces of new equipment for the operations and is selling off older equipment in order to maintain a new, efficient and cost effective fleet. Additionally, the Company's expansion into the Peace River area has opened the door to very profitable, year round, infrastructure and facilities maintenance opportunities, smoothing out the cyclical effects of the traditional pipeline industry. As well, Peace River holds tremendous potential for pipeline services work due to all of the heavy oil production in the area.
Energy and Construction Services
Although commodity prices have been volatile in the third and fourth quarters of 2008, field activity levels in our oilfield energy and construction services division remains strong. We continue to look at growth opportunities from both an internal perspective and from an acquisition perspective.
Utility and Directional Drilling Services
A number of the Company's clients have significant backlogs of outstanding maintenance orders to replace miles of underground cable. Significant infrastructure investment from all levels of government and the Company's focus on organic growth within this sector will prove to be meaningful contributor to revenues and profitability. The Company's continued efforts to broaden its infrastructure services to a larger regional footprint have been met with success. The outlook for this sector remains strong.
Conclusion
Management believes that balanced and diversified positions in both the infrastructure and energy services sectors are the best path to generating shareholder value. The Company has hired additional management experienced in infrastructure projects to spearhead more civic-related construction and maintenance as there are inherent synergies related to the heavy equipment and crews of both sectors. Enterprise expects to continue distancing itself from its peers by delivering profits in a challenging operating environment. Over the last few quarters, Enterprise's competitive landscape has shrunk with some competing companies choosing to cease operations and exit the industry, while others were forced to file for creditor protection. Our Company will continue to exercise fiscal and operational prudence. Enterprise remains confident in its strategic and operational plans and has a seasoned leadership team to guide the Company. Enterprise is committed to the further expansion of its customer base in central and northern Alberta and strives to provide excellent customer service. Management is excited about Enterprise's future prospects.
(1) EBITDAS = Earnings Before Income Tax, Depreciation, Amortization, and Stock Based Compensation.
Forward Looking Statements
This Company Press Release contains certain "forward-looking" statements and information relating to the Company that are based on the beliefs of the Company's management as well as assumptions made by and information currently available to the Company's management. Such statements reflect the current risks, uncertainties and assumptions related to certain factors including, without limitations, competitive factors, general economic conditions, customer relations, relationships with vendors and strategic partners, the interest rate environment, governmental regulation and supervision, seasonality, technological change, changes in industry practices, and one-time events. Should any one or more of these risks or uncertainties materialize, or should any underlying assumptions prove incorrect, actual results may vary materially from those described herein.
The TSX Exchange has not reviewed and does not accept responsibility for the adequacy or the accuracy of this release.
For more information, please contact
Enterprise Oilfield Group, Inc.
Leonard D. Jaroszuk
President & CEO
(780) 418-4400 or Toll Free: 1-888-303-3361
(780) 418-1941 (FAX)
or
Enterprise Oilfield Group, Inc.
Desmond O'Kell
Vice President, Corp. Development
(780) 418-4400 or Toll Free: 1-888-303-3361
(780) 418-1941 (FAX)
Email: contact@EnterpriseOil.ca
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ST. ALBERT, ALBERTA--(Marketwire - Nov. 14, 2008) - Enterprise Oilfield Group, Inc. ("Enterprise") (TSX:E). Consolidated revenue for the three months ended September 30, 2008 was $8.7 million versus $8.5 million for the comparable period in 2007. The Company had EBITDAS_ of $1.6 million and a net income of $0.6 million for the three month period ended September 30, 2008 versus EBITDAS of $1.4 million and a net income of $0.9 million for the comparable period in 2007.
For the nine month period ended September 30, 2008 consolidated revenue was $28.1 million versus $32.1 million for the comparable period in 2007. The Company had EBITDAS of $4.2 million and a net income of $1.3 million for the nine month period ended September 30, 2008 versus EBITDAS of $4.5 million and a net income of $2.0 million for the comparable period in 2007. The Interim Financial Statements and the Management Discussion and Analysis have been filed and can be viewed at www.SEDAR.com.
Outlook
Management believes the long term outlook for its business segments is positive. Although year to date operational results have been positive in the face of volatile commodity prices, global financial and economic turmoil has added to near-term uncertainty for commodity prices. Weaker commodity prices have however been buffered to a large extent by the devaluation of the Canadian dollar relative to the US dollar. Continuing credit market instability will likely adversely affect the energy industry during 2009. However, Enterprise is positioned well due to the diversity of its business and strong performance of its infrastructure services division. Enterprise has a history of success due to the commitment of its field staff to provide excellent service to its customers regardless of industry conditions, and the commitment of its management to prudent financial management. Consequently, Enterprise will continue to actively pursue opportunities to enter new geographic territories and make strategic acquisitions. While the Company is uncertain of near-term movements in the financial markets, we are well-positioned to continue generating positive growth relative to our peers. Enterprise has positioned itself for improved levels of demand for its services and will continue to pursue opportunistic growth initiatives. Management is very encouraged with its high quality people, modern equipment, and service locations. Enterprise's position in the current market place is exceptional and believes that the remainder of 2008 and into 2009 holds tremendous opportunities for continued revenue growth. From the beginning, the Company's goal has been to increase the level of customer service with the best and safest practices, the newest equipment and the best field staff. And the plan is working with great success. Enterprise has paid down over $2.4 million in long term debt during the current year through its accelerated debt repayment plan, has purchased several pieces of new equipment for the operations and is selling off older equipment in order to maintain a new, efficient and cost effective fleet. Additionally, the Company's expansion into the Peace River area has opened the door to very profitable, year round, infrastructure and facilities maintenance opportunities, smoothing out the cyclical effects of the traditional pipeline industry. As well, Peace River holds tremendous potential for pipeline services work due to all of the heavy oil production in the area.
Energy and Construction Services
Although commodity prices have been volatile in the third and fourth quarters of 2008, field activity levels in our oilfield energy and construction services division remains strong. We continue to look at growth opportunities from both an internal perspective and from an acquisition perspective.
Utility and Directional Drilling Services
A number of the Company's clients have significant backlogs of outstanding maintenance orders to replace miles of underground cable. Significant infrastructure investment from all levels of government and the Company's focus on organic growth within this sector will prove to be meaningful contributor to revenues and profitability. The Company's continued efforts to broaden its infrastructure services to a larger regional footprint have been met with success. The outlook for this sector remains strong.
Conclusion
Management believes that balanced and diversified positions in both the infrastructure and energy services sectors are the best path to generating shareholder value. The Company has hired additional management experienced in infrastructure projects to spearhead more civic-related construction and maintenance as there are inherent synergies related to the heavy equipment and crews of both sectors. Enterprise expects to continue distancing itself from its peers by delivering profits in a challenging operating environment. Over the last few quarters, Enterprise's competitive landscape has shrunk with some competing companies choosing to cease operations and exit the industry, while others were forced to file for creditor protection. Our Company will continue to exercise fiscal and operational prudence. Enterprise remains confident in its strategic and operational plans and has a seasoned leadership team to guide the Company. Enterprise is committed to the further expansion of its customer base in central and northern Alberta and strives to provide excellent customer service. Management is excited about Enterprise's future prospects.
(1) EBITDAS = Earnings Before Income Tax, Depreciation, Amortization, and Stock Based Compensation.
Forward Looking Statements
This Company Press Release contains certain "forward-looking" statements and information relating to the Company that are based on the beliefs of the Company's management as well as assumptions made by and information currently available to the Company's management. Such statements reflect the current risks, uncertainties and assumptions related to certain factors including, without limitations, competitive factors, general economic conditions, customer relations, relationships with vendors and strategic partners, the interest rate environment, governmental regulation and supervision, seasonality, technological change, changes in industry practices, and one-time events. Should any one or more of these risks or uncertainties materialize, or should any underlying assumptions prove incorrect, actual results may vary materially from those described herein.
The TSX Exchange has not reviewed and does not accept responsibility for the adequacy or the accuracy of this release.
For more information, please contact
Enterprise Oilfield Group, Inc.
Leonard D. Jaroszuk
President & CEO
(780) 418-4400 or Toll Free: 1-888-303-3361
(780) 418-1941 (FAX)
or
Enterprise Oilfield Group, Inc.
Desmond O'Kell
Vice President, Corp. Development
(780) 418-4400 or Toll Free: 1-888-303-3361
(780) 418-1941 (FAX)
Email: contact@EnterpriseOil.ca
Website: www.EnterpriseOil.ca Click here to see all recent news from this company Privacy Statement | Terms of Service | Sitemap |© 2008 Marketwire, Incorporated. All rights reserved.
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Zion Oil & Gas Reports Third Quarter Results
CAESAREA, Israel, Nov 14, 2008 (BUSINESS WIRE) -- Zion Oil & Gas, Inc. (NYSE Alternext US: ZN) of Dallas, Texas and Caesarea, Israel, reported today its results for the quarter ended September 30, 2008. The company reported a net loss of $865 thousand or $(0.08) per share for the third quarter of 2008 compared to a net loss of $748 thousand or $(0.07) per share for the same quarter a year earlier. The company has no revenues as it is still an exploration stage company.
On release of the third quarter results, Zion's Chief Executive Officer, Richard Rinberg, commented: "Zion is moving forward with its exploration and drilling plans. We anticipate that the refurbished 2,000 horsepower drilling rig, with which we plan to drill Zion's planned Ma'anit-Rehoboth #2 well 'directionally' to below 18,000 feet, will be shipped into Israel during January 2009. We have almost finished preparing the drill site and expect to commence drilling shortly after the rig arrives on location. Zion's public offering of $10 units continues, in order to raise further funds for our planned multi-well drilling program."
Zion Oil & Gas, a Delaware corporation, explores for oil and gas in Israel in areas located on-shore between Haifa and Tel Aviv. It currently holds two petroleum exploration licenses, the Joseph and the Asher-Menashe Licenses, between Netanya, in the south, and Haifa, in the north, covering a total of approximately 162,000 acres.
The Company's financial statement information is summarized below:
(In thousands, except for per share income)
STATEMENT OF OPERATIONS Three months ended
September 30
2008 2007
Revenues - -
Total Expenses 853 748
Net Income (loss) (853) (748)
Earnings (loss) per common share -- basic (0.08) (0.07)
and diluted
Weighted avg. shares issued and outstanding -- 10,125 10,121
basic and diluted
CASH FLOW DATA Nine months ended
September 30
2008 2007
Net cash (used in) operating activities (3,125) (2,970)
Net cash used in investing activities (1,014) (2,653)
Net cash provided by financing activities - 8,218
BALANCE SHEET DATA September 30, 2008 December 31, 2007
Current Assets 1,392 4,716
Total Assets 5,114 7,421
Total Liabilities 2,110 1,633
Total Shareholders Equity 3,004 5,788
FORWARD LOOKING STATEMENTS: Statements in this press release that are not historical fact, including statements regarding Zion's operations and planned operations and an ability to raise additional capital, are forward-looking statements as defined in the "Safe Harbor" provision of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on assumptions that are subject to significant known and unknown risks, uncertainties and other unpredictable factors, many of which are described in Zion's periodic reports filed with the SEC and are beyond Zion's control. These risks could cause Zion's actual performance to differ materially from the results predicted by these forward-looking statements. Zion can give no assurance that the expectations reflected in these statements will prove to be correct and assumes no responsibility to update these statements.
NOTICE
Zion Oil & Gas, Inc. has filed a registration statement (including a prospectus) with the SEC for the offering to which this communication relates. Before you invest, you should read the prospectus in that registration statement and other documents the issuer has filed with the SEC for more complete information about Zion Oil & Gas and its offering. You may get these documents for free by visiting EDGAR on the SEC website at www.sec.gov. Alternatively, Zion Oil & Gas or its underwriter will arrange to send you the prospectus if you request it by calling toll free 1-888-TX1-ZION (1-888-891-9466). Direct links to the SEC location, or to the documents in PDF, may be found on the home page of Zion Oil & Gas, Inc., at www.zionoil.com
SOURCE: Zion Oil & Gas, Inc.
Zion Oil & Gas, Inc.
Brittany Russell, 214-221-4610
brittany@zionoil.com
Copyright Business Wire 2008
On release of the third quarter results, Zion's Chief Executive Officer, Richard Rinberg, commented: "Zion is moving forward with its exploration and drilling plans. We anticipate that the refurbished 2,000 horsepower drilling rig, with which we plan to drill Zion's planned Ma'anit-Rehoboth #2 well 'directionally' to below 18,000 feet, will be shipped into Israel during January 2009. We have almost finished preparing the drill site and expect to commence drilling shortly after the rig arrives on location. Zion's public offering of $10 units continues, in order to raise further funds for our planned multi-well drilling program."
Zion Oil & Gas, a Delaware corporation, explores for oil and gas in Israel in areas located on-shore between Haifa and Tel Aviv. It currently holds two petroleum exploration licenses, the Joseph and the Asher-Menashe Licenses, between Netanya, in the south, and Haifa, in the north, covering a total of approximately 162,000 acres.
The Company's financial statement information is summarized below:
(In thousands, except for per share income)
STATEMENT OF OPERATIONS Three months ended
September 30
2008 2007
Revenues - -
Total Expenses 853 748
Net Income (loss) (853) (748)
Earnings (loss) per common share -- basic (0.08) (0.07)
and diluted
Weighted avg. shares issued and outstanding -- 10,125 10,121
basic and diluted
CASH FLOW DATA Nine months ended
September 30
2008 2007
Net cash (used in) operating activities (3,125) (2,970)
Net cash used in investing activities (1,014) (2,653)
Net cash provided by financing activities - 8,218
BALANCE SHEET DATA September 30, 2008 December 31, 2007
Current Assets 1,392 4,716
Total Assets 5,114 7,421
Total Liabilities 2,110 1,633
Total Shareholders Equity 3,004 5,788
FORWARD LOOKING STATEMENTS: Statements in this press release that are not historical fact, including statements regarding Zion's operations and planned operations and an ability to raise additional capital, are forward-looking statements as defined in the "Safe Harbor" provision of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on assumptions that are subject to significant known and unknown risks, uncertainties and other unpredictable factors, many of which are described in Zion's periodic reports filed with the SEC and are beyond Zion's control. These risks could cause Zion's actual performance to differ materially from the results predicted by these forward-looking statements. Zion can give no assurance that the expectations reflected in these statements will prove to be correct and assumes no responsibility to update these statements.
NOTICE
Zion Oil & Gas, Inc. has filed a registration statement (including a prospectus) with the SEC for the offering to which this communication relates. Before you invest, you should read the prospectus in that registration statement and other documents the issuer has filed with the SEC for more complete information about Zion Oil & Gas and its offering. You may get these documents for free by visiting EDGAR on the SEC website at www.sec.gov. Alternatively, Zion Oil & Gas or its underwriter will arrange to send you the prospectus if you request it by calling toll free 1-888-TX1-ZION (1-888-891-9466). Direct links to the SEC location, or to the documents in PDF, may be found on the home page of Zion Oil & Gas, Inc., at www.zionoil.com
SOURCE: Zion Oil & Gas, Inc.
Zion Oil & Gas, Inc.
Brittany Russell, 214-221-4610
brittany@zionoil.com
Copyright Business Wire 2008
Saratoga Resources, Inc. Reports Third Quarter 2008 Results
Saratoga Resources, Inc. Reports Third Quarter 2008 Results
HOUSTONTX-SARATOGA-RESOURCES
HOUSTON--(BUSINESS WIRE)--
Saratoga Resources, Inc. (OTCBB: SROE) (the 'Company') today announced fiscal third quarter results for the period ended September 30, 2008.
The company reported net income for the three months ended September 30, 2008 of $6,224,842, or $0.41 per basic share and $0.36 per diluted share, on revenues of $12,550,937 as compared to a net loss of $29,452, or $0.01 per share, on revenues of $16,220 for the three months ended September 30, 2007. For the nine months ended September 30, 2008, the company reported net income of $5,907,084, or $0.48 per basic share and $0.45 per diluted share, on revenues of $12,586,046 as compared to a net loss of $62,520, or $0.01 per share, on revenues of $25,000 during the nine month period in 2007.
Results for the current quarter and year to date period reflect the acquisition by the Company of Harvest Oil & Gas and The Harvest Group in July 2008 and also reflect the effects of Hurricanes Gustav and Ike which temporarily disrupted production and resulted in an estimated $710,000 of damage to the Company south Louisiana properties. Based on daily production volumes at the time, storm-related production delays reduced production during the quarter by an estimated 19.4 Mbls of oil and 113.1 Mmcf of natural gas, resulting in an estimated reduction in revenues for the period of $3,098,600. As of September 30, 2008, production had been restored to substantially 100% of pre-hurricane levels.
'We are pleased with our results for the 2008 third quarter,' Saratoga Chairman and CEO Tom Cooke said. 'We successfully consummated our acquisition of the Harvest companies and have progressed quickly in integrating the Harvest operations and team and in commencement of our planned development of the Harvest properties. We came through two hurricanes in good condition, rapidly bringing operations back to pre-hurricane levels and, despite the lost production and revenues from the hurricanes and the incurrence of costs associated with integrating the Harvest companies, we managed to produce strong operating cash flows and profits for the period.'
About Saratoga Resources
Saratoga Resources, Inc. is an independent exploration and production company headquartered in Austin, Texas with offices in Houston, Texas and Covington, Louisiana. The Company engages in the acquisition and development of oil and gas producing properties that allow the Company to grow through low-risk development and risk-managed exploration. The Company currently operates properties in Texas and Louisiana with principal holdings covering approximately 30,000 net acres located in the state waters offshore Louisiana.
Forward-looking Statements
This press release includes certain estimates and other forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, including statements with respect to actual costs of storm-related damages, actual production volumes following the period, the company's ability to integrate the operations of the Harvest companies as well as anticipated operating and financial performance, growth opportunities, growth rates, potential acquisition opportunities, and other statements of expectation. Words such as 'expects,' 'anticipates,' 'intends,' 'plans,' 'believes,' 'assumes,' 'seeks,' 'estimates,' 'should,' and variations of these words and similar expressions, are intended to identify these forward-looking statements. While we believe these statements are accurate, forward-looking statements are inherently uncertain and we cannot assure you that these expectations will occur and our actual results may be significantly different. These statements by the Company and its management are based on estimates, projections, beliefs and assumptions of management and are not guarantees of future performance. Important factors that could cause actual results to differ from those in the forward-looking statements include the factors described in the 'Risk Factors' section of the company's filings with the Securities and Exchange Commission. The Company disclaims any obligation to update or revise any forward-looking statement based on the occurrence of future events, the receipt of new information, or otherwise.
Saratoga Resources, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three and Nine Months Ended September 30, 2008 and 2007
(Unaudited)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2008 2007 2008 2007
Revenues:
Crude oil, condensate and natural gas liquids $ 10,626,472 $ - $ 10,626,472 $ -
Natural gas 1,924,465 16,220 1,959,574 25,000
Total revenues 12,550,937 16,220 12,586,046 25,000
Operating Expense:
Lease operating expense 3,598,214 13,625 3,602,888 16,740
Depreciation, depletion and amortization 5,194,983 88 5,194,983 263
General and administrative 1,643,854 18,599 1,962,590 32,625
Taxes other than income 1,424,576 - 1,424,576 -
Total operating expenses 11,861,627 32,312 12,185,037 49,628
Operating income (loss) 689,310 (16,092 ) 401,009 (24,628 )
Other income (expenses):
Commodity derivative income, net 12,855,560 - 12,855,560 -
Other income 526,839 - 526,839 -
Interest income 37,945 - 37,945 -
Interest expense (4,645,655 ) (13,360 ) (4,675,112 ) (37,892 )
Total other income (expense) 8,774,689 (13,360 ) 8,745,232 (37,892 )
Net income (loss) before income taxes 9,463,999 (29,452 ) 9,146,241 (62,520 )
Income tax provision:
Current 560,007 - 560,007 -
Deferred 2,679,150 - 2,679,150 -
Net income (loss) $ 6,224,842 $ (29,452 ) $ 5,907,084 $ (62,520 )
Net income (loss) per share:
Basic $ 0.41 $ (0.01 ) $ 0.48 $ (0.01 )
Diluted $ 0.36 $ (0.01 ) $ 0.45 $ (0.01 )
Weighted average number of common shares outstanding:
Basic 15,183,205 7,540,292 12,254,701 7,540,292
Diluted 17,058,426 7,540,292 13,199,147 7,540,292
HOUSTONTX-SARATOGA-RESOURCES
HOUSTON--(BUSINESS WIRE)--
Saratoga Resources, Inc. (OTCBB: SROE) (the 'Company') today announced fiscal third quarter results for the period ended September 30, 2008.
The company reported net income for the three months ended September 30, 2008 of $6,224,842, or $0.41 per basic share and $0.36 per diluted share, on revenues of $12,550,937 as compared to a net loss of $29,452, or $0.01 per share, on revenues of $16,220 for the three months ended September 30, 2007. For the nine months ended September 30, 2008, the company reported net income of $5,907,084, or $0.48 per basic share and $0.45 per diluted share, on revenues of $12,586,046 as compared to a net loss of $62,520, or $0.01 per share, on revenues of $25,000 during the nine month period in 2007.
Results for the current quarter and year to date period reflect the acquisition by the Company of Harvest Oil & Gas and The Harvest Group in July 2008 and also reflect the effects of Hurricanes Gustav and Ike which temporarily disrupted production and resulted in an estimated $710,000 of damage to the Company south Louisiana properties. Based on daily production volumes at the time, storm-related production delays reduced production during the quarter by an estimated 19.4 Mbls of oil and 113.1 Mmcf of natural gas, resulting in an estimated reduction in revenues for the period of $3,098,600. As of September 30, 2008, production had been restored to substantially 100% of pre-hurricane levels.
'We are pleased with our results for the 2008 third quarter,' Saratoga Chairman and CEO Tom Cooke said. 'We successfully consummated our acquisition of the Harvest companies and have progressed quickly in integrating the Harvest operations and team and in commencement of our planned development of the Harvest properties. We came through two hurricanes in good condition, rapidly bringing operations back to pre-hurricane levels and, despite the lost production and revenues from the hurricanes and the incurrence of costs associated with integrating the Harvest companies, we managed to produce strong operating cash flows and profits for the period.'
About Saratoga Resources
Saratoga Resources, Inc. is an independent exploration and production company headquartered in Austin, Texas with offices in Houston, Texas and Covington, Louisiana. The Company engages in the acquisition and development of oil and gas producing properties that allow the Company to grow through low-risk development and risk-managed exploration. The Company currently operates properties in Texas and Louisiana with principal holdings covering approximately 30,000 net acres located in the state waters offshore Louisiana.
Forward-looking Statements
This press release includes certain estimates and other forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, including statements with respect to actual costs of storm-related damages, actual production volumes following the period, the company's ability to integrate the operations of the Harvest companies as well as anticipated operating and financial performance, growth opportunities, growth rates, potential acquisition opportunities, and other statements of expectation. Words such as 'expects,' 'anticipates,' 'intends,' 'plans,' 'believes,' 'assumes,' 'seeks,' 'estimates,' 'should,' and variations of these words and similar expressions, are intended to identify these forward-looking statements. While we believe these statements are accurate, forward-looking statements are inherently uncertain and we cannot assure you that these expectations will occur and our actual results may be significantly different. These statements by the Company and its management are based on estimates, projections, beliefs and assumptions of management and are not guarantees of future performance. Important factors that could cause actual results to differ from those in the forward-looking statements include the factors described in the 'Risk Factors' section of the company's filings with the Securities and Exchange Commission. The Company disclaims any obligation to update or revise any forward-looking statement based on the occurrence of future events, the receipt of new information, or otherwise.
Saratoga Resources, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three and Nine Months Ended September 30, 2008 and 2007
(Unaudited)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2008 2007 2008 2007
Revenues:
Crude oil, condensate and natural gas liquids $ 10,626,472 $ - $ 10,626,472 $ -
Natural gas 1,924,465 16,220 1,959,574 25,000
Total revenues 12,550,937 16,220 12,586,046 25,000
Operating Expense:
Lease operating expense 3,598,214 13,625 3,602,888 16,740
Depreciation, depletion and amortization 5,194,983 88 5,194,983 263
General and administrative 1,643,854 18,599 1,962,590 32,625
Taxes other than income 1,424,576 - 1,424,576 -
Total operating expenses 11,861,627 32,312 12,185,037 49,628
Operating income (loss) 689,310 (16,092 ) 401,009 (24,628 )
Other income (expenses):
Commodity derivative income, net 12,855,560 - 12,855,560 -
Other income 526,839 - 526,839 -
Interest income 37,945 - 37,945 -
Interest expense (4,645,655 ) (13,360 ) (4,675,112 ) (37,892 )
Total other income (expense) 8,774,689 (13,360 ) 8,745,232 (37,892 )
Net income (loss) before income taxes 9,463,999 (29,452 ) 9,146,241 (62,520 )
Income tax provision:
Current 560,007 - 560,007 -
Deferred 2,679,150 - 2,679,150 -
Net income (loss) $ 6,224,842 $ (29,452 ) $ 5,907,084 $ (62,520 )
Net income (loss) per share:
Basic $ 0.41 $ (0.01 ) $ 0.48 $ (0.01 )
Diluted $ 0.36 $ (0.01 ) $ 0.45 $ (0.01 )
Weighted average number of common shares outstanding:
Basic 15,183,205 7,540,292 12,254,701 7,540,292
Diluted 17,058,426 7,540,292 13,199,147 7,540,292
TransAtlantic Petroleum Corp.: Third Quarter 2008 Financial Results and Operations Update
CALGARY, ALBERTA, Nov 14, 2008 (MARKET WIRE via COMTEX) ----TransAtlantic Petroleum Corp. (TSX: TNP) today reported the following (all results in U.S. dollars):
Consolidated net loss for the quarter ended September 30, 2008 was $1.5 million or $0.02 per share, compared to a net loss of $2.2 million or $0.05 per share for the same quarter last year. The Company's consolidated net loss for the third quarter 2008 is primarily composed of general and administrative costs of $719,000 and international expenditures of $858,000. As of September 30, 2008, the Company had cash and cash equivalents of $10.1 million, no debt and working capital of $9.4 million compared to cash and cash equivalents of $657,000, current debt of $4.0 million and working capital of $316,000 at September 30, 2007.
With regard to the development of its international properties, in October 2008 the Company began re-entry operations on one well in Morocco. In September 2008, the Company agreed to farm-in to Sterling Resources Ltd.'s Sud Craiova Block in western Romania. In exchange for a 50% working interest, the Company will drill three 1,000 meter exploration wells on the Sud Craiova license. The Company expects to commence drilling operations in Romania in December 2008. Also in September 2008, the Company agreed to farm-in to Incremental Petroleum Limited's License 4262 in southeastern Turkey. In exchange for a 60% working interest, the Company agreed to drill one exploration well. By drilling this well, the Company will also earn an undivided 75% working interest in four additional licenses covering 1,863 square kilometers (460,321 acres) in southeastern Turkey, subject to government approval. The Company began drilling operations on this well in October 2008. By the end of November 2008, drilling operations will commence to test the Bedinan Ordivician formation (approximately 3,700 meters) on Block 4174 in southeastern Turkey pursuant to a farmout agreement in which the Company retains a 25% working interest. The Company will be carried through testing of the well.
The re-entry operation in Morocco is being performed with a drilling rig supplied by Longe Energy Limited. As announced in the Company's press releases dated August 27 and September 19, 2008, the Company has agreed to acquire Longe Energy Limited in a transaction expected to close in December 2008, subject to regulatory and shareholder approval.
TransAtlantic is engaged in the exploration, development and production of crude oil and natural gas in Morocco, Turkey and Romania. Common shares of TransAtlantic are listed on the Toronto Stock Exchange under the symbol "TNP."
This news release contains statements regarding drilling, plans, plans to raise capital, and plans to acquire a company, as well as other expectations, plans, goals, objectives, assumptions or information about future events, conditions, results of operations or performance that may constitute forward-looking statements or information under applicable securities legislation. Such forward-looking statements or information are based on a number of assumptions which may prove to be incorrect. In addition to other assumptions identified in this news release, assumptions have been made regarding, among other things, the ability of the Company to continue to develop and exploit attractive foreign initiatives.
Although the Company believes that the expectations reflected in such forward-looking statements or information are reasonable, undue reliance should not be placed on forward-looking statements because the Company can give no assurance that such expectations will prove to be correct. Forward-looking statements or information are based on current expectations, estimates and projections that involve a number of risks and uncertainties which could cause actual results to differ materially from those anticipated by the Company and described in the forward-looking statements or information. These risks and uncertainties include but are not limited to the continuing ability of the Company to operate effectively internationally, reliance on current oil and gas laws, rules and regulations, volatility of oil and gas prices, fluctuations in currency and interest rates, imprecision of resource estimates, the results of exploration, development and drilling, imprecision in estimates of future production capacity, changes in environmental and other regulations or the interpretation of such regulations, the ability to obtain necessary regulatory approvals, weather and general economic and business conditions.
The forward-looking statements or information contained in this news release are made as of the date hereof and the Company 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.
NO STOCK EXCHANGE, SECURITIES COMMISSION OR OTHER REGULATORY AUTHORITY HAS APPROVED OR DISAPPROVED THE INFORMATION CONTAINED HEREIN.
SOURCE: TransAtlantic Petroleum Corp.
http://www.tapcor.com Copyright 2008 Market Wire, All rights reserved.
Consolidated net loss for the quarter ended September 30, 2008 was $1.5 million or $0.02 per share, compared to a net loss of $2.2 million or $0.05 per share for the same quarter last year. The Company's consolidated net loss for the third quarter 2008 is primarily composed of general and administrative costs of $719,000 and international expenditures of $858,000. As of September 30, 2008, the Company had cash and cash equivalents of $10.1 million, no debt and working capital of $9.4 million compared to cash and cash equivalents of $657,000, current debt of $4.0 million and working capital of $316,000 at September 30, 2007.
With regard to the development of its international properties, in October 2008 the Company began re-entry operations on one well in Morocco. In September 2008, the Company agreed to farm-in to Sterling Resources Ltd.'s Sud Craiova Block in western Romania. In exchange for a 50% working interest, the Company will drill three 1,000 meter exploration wells on the Sud Craiova license. The Company expects to commence drilling operations in Romania in December 2008. Also in September 2008, the Company agreed to farm-in to Incremental Petroleum Limited's License 4262 in southeastern Turkey. In exchange for a 60% working interest, the Company agreed to drill one exploration well. By drilling this well, the Company will also earn an undivided 75% working interest in four additional licenses covering 1,863 square kilometers (460,321 acres) in southeastern Turkey, subject to government approval. The Company began drilling operations on this well in October 2008. By the end of November 2008, drilling operations will commence to test the Bedinan Ordivician formation (approximately 3,700 meters) on Block 4174 in southeastern Turkey pursuant to a farmout agreement in which the Company retains a 25% working interest. The Company will be carried through testing of the well.
The re-entry operation in Morocco is being performed with a drilling rig supplied by Longe Energy Limited. As announced in the Company's press releases dated August 27 and September 19, 2008, the Company has agreed to acquire Longe Energy Limited in a transaction expected to close in December 2008, subject to regulatory and shareholder approval.
TransAtlantic is engaged in the exploration, development and production of crude oil and natural gas in Morocco, Turkey and Romania. Common shares of TransAtlantic are listed on the Toronto Stock Exchange under the symbol "TNP."
This news release contains statements regarding drilling, plans, plans to raise capital, and plans to acquire a company, as well as other expectations, plans, goals, objectives, assumptions or information about future events, conditions, results of operations or performance that may constitute forward-looking statements or information under applicable securities legislation. Such forward-looking statements or information are based on a number of assumptions which may prove to be incorrect. In addition to other assumptions identified in this news release, assumptions have been made regarding, among other things, the ability of the Company to continue to develop and exploit attractive foreign initiatives.
Although the Company believes that the expectations reflected in such forward-looking statements or information are reasonable, undue reliance should not be placed on forward-looking statements because the Company can give no assurance that such expectations will prove to be correct. Forward-looking statements or information are based on current expectations, estimates and projections that involve a number of risks and uncertainties which could cause actual results to differ materially from those anticipated by the Company and described in the forward-looking statements or information. These risks and uncertainties include but are not limited to the continuing ability of the Company to operate effectively internationally, reliance on current oil and gas laws, rules and regulations, volatility of oil and gas prices, fluctuations in currency and interest rates, imprecision of resource estimates, the results of exploration, development and drilling, imprecision in estimates of future production capacity, changes in environmental and other regulations or the interpretation of such regulations, the ability to obtain necessary regulatory approvals, weather and general economic and business conditions.
The forward-looking statements or information contained in this news release are made as of the date hereof and the Company 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.
NO STOCK EXCHANGE, SECURITIES COMMISSION OR OTHER REGULATORY AUTHORITY HAS APPROVED OR DISAPPROVED THE INFORMATION CONTAINED HEREIN.
SOURCE: TransAtlantic Petroleum Corp.
http://www.tapcor.com Copyright 2008 Market Wire, All rights reserved.
China North East Petroleum Reports Third Quarter 2008 Financial Results
HARBIN, China and NEW YORK, Nov.14 /Xinhua-PRNewswire-FirstCall/ -- China North East Petroleum Holdings Limited (the "Company") (OTC Bulletin Board: CNEH), an oil producing company in Northern China, today announced consolidated financial results for the third quarter ended September 30, 2008.
Third Quarter 2008 Results
Total sales for the third quarter were $19.1 million, a 227% increase compared to $5.8 million over the same period last year. This increase was due to an increase in crude oil production and the average price received for crude oil. Crude oil production for the third quarter doubled to 172,730 barrels from 86,222 barrels for the comparable quarter in the prior year. The increase in production was attributable to refracturing improvements and the implementation of water injection technology which improved efficiency of existing oil wells as well as from the addition of 30 new wells drilled during the third quarter of 2008.
The cost of sales in the third quarter increased by 214% to $9.2 million from $2.9 million for the three months ended September 30, 2007. The increase in cost of sales resulted primarily from the increase in production, depreciation of oil and gas properties, and an increase in the absolute amount of oil surcharges as a result of increased production.
Gross profit in the third quarter increased 241% to $9.9 million from $2.9 million in the same period last year. Third quarter gross margin increased to 52.0% compared to 49.9% in the year ago period.
Operating expenses increased to $978 thousand, or 5.1% of sales, from $291 thousand, or 5.0% of sales, in the third quarter 2007. This is primarily a result of an increase in selling, general and administrative costs. Operating income increased 241% to $8.9 million, or 46.8% of total sales, compared to $2.6 million, or 44.9% of total sales, in the prior year period.
Net income for the third quarter increased 229% to $4.9 million, or $0.24 per diluted share, versus $1.5 million, or $0.08 per diluted share, in the third quarter of 2007.
Mr. Hongjun Wang, President of China North East Petroleum commented, "We were pleased to report another strong quarter of revenue and profit growth and are on plan to report record production increases in 2008. We added 30 new wells during the third quarter bringing our total oil well count to 218 wells through September. Most of these wells have been installed in the Qian'an 112 oilfield where the majority of our wells are located.
During the quarter, we were particularly satisfied to see significant improvements to our financial liquidity. We grew our cash position by 220% sequentially to nearly $8 million and our operating cash flow improved notably as well. Based on the reserves within our four existing oilfields (Qian'an 112, Hetingbao 301, Daan 34, Gudian 31), we believe we have the capability of drilling approximately 675 wells in the coming years and believe the cash flows derived from oil we yield from our existing wells can support much of our well expansion activities in these areas.
Heading into the fourth quarter, we expect to be impacted by lower per- barrel oil prices which will likely impact revenue growth but believe we can sustain our full year net profit projection of $14.5-$15 million and diluted EPS of $0.62-$0.65 due to our strong production rates in the second half of the year as well as from a lower government oil surcharge rate. As oil prices decline, the amount of oil surcharge we are required to pay to the Chinese government declines. During this difficult market environment, we are keeping our operating costs low and continue to implement strict cost controls in all key areas of operation. We are encouraged with our opportunity in the market and continue to focus on expanding our position in China's oil market by adding more wells to our production capacity and seeking additional oil fields to lease and operate. We continue to expect very healthy quarterly revenue, EBITDA and profit growth, even at current oil price levels, and believe the growth plan we have in place will yield strong financial results ahead," concluded Wang.
Nine Month 2008 Results
Sales for the nine month period ended September 30, 2008 increased 273% to $44.1 million compared to $11.8 million for the nine month prior year period. Crude oil production through the first nine months of 2008 increased 143% to 422,788 barrels from 174,280 barrels for the comparable period in the prior year.
Gross profit for the first nine months was $23.6 million, a 292% increase over $6.0 million in the same period last year. Gross margin increased 260 basis points to 53.6% compared to 51.0% in the year ago period.
Operating expenses through the first nine months of 2008 were $2.0 million, or 4.4% of sales, compared to $939 thousand, or 8.0% of sales, in the prior year period. Operating income increased 326% to $21.7 million, or 49.2% of sales, compared to $5.1 million, or 43.1% of sales, in the prior year nine month period.
Net income increased by 223% to $9.8 million, or $0.54 per diluted share, from $3.0 million, or $0.12 per diluted share, for the nine months ended September 30, 2007.
2008 Financial Outlook
The Company expects 2008 crude oil production to total approximately 623,000 barrels and the anticipated number of oil producing wells is expected to total approximately 240 wells by year-end 2008. This is a 133% increase from 267,516 barrels produced in 2007, when the company finished the year with 157 wells.
Based on the Company's results through the first nine months of 2008, its drilling schedule for the remainder of 2008, and the current per-barrel price of oil received from PTR, the Company reiterates comfort with 2008 net income growth of 190%-200% to $14.5-$15.0 million, and fully diluted earnings per share growth of 195%-200% to $0.62-$0.65, compared to the 2007 fiscal year. The fully diluted EPS estimate range is based on a share count of approximately 24.0 million shares and assumes the exercise of all outstanding Company warrants.
Oil Pricing
Please note that CNEH's sole customer, PTR pays the Company a price per barrel which is calculated on a monthly basis, and is based upon a lagged, daily price per barrel average for a relatively heavy, sour grade of crude oil that trades in Singapore. This daily price index is one of a large number of crude oil price indices maintained by Platts, an international commodity and trading company. The grade of oil for which the company is paid typically trades at a discount to West Texas or London Brent crude.
Government Oil Surcharge
Under a regulation introduced in June 2006 by the Chinese government, a surcharge of 20% has been imposed on Chinese oil producers on the portion of the selling price of crude oil which exceeds $40 per barrel and a surcharge of 40% is imposed on the portion of the selling price of crude oil which exceeds $60 per barrel.
ABOUT CHINA NORTH EAST PETROLEUM
China North East Petroleum Holdings Ltd. is engaged in the production of crude oil in Northern China. The Company has a guaranteed arrangement with the Jilin Refinery of PetroChina to sell its produced crude oil for use in the China marketplace. The Company currently operates four oilfields in Northern China.
Statements in this press release which are not historical data are forward-looking statements which involve known and unknown risks, uncertainties or other factors not under the company's control, which may cause actual results, performance or achievements of the company to be materially different from the results, performance or other expectations implied by these forward-looking statements. These factors include, but are not limited to, those detailed in the company's periodic filings with the Securities and Exchange Commission.
(Financial tables on following pages)
CHINA NORTH EAST PETROLEUM HOLDINGS LIMITED AND SUBSIDIARIES
Condensed Consolidated Statements of Operations and Comprehensive Income
(Unaudited) (Unaudited)
Three months ended Nine months ended
September 30 September 30
2008 2007 2008 2007
$ 19,060,007 $ 5,826,506 $44,051,519 $ 11,804,007
NET SALES
COST OF SALES
Production costs 895,155 704,568 2,390,432 1,669,166
Depreciation of
Oil and gas
properties 3,774,327 1,361,732 8,155,321 2,601,561
Amortization of
intangible assets 2,975 2,695 8,743 7,972
Government oil
surcharge 4,480,955 848,315 9,865,655 1,500,902
Total Cost
of Sales 9,153,412 2,917,310 20,420,151 5,779,601
GROSS PROFIT 9,906,595 2,909,196 23,631,368 6,024,406
OPERATING EXPENSES
Selling, general
and administrative
expenses 793,479 194,697 1,339,404 694,103
Professional fees 42,850 26,245 140,180 46,245
Consulting fees 91,926 27,125 319,764 81,375
Depreciation of
fixed assets 50,445 42,609 160,930 117,593
Total
Operating
Expenses 978,700 290,676 1,960,278 939,316
INCOME FROM
OPERATIONS 8,927,895 2,618,520 21,671,090 5,085,090
OTHER INCOME
(EXPENSE)
Other income 809 -- 66,651 --
Other expense (2,000) (3,878) (107,601) (3,878)
Interest expense (296,761) (28,186) (721,805) (51,290)
Amortization of
deferred financing
costs (74,140) -- (172,992) --
Amortization of
discount on
debenture (486,803) -- (1,135,874) --
Imputed interest
expense (16,794) (6,404) (49,535) (139,079)
Interest income 4,238 615 34,204 1,105
Gain on disposal
of fixed assets -- 460 -- 15,217
Recovery of deposit
from a supplier
previously written
off -- 2,515 -- 358,609
Total Other
Income
(Expense),
net (871,451) (34,878) (2,086,952) 180,684
NET INCOME BEFORE TAXES
AND MINORITY INTERESTS 8,056,444 2,583,642 19,584,138 5,265,774
Income tax expense (2,390,961) (885,188) (5,695,498) (1,825,513)
Minority interests (726,566) (198,959) (1,889,457) (399,836)
NET INCOME 4,938,917 1,499,495 11,999,183 3,040,425
OTHER COMPREHENSIVE
INCOME
Foreign currency
translation gain 152,651 235,873 2,020,632 450,633
COMPREHENSIVE INCOME $ 5,091,568 $ 1,735,368 $14,019,815 $ 3,491,058
Net income per share
- basic $ 0.25 $ 0.08 $ 0.62 $ 0.12
- diluted $ 0.24 $ 0.08 $ 0.61 $ 0.12
Weighted average number of shares
outstanding during the period
- basic 19,987,123 19,224,080 19,480,284 25,780,857
- diluted 20,676,711 19,224,080 19,624,216 25,780,857
CHINA NORTH EAST PETROLEUM HOLDINGS LIMITED AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
September December
30, 2008 31, 2007
(Unaudited) (Audited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 7,762,017 $ 74,638
Accounts receivable, net 10,595,234 4,852,633
Prepaid expenses and other
current assets 2,261,853 398,046
Current portion of deferred
financing costs, net 296,557 --
Value added tax recoverable -- 651,905
Total Current Assets 20,915,661 5,977,222
PROPERTY AND EQUIPMENT
Oil and gas properties, net 56,007,998 40,345,008
Fixed assets, net 1,462,703 885,474
Oil and gas properties under
construction 784,851 2,550,058
Total Property and Equipment 58,255,552 43,780,540
LAND USE RIGHTS, NET 39,168 45,076
LONG-TERM DEFERRED FINANCING
COSTS, NET 716,680 --
DEFERRED TAX ASSETS 209,102 --
TOTAL ASSETS $ 80,136,163 $ 49,802,838
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 10,806,009 $ 6,580,930
Current portion of secured
debenture, net of discount 1,399,451 --
Other payables and accrued
liabilities 825,947 1,020,980
Due to related parties 14,588 28,036
Note payable -- 273,444
Income tax and other taxes
payable 7,605,514 2,687,449
Due to a stockholder 783,258 123,105
Total Current Liabilities 21,434,767 10,713,944
LONG-TERM LIABILITIES
Accounts payable 7,783,956 15,467,661
Secured debenture, net of
discount 6,197,571 --
Deferred tax payable -- 543,100
Due to a related party 486,714 3,118,085
Total Long-term Liabilities 14,468,241 19,128,846
TOTAL LIABILITIES 35,903,008 29,842,790
COMMITMENTS AND CONTINGENCIES -- --
MINORITY INTERESTS 3,014,421 1,124,964
STOCKHOLDERS' EQUITY
Common stock ($0.001 par value, 150,000,000
shares authorized, 20,784,080 shares issued
and outstanding as of September 30, 2008;
19,224,080 shares issued and outstanding as
of December 31, 2007) 20,784 19,224
Additional paid-in capital 21,147,979 11,361,579
Deferred stock compensation (1,451,250) (27,125)
Retained earnings
Unappropriated 17,200,090 5,200,907
Appropriated 916,263 916,263
Accumulated other comprehensive
income 3,384,868 1,364,236
Total Stockholders' Equity 41,218,734 18,835,084
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 80,136,163 $ 49,802,838
CHINA NORTH EAST PETROLEUM HOLDINGS LIMITED AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
For the nine months ended September 30, 2008 and 2007 (Unaudited)
2008 2007
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income $ 11,999,183 $ 3,040,425
Adjusted to reconcile
net income to cash
provided by operating
activities:
Depreciation of oil
and gas properties 8,155,321 2,601,561
Depreciation of fixed
assets 160,930 117,593
Amortization of land
use rights 8,743 7,972
Amortization of
deferred financing
costs 172,992 --
Amortization of
discount on debenture 1,135,874 --
Amortization of stock
option compensation 163,402 --
Warrants issued for
services 154,171 --
Minority interests 1,889,457 399,836
Stocks issued for
services 27,125 81,375
Stocks-based
compensation for
service 168,750 --
Imputed interest
expenses 49,535 139,079
Gain on disposal of
fixed assets -- (15,217)
Changes in operating
assets and liabilities
(Increase) decrease in:
Accounts receivable (5,742,601) (2,026,688)
Prepaid expenses and
other current assets (1,863,807) (262,501)
Due from related
parties -- 38,692
Value added tax
recoverable 651,905 (1,200,623)
Deferred financing
costs (1,186,229) --
Deferred tax assets (209,102) --
Increase (decrease)
in:
Accounts payable (3,458,626) 3,781,456
Other payables and
accrued liabilities (195,033) (2,824)
Income tax and other
taxes payable 4,918,065 2,123,234
Deferred tax payable (543,100) 363,774
Net cash provided by
operating activities 16,456,955 9,187,144
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchase of oil and
gas properties (18,300,636) (8,992,444)
Purchase of fixed
assets (668,233) (321,211)
Additions to oil and
gas properties under
construction (649,786) (714,885)
Proceeds on disposal
of fixed assets -- 23,451
Net cash used in
investing activities (19,618,655) (10,005,089)
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from the
issuances of notes
payable -- 798,128
Repayment of note
payable -- (133,021)
Proceeds from
issuance of secured
debenture 15,000,000 --
Repayment of secured
debenture (750,000) --
Decrease in other
loans payable -- (25,612)
Proceeds from
exercise of stock
warrants 12,000 --
Increase in due to a
stockholder 660,153 146,813
(Decrease) increase
in due to related
parties (2,644,819) 1,280,048
Net cash provided by
financing activities 12,277,334 2,066,356
EFFECT OF EXCHANGE RATE ON
CASH (1,428,255) (950,576)
NET INCREASE IN CASH AND
CASH EQUIVALENTS 7,687,379 297,835
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 74,638 13,746
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 7,762,017 $ 311,581
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid during the period
for:
Income tax expense $ 4,932,518 $ 208,315
Interest expense $ 721,805 $ 51,290
SUPPLEMENTAL DISCLOSURE OF NON-CASH OPERATING ACTIVITIES:
During 2008, the Company issued 360,000 shares of common stock valued at $1,620,000 as employee stock bonuses.
SOURCE China North East Petroleum Holdings Ltd.
Third Quarter 2008 Results
Total sales for the third quarter were $19.1 million, a 227% increase compared to $5.8 million over the same period last year. This increase was due to an increase in crude oil production and the average price received for crude oil. Crude oil production for the third quarter doubled to 172,730 barrels from 86,222 barrels for the comparable quarter in the prior year. The increase in production was attributable to refracturing improvements and the implementation of water injection technology which improved efficiency of existing oil wells as well as from the addition of 30 new wells drilled during the third quarter of 2008.
The cost of sales in the third quarter increased by 214% to $9.2 million from $2.9 million for the three months ended September 30, 2007. The increase in cost of sales resulted primarily from the increase in production, depreciation of oil and gas properties, and an increase in the absolute amount of oil surcharges as a result of increased production.
Gross profit in the third quarter increased 241% to $9.9 million from $2.9 million in the same period last year. Third quarter gross margin increased to 52.0% compared to 49.9% in the year ago period.
Operating expenses increased to $978 thousand, or 5.1% of sales, from $291 thousand, or 5.0% of sales, in the third quarter 2007. This is primarily a result of an increase in selling, general and administrative costs. Operating income increased 241% to $8.9 million, or 46.8% of total sales, compared to $2.6 million, or 44.9% of total sales, in the prior year period.
Net income for the third quarter increased 229% to $4.9 million, or $0.24 per diluted share, versus $1.5 million, or $0.08 per diluted share, in the third quarter of 2007.
Mr. Hongjun Wang, President of China North East Petroleum commented, "We were pleased to report another strong quarter of revenue and profit growth and are on plan to report record production increases in 2008. We added 30 new wells during the third quarter bringing our total oil well count to 218 wells through September. Most of these wells have been installed in the Qian'an 112 oilfield where the majority of our wells are located.
During the quarter, we were particularly satisfied to see significant improvements to our financial liquidity. We grew our cash position by 220% sequentially to nearly $8 million and our operating cash flow improved notably as well. Based on the reserves within our four existing oilfields (Qian'an 112, Hetingbao 301, Daan 34, Gudian 31), we believe we have the capability of drilling approximately 675 wells in the coming years and believe the cash flows derived from oil we yield from our existing wells can support much of our well expansion activities in these areas.
Heading into the fourth quarter, we expect to be impacted by lower per- barrel oil prices which will likely impact revenue growth but believe we can sustain our full year net profit projection of $14.5-$15 million and diluted EPS of $0.62-$0.65 due to our strong production rates in the second half of the year as well as from a lower government oil surcharge rate. As oil prices decline, the amount of oil surcharge we are required to pay to the Chinese government declines. During this difficult market environment, we are keeping our operating costs low and continue to implement strict cost controls in all key areas of operation. We are encouraged with our opportunity in the market and continue to focus on expanding our position in China's oil market by adding more wells to our production capacity and seeking additional oil fields to lease and operate. We continue to expect very healthy quarterly revenue, EBITDA and profit growth, even at current oil price levels, and believe the growth plan we have in place will yield strong financial results ahead," concluded Wang.
Nine Month 2008 Results
Sales for the nine month period ended September 30, 2008 increased 273% to $44.1 million compared to $11.8 million for the nine month prior year period. Crude oil production through the first nine months of 2008 increased 143% to 422,788 barrels from 174,280 barrels for the comparable period in the prior year.
Gross profit for the first nine months was $23.6 million, a 292% increase over $6.0 million in the same period last year. Gross margin increased 260 basis points to 53.6% compared to 51.0% in the year ago period.
Operating expenses through the first nine months of 2008 were $2.0 million, or 4.4% of sales, compared to $939 thousand, or 8.0% of sales, in the prior year period. Operating income increased 326% to $21.7 million, or 49.2% of sales, compared to $5.1 million, or 43.1% of sales, in the prior year nine month period.
Net income increased by 223% to $9.8 million, or $0.54 per diluted share, from $3.0 million, or $0.12 per diluted share, for the nine months ended September 30, 2007.
2008 Financial Outlook
The Company expects 2008 crude oil production to total approximately 623,000 barrels and the anticipated number of oil producing wells is expected to total approximately 240 wells by year-end 2008. This is a 133% increase from 267,516 barrels produced in 2007, when the company finished the year with 157 wells.
Based on the Company's results through the first nine months of 2008, its drilling schedule for the remainder of 2008, and the current per-barrel price of oil received from PTR, the Company reiterates comfort with 2008 net income growth of 190%-200% to $14.5-$15.0 million, and fully diluted earnings per share growth of 195%-200% to $0.62-$0.65, compared to the 2007 fiscal year. The fully diluted EPS estimate range is based on a share count of approximately 24.0 million shares and assumes the exercise of all outstanding Company warrants.
Oil Pricing
Please note that CNEH's sole customer, PTR pays the Company a price per barrel which is calculated on a monthly basis, and is based upon a lagged, daily price per barrel average for a relatively heavy, sour grade of crude oil that trades in Singapore. This daily price index is one of a large number of crude oil price indices maintained by Platts, an international commodity and trading company. The grade of oil for which the company is paid typically trades at a discount to West Texas or London Brent crude.
Government Oil Surcharge
Under a regulation introduced in June 2006 by the Chinese government, a surcharge of 20% has been imposed on Chinese oil producers on the portion of the selling price of crude oil which exceeds $40 per barrel and a surcharge of 40% is imposed on the portion of the selling price of crude oil which exceeds $60 per barrel.
ABOUT CHINA NORTH EAST PETROLEUM
China North East Petroleum Holdings Ltd. is engaged in the production of crude oil in Northern China. The Company has a guaranteed arrangement with the Jilin Refinery of PetroChina to sell its produced crude oil for use in the China marketplace. The Company currently operates four oilfields in Northern China.
Statements in this press release which are not historical data are forward-looking statements which involve known and unknown risks, uncertainties or other factors not under the company's control, which may cause actual results, performance or achievements of the company to be materially different from the results, performance or other expectations implied by these forward-looking statements. These factors include, but are not limited to, those detailed in the company's periodic filings with the Securities and Exchange Commission.
(Financial tables on following pages)
CHINA NORTH EAST PETROLEUM HOLDINGS LIMITED AND SUBSIDIARIES
Condensed Consolidated Statements of Operations and Comprehensive Income
(Unaudited) (Unaudited)
Three months ended Nine months ended
September 30 September 30
2008 2007 2008 2007
$ 19,060,007 $ 5,826,506 $44,051,519 $ 11,804,007
NET SALES
COST OF SALES
Production costs 895,155 704,568 2,390,432 1,669,166
Depreciation of
Oil and gas
properties 3,774,327 1,361,732 8,155,321 2,601,561
Amortization of
intangible assets 2,975 2,695 8,743 7,972
Government oil
surcharge 4,480,955 848,315 9,865,655 1,500,902
Total Cost
of Sales 9,153,412 2,917,310 20,420,151 5,779,601
GROSS PROFIT 9,906,595 2,909,196 23,631,368 6,024,406
OPERATING EXPENSES
Selling, general
and administrative
expenses 793,479 194,697 1,339,404 694,103
Professional fees 42,850 26,245 140,180 46,245
Consulting fees 91,926 27,125 319,764 81,375
Depreciation of
fixed assets 50,445 42,609 160,930 117,593
Total
Operating
Expenses 978,700 290,676 1,960,278 939,316
INCOME FROM
OPERATIONS 8,927,895 2,618,520 21,671,090 5,085,090
OTHER INCOME
(EXPENSE)
Other income 809 -- 66,651 --
Other expense (2,000) (3,878) (107,601) (3,878)
Interest expense (296,761) (28,186) (721,805) (51,290)
Amortization of
deferred financing
costs (74,140) -- (172,992) --
Amortization of
discount on
debenture (486,803) -- (1,135,874) --
Imputed interest
expense (16,794) (6,404) (49,535) (139,079)
Interest income 4,238 615 34,204 1,105
Gain on disposal
of fixed assets -- 460 -- 15,217
Recovery of deposit
from a supplier
previously written
off -- 2,515 -- 358,609
Total Other
Income
(Expense),
net (871,451) (34,878) (2,086,952) 180,684
NET INCOME BEFORE TAXES
AND MINORITY INTERESTS 8,056,444 2,583,642 19,584,138 5,265,774
Income tax expense (2,390,961) (885,188) (5,695,498) (1,825,513)
Minority interests (726,566) (198,959) (1,889,457) (399,836)
NET INCOME 4,938,917 1,499,495 11,999,183 3,040,425
OTHER COMPREHENSIVE
INCOME
Foreign currency
translation gain 152,651 235,873 2,020,632 450,633
COMPREHENSIVE INCOME $ 5,091,568 $ 1,735,368 $14,019,815 $ 3,491,058
Net income per share
- basic $ 0.25 $ 0.08 $ 0.62 $ 0.12
- diluted $ 0.24 $ 0.08 $ 0.61 $ 0.12
Weighted average number of shares
outstanding during the period
- basic 19,987,123 19,224,080 19,480,284 25,780,857
- diluted 20,676,711 19,224,080 19,624,216 25,780,857
CHINA NORTH EAST PETROLEUM HOLDINGS LIMITED AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
September December
30, 2008 31, 2007
(Unaudited) (Audited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 7,762,017 $ 74,638
Accounts receivable, net 10,595,234 4,852,633
Prepaid expenses and other
current assets 2,261,853 398,046
Current portion of deferred
financing costs, net 296,557 --
Value added tax recoverable -- 651,905
Total Current Assets 20,915,661 5,977,222
PROPERTY AND EQUIPMENT
Oil and gas properties, net 56,007,998 40,345,008
Fixed assets, net 1,462,703 885,474
Oil and gas properties under
construction 784,851 2,550,058
Total Property and Equipment 58,255,552 43,780,540
LAND USE RIGHTS, NET 39,168 45,076
LONG-TERM DEFERRED FINANCING
COSTS, NET 716,680 --
DEFERRED TAX ASSETS 209,102 --
TOTAL ASSETS $ 80,136,163 $ 49,802,838
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 10,806,009 $ 6,580,930
Current portion of secured
debenture, net of discount 1,399,451 --
Other payables and accrued
liabilities 825,947 1,020,980
Due to related parties 14,588 28,036
Note payable -- 273,444
Income tax and other taxes
payable 7,605,514 2,687,449
Due to a stockholder 783,258 123,105
Total Current Liabilities 21,434,767 10,713,944
LONG-TERM LIABILITIES
Accounts payable 7,783,956 15,467,661
Secured debenture, net of
discount 6,197,571 --
Deferred tax payable -- 543,100
Due to a related party 486,714 3,118,085
Total Long-term Liabilities 14,468,241 19,128,846
TOTAL LIABILITIES 35,903,008 29,842,790
COMMITMENTS AND CONTINGENCIES -- --
MINORITY INTERESTS 3,014,421 1,124,964
STOCKHOLDERS' EQUITY
Common stock ($0.001 par value, 150,000,000
shares authorized, 20,784,080 shares issued
and outstanding as of September 30, 2008;
19,224,080 shares issued and outstanding as
of December 31, 2007) 20,784 19,224
Additional paid-in capital 21,147,979 11,361,579
Deferred stock compensation (1,451,250) (27,125)
Retained earnings
Unappropriated 17,200,090 5,200,907
Appropriated 916,263 916,263
Accumulated other comprehensive
income 3,384,868 1,364,236
Total Stockholders' Equity 41,218,734 18,835,084
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 80,136,163 $ 49,802,838
CHINA NORTH EAST PETROLEUM HOLDINGS LIMITED AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
For the nine months ended September 30, 2008 and 2007 (Unaudited)
2008 2007
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income $ 11,999,183 $ 3,040,425
Adjusted to reconcile
net income to cash
provided by operating
activities:
Depreciation of oil
and gas properties 8,155,321 2,601,561
Depreciation of fixed
assets 160,930 117,593
Amortization of land
use rights 8,743 7,972
Amortization of
deferred financing
costs 172,992 --
Amortization of
discount on debenture 1,135,874 --
Amortization of stock
option compensation 163,402 --
Warrants issued for
services 154,171 --
Minority interests 1,889,457 399,836
Stocks issued for
services 27,125 81,375
Stocks-based
compensation for
service 168,750 --
Imputed interest
expenses 49,535 139,079
Gain on disposal of
fixed assets -- (15,217)
Changes in operating
assets and liabilities
(Increase) decrease in:
Accounts receivable (5,742,601) (2,026,688)
Prepaid expenses and
other current assets (1,863,807) (262,501)
Due from related
parties -- 38,692
Value added tax
recoverable 651,905 (1,200,623)
Deferred financing
costs (1,186,229) --
Deferred tax assets (209,102) --
Increase (decrease)
in:
Accounts payable (3,458,626) 3,781,456
Other payables and
accrued liabilities (195,033) (2,824)
Income tax and other
taxes payable 4,918,065 2,123,234
Deferred tax payable (543,100) 363,774
Net cash provided by
operating activities 16,456,955 9,187,144
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchase of oil and
gas properties (18,300,636) (8,992,444)
Purchase of fixed
assets (668,233) (321,211)
Additions to oil and
gas properties under
construction (649,786) (714,885)
Proceeds on disposal
of fixed assets -- 23,451
Net cash used in
investing activities (19,618,655) (10,005,089)
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from the
issuances of notes
payable -- 798,128
Repayment of note
payable -- (133,021)
Proceeds from
issuance of secured
debenture 15,000,000 --
Repayment of secured
debenture (750,000) --
Decrease in other
loans payable -- (25,612)
Proceeds from
exercise of stock
warrants 12,000 --
Increase in due to a
stockholder 660,153 146,813
(Decrease) increase
in due to related
parties (2,644,819) 1,280,048
Net cash provided by
financing activities 12,277,334 2,066,356
EFFECT OF EXCHANGE RATE ON
CASH (1,428,255) (950,576)
NET INCREASE IN CASH AND
CASH EQUIVALENTS 7,687,379 297,835
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 74,638 13,746
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 7,762,017 $ 311,581
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid during the period
for:
Income tax expense $ 4,932,518 $ 208,315
Interest expense $ 721,805 $ 51,290
SUPPLEMENTAL DISCLOSURE OF NON-CASH OPERATING ACTIVITIES:
During 2008, the Company issued 360,000 shares of common stock valued at $1,620,000 as employee stock bonuses.
SOURCE China North East Petroleum Holdings Ltd.
Infinity Announces Third Quarter and Nine-Month Operating Results
DENVER, Nov. 11 /PRNewswire-FirstCall/ -- Infinity Energy Resources, Inc. (Pink Sheets: IFNY) ("Infinity" or "the Company"), an independent oil and gas exploration and development company, today reported its operating results for the third quarter and first nine months of 2008. The Company has scheduled an investor conference call for 11:00 a.m. EST tomorrow, November 12, 2008 (see details below) to discuss these operating results and other subjects of interest.
Operating Results for Third Quarter and Nine-Month Period
On November 10, 2008, the Company filed its Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2008. It is recommended that interested parties consult the Form 10-Q, along with the Annual Report on Form 10-K for the year ended December 31, 2007, for additional information on the Company and its financial condition. A brief summary of operating results for the respective periods ended September 30, 2008 is provided below.
Revenues for the three months ended September 30, 2008 totaled $1,062,000, compared with $2,460,000 in the third quarter of 2007. The $1.4 million, or 57%, decrease in revenue consisted of an approximate $1.7 million decrease attributable to lower oil and gas production (principally the result of production in 2007 from properties subsequently sold to Forest Oil in January 2008), partially offset by a $0.3 million increase in average prices. The Company reported an operating loss of ($4,101,000) in the most recent quarter, versus an operating loss of ($1,074,000) in the prior-year quarter. The operating loss for the quarter ended September 30, 2008 included a non-cash ceiling write-down of oil and gas properties of $3,500,000. No such ceiling write-down was recorded in the quarter ended September 30, 2007. A net loss of ($4,640,000), or ($0.26) per share, was posted for the third quarter of 2008, compared with net income of $3,223,000, or $0.18 per diluted share, in the prior-year period. Net income in the quarter ended September 30, 2008 included a negative change in derivative value of ($173,000), whereas the quarter ended September 30, 2007 benefitted from a positive change in derivative fair value of $4,842,000.
Revenues for the nine months ended September 30, 2008 totaled $3,548,000, compared with $7,092,000 in the first nine months of 2007. The $3.5 million, or 50%, decrease in revenue consisted of an approximate $4.7 million decrease attributable to lower oil and gas production (principally the result of production in 2007 from properties sold to Forest Oil in January 2008), partially offset by a $1.1 million increase in average prices. The Company reported an operating loss of ($5,471,000) in the most recent nine-month period, versus an operating loss of ($20,534,000) in the prior-year period. The operating loss for the nine months ended September 30, 2008 included a non-cash ceiling write-down of oil and gas properties of $3,500,000, compared with a non-cash ceiling write-down of oil and gas properties totaling $15,750,000 in the nine months ended September 30, 2007. A net loss of ($6,717,000), or ($0.38) per share, was recorded in the first nine months of 2008, compared with a net loss of ($16,616,000), or ($0.93) per share, in the corresponding period of the previous year. The net loss in the nine months ended September 30, 2008 included a negative change in derivative fair value of ($207,000), compared with a negative change in derivative value of ($4,491,000) was recorded in the quarter ended September 30, 2007.
Operating Results for Third Quarter and Nine-Month Period
On November 10, 2008, the Company filed its Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2008. It is recommended that interested parties consult the Form 10-Q, along with the Annual Report on Form 10-K for the year ended December 31, 2007, for additional information on the Company and its financial condition. A brief summary of operating results for the respective periods ended September 30, 2008 is provided below.
Revenues for the three months ended September 30, 2008 totaled $1,062,000, compared with $2,460,000 in the third quarter of 2007. The $1.4 million, or 57%, decrease in revenue consisted of an approximate $1.7 million decrease attributable to lower oil and gas production (principally the result of production in 2007 from properties subsequently sold to Forest Oil in January 2008), partially offset by a $0.3 million increase in average prices. The Company reported an operating loss of ($4,101,000) in the most recent quarter, versus an operating loss of ($1,074,000) in the prior-year quarter. The operating loss for the quarter ended September 30, 2008 included a non-cash ceiling write-down of oil and gas properties of $3,500,000. No such ceiling write-down was recorded in the quarter ended September 30, 2007. A net loss of ($4,640,000), or ($0.26) per share, was posted for the third quarter of 2008, compared with net income of $3,223,000, or $0.18 per diluted share, in the prior-year period. Net income in the quarter ended September 30, 2008 included a negative change in derivative value of ($173,000), whereas the quarter ended September 30, 2007 benefitted from a positive change in derivative fair value of $4,842,000.
Revenues for the nine months ended September 30, 2008 totaled $3,548,000, compared with $7,092,000 in the first nine months of 2007. The $3.5 million, or 50%, decrease in revenue consisted of an approximate $4.7 million decrease attributable to lower oil and gas production (principally the result of production in 2007 from properties sold to Forest Oil in January 2008), partially offset by a $1.1 million increase in average prices. The Company reported an operating loss of ($5,471,000) in the most recent nine-month period, versus an operating loss of ($20,534,000) in the prior-year period. The operating loss for the nine months ended September 30, 2008 included a non-cash ceiling write-down of oil and gas properties of $3,500,000, compared with a non-cash ceiling write-down of oil and gas properties totaling $15,750,000 in the nine months ended September 30, 2007. A net loss of ($6,717,000), or ($0.38) per share, was recorded in the first nine months of 2008, compared with a net loss of ($16,616,000), or ($0.93) per share, in the corresponding period of the previous year. The net loss in the nine months ended September 30, 2008 included a negative change in derivative fair value of ($207,000), compared with a negative change in derivative value of ($4,491,000) was recorded in the quarter ended September 30, 2007.
Forbes Energy Services Reports Record Third Quarter 2008 Results
ALICE, Texas, Nov. 14 /PRNewswire-FirstCall/ -- Forbes Energy Services Ltd. (TSX: FRB) today announced its financial and operating results for the third quarter ended September 30, 2008. Following are highlights for the quarter:
-- Revenues increased to $105.1 million for the third quarter of 2008 from $88.6 million during the second quarter of 2008;
-- EBITDA increased to $28.9 million for the third quarter of 2008 from $25.8 million for the second quarter of 2008;
-- Well servicing rig count increased to 169 as of September 30, 2008 from 149 at June 30, 2008. Six of these rigs were being "rigged up" at September 30, 2008.
-- Fluid transport heavy truck fleet increased to 362 as of September 30, 2008 from 328 at June 30, 2008.
EBITDA is defined as net income before interest, taxes, depreciation and amortization. For a reconciliation of EBITDA to net income, please see the disclosures at the end of this release.
Net income for the three months ended September 30, 2008 was $8.3 million or $0.15 per diluted share. Net loss for the nine months ended September 30, 2008 was $19.9 million, or $0.49 loss per share, which includes a one-time, non-cash $46.4 million charge for deferred income taxes related to the Company's reorganization into a taxable entity that occurred simultaneous with its IPO on May 29, 2008.
John Crisp, Forbes Energy's President and Chief Executive Officer, stated, "We delivered strong results this quarter despite several days of hurricane- related downtime in September. Our utilization remains strong although we do anticipate at least a moderate slowdown in activity during the coming months due to lower commodity prices and a slowing economy. As a result, we have scaled back our capital expenditure budget for the rest of 2008 and 2009. Our capital expenditure plans are very flexible, and will continue to evolve with ever-changing market conditions."
Business Segment Results
Well Servicing
Well servicing revenues increased to $54.3 million during the third quarter of 2008 compared to $47.4 million in the second quarter of 2008. Well servicing segment gross margins in the third quarter of 2008 were $18.9 million, compared to $17.4 million in the second quarter of 2008.
Forbes recorded approximately 107,520 rig hours for the third quarter of 2008, compared to 97,860 in the second quarter of 2008. The Company has increased its well service fleet to 169 rigs at September 30, 2008 from 149 as of June 30, 2008, an increase of 20 rigs during the quarter. Six of these rigs were being "rigged up" as of September 30, 2008 and therefore did not contribute to operating results for the third quarter. Equipment additions for the well servicing segment totaled $28.2 million during the three months ended September 30, 2008.
Fluid Logistics
Fluid logistics revenues in the third quarter of 2008 increased to $50.8 million compared to $41.2 million in the second quarter of 2008. The increase was primarily the result of additional equipment and an expanded customer base. Gross margins for the fluid logistics segment totaled $14.5 million compared to $13.1 million in the previous quarter.
Forbes recorded 313,750 truck hours during the third quarter of 2008 compared to 271,968 for the second quarter of 2008. The Company increased its fluid transport segment heavy truck fleet to 362 as of September 30, 2008 as compared to 328 as of June 30, 2008. Total equipment additions for the fluid logistics segment were $16.0 million for the three months ended September 30, 2008.
Conference Call
Forbes Energy will host a conference call to discuss its third quarter 2008 results on Friday, November 14, 2008, at 9:00 a.m. Eastern Time (8:00 a.m. Central). To access the call, please dial (303) 275-2170 and ask for the "Forbes Energy Services" call at least 10 minutes prior to the start time. The conference call will also be broadcast live via the Internet and can be accessed through the "Corporate" page of Forbes Energy's website, www.forbesenergyservices.com.
A telephonic replay of the conference call will be available until November 21, 2008 and may be accessed by calling (303) 590-3000 and using the pass code 11121428#. A webcast archive will be available at www.forbesenergyservices.com shortly after the call and will be accessible for approximately 30 days. For more information, please contact Donna Washburn at DRG&E at (713) 529-6600 or email at dmw@drg-e.com.
About Forbes Energy
Forbes Energy Services Ltd. is an independent oilfield services contractor that provides a broad range of drilling-related and production-related services to oil and natural gas companies, primarily onshore in Texas, Mississippi, and Mexico.
Forward-Looking Statements and Regulation G Reconciliation
This press release contains "forward-looking statements," as contemplated by the Private Securities Litigation Reform Act of 1995, in which the Company discusses factors it believes may affect its performance in the future. The accuracy of the Company's assumptions, expectations, beliefs and projections depend on events or conditions that change over time and are thus susceptible to change based on actual experience, new developments and known and unknown risks. The Company gives no assurance that the forward-looking statements will prove to be correct and does not undertake any duty to update them. The Company's actual future results might differ from the forward-looking statements made in this press release for a variety of reasons, which include: supply and demand for oilfield services and industry activity levels; potential for excess capacity; competition; and substantial capital requirements. Should one or more of the foregoing risks or uncertainties materialize, or should the Company's underlying assumptions prove incorrect, the Company's actual results may vary materially from those anticipated in its forward-looking statements, and the Company's business, financial condition and results of operations could be materially and adversely affected. Additional factors that you should consider are set forth in detail in the Risk Factors section of the Company's most recent quarterly report on Form 10- Q as well as other filings the Company has made with the Securities and Exchange Commission.
Forbes Energy's financial statements and management's discussion and analysis of financial condition and results of operations can be found in the Company's quarterly report on form 10-Q, which will be filed with the Securities and Exchange Commission and posted on the Company's website.
This press release also contains references to the non-GAAP financial measure of earnings, or net income, before interest, income taxes, depreciation and amortization, or EBITDA. For a reconciliation of EBITDA to net income, please see the table at the end of this release. Management's opinion regarding the usefulness of EBITDA to investors and a description of the ways in which management uses such measures can be found on the "Corporate" page of Forbes Energy's website, www.forbesenergyservices.com.
-Tables to Follow-
Selected Statement of Operations Data
(Unaudited)
Three Months Ended Nine Months Ended
September 30 September 30
Successor- Predecessor- Successor- Predecessor-
Consolidated Combined Consolidated Combined
2008 2007 2008 2007
Revenues
Well servicing $54,343,084 $30,911,863 $141,003,486 $70,815,164
Fluid logistics 50,802,304 24,927,025 123,265,951 73,824,746
Total revenues 105,145,388 55,838,888 264,269,437 144,639,910
Expenses
Well servicing 35,406,964 16,850,316 89,819,779 39,058,114
Fluid logistics 36,281,048 17,065,983 86,739,998 48,473,312
General and
administrative 4,511,599 3,576,245 12,371,906 6,089,872
Depreciation and
amortization 9,157,283 4,065,275 23,792,421 9,996,937
Total expenses 85,356,894 41,557,819 212,724,104 103,618,235
Operating income 19,788,494 14,281,069 51,545,333 41,021,675
Other income (expense)
Interest expense (6,532,810) (2,034,859) (19,091,945) (5,611,829)
Other income (expense) 2,493 33,525 109,060 58,563
Income before taxes 13,258,177 12,279,735 32,562,448 35,468,409
Income Tax Expense 4,928,570 - 52,509,787 -
Net income/(loss) $8,329,607 $12,279,735 $(19,947,339) $35,468,409
Earnings/(loss) per share
of common stock
Basic $0.15 $(0.49)
Diluted 0.15 (0.49)
Weighted average number
of shares outstanding
Basic 54,144,700 40,653,076
Diluted 54,144,700 40,653,076
Selected Balance Sheet Data
(Unaudited)
September 30, December 31,
2008 2007
Cash $10,027,617 $5,209,345
Accounts receivable 79,522,105 42,998,005
Working Capital (154,296) (28,247,697)
Goodwill and other intangibles 72,773,122 -
Total assets 518,594,889 259,995,166
Total debt 215,588,885 111,281,004
Deferred tax liability 47,828,963 500
Members'/Stockholders' equity $167,889,005 $70,459,267
Selected Operating Data
Three Months Ended September 30
2008 2007
Working days 64 61
Rig Hours 107,520 48,759
Truck hours 313,750 182,906
Reconciliation of EBITDA to Net Income
(Unaudited)
(in thousands)
Three Months Ended Nine Months Ended
September 30 September 30
2008 2007 2008 2007
Net Income (loss) $8,330 $12,280 $(19,947) $35,468
Depreciation and amortization 9,157 4,065 23,792 9,997
Interest expense 6,533 2,035 19,092 5,612
Income tax expense 4,929 - 52,510 -
EBITDA $28,949 $18,380 $75,447 $51,077
Contacts: Forbes Energy Services Ltd.
L. Melvin Cooper, SVP & CFO
361-664-0549
DRG&E
Ken Dennard, Managing Partner
Ben Burnham, AVP
713-529-6600
SOURCE Forbes Energy Services Ltd.
-- Revenues increased to $105.1 million for the third quarter of 2008 from $88.6 million during the second quarter of 2008;
-- EBITDA increased to $28.9 million for the third quarter of 2008 from $25.8 million for the second quarter of 2008;
-- Well servicing rig count increased to 169 as of September 30, 2008 from 149 at June 30, 2008. Six of these rigs were being "rigged up" at September 30, 2008.
-- Fluid transport heavy truck fleet increased to 362 as of September 30, 2008 from 328 at June 30, 2008.
EBITDA is defined as net income before interest, taxes, depreciation and amortization. For a reconciliation of EBITDA to net income, please see the disclosures at the end of this release.
Net income for the three months ended September 30, 2008 was $8.3 million or $0.15 per diluted share. Net loss for the nine months ended September 30, 2008 was $19.9 million, or $0.49 loss per share, which includes a one-time, non-cash $46.4 million charge for deferred income taxes related to the Company's reorganization into a taxable entity that occurred simultaneous with its IPO on May 29, 2008.
John Crisp, Forbes Energy's President and Chief Executive Officer, stated, "We delivered strong results this quarter despite several days of hurricane- related downtime in September. Our utilization remains strong although we do anticipate at least a moderate slowdown in activity during the coming months due to lower commodity prices and a slowing economy. As a result, we have scaled back our capital expenditure budget for the rest of 2008 and 2009. Our capital expenditure plans are very flexible, and will continue to evolve with ever-changing market conditions."
Business Segment Results
Well Servicing
Well servicing revenues increased to $54.3 million during the third quarter of 2008 compared to $47.4 million in the second quarter of 2008. Well servicing segment gross margins in the third quarter of 2008 were $18.9 million, compared to $17.4 million in the second quarter of 2008.
Forbes recorded approximately 107,520 rig hours for the third quarter of 2008, compared to 97,860 in the second quarter of 2008. The Company has increased its well service fleet to 169 rigs at September 30, 2008 from 149 as of June 30, 2008, an increase of 20 rigs during the quarter. Six of these rigs were being "rigged up" as of September 30, 2008 and therefore did not contribute to operating results for the third quarter. Equipment additions for the well servicing segment totaled $28.2 million during the three months ended September 30, 2008.
Fluid Logistics
Fluid logistics revenues in the third quarter of 2008 increased to $50.8 million compared to $41.2 million in the second quarter of 2008. The increase was primarily the result of additional equipment and an expanded customer base. Gross margins for the fluid logistics segment totaled $14.5 million compared to $13.1 million in the previous quarter.
Forbes recorded 313,750 truck hours during the third quarter of 2008 compared to 271,968 for the second quarter of 2008. The Company increased its fluid transport segment heavy truck fleet to 362 as of September 30, 2008 as compared to 328 as of June 30, 2008. Total equipment additions for the fluid logistics segment were $16.0 million for the three months ended September 30, 2008.
Conference Call
Forbes Energy will host a conference call to discuss its third quarter 2008 results on Friday, November 14, 2008, at 9:00 a.m. Eastern Time (8:00 a.m. Central). To access the call, please dial (303) 275-2170 and ask for the "Forbes Energy Services" call at least 10 minutes prior to the start time. The conference call will also be broadcast live via the Internet and can be accessed through the "Corporate" page of Forbes Energy's website, www.forbesenergyservices.com.
A telephonic replay of the conference call will be available until November 21, 2008 and may be accessed by calling (303) 590-3000 and using the pass code 11121428#. A webcast archive will be available at www.forbesenergyservices.com shortly after the call and will be accessible for approximately 30 days. For more information, please contact Donna Washburn at DRG&E at (713) 529-6600 or email at dmw@drg-e.com.
About Forbes Energy
Forbes Energy Services Ltd. is an independent oilfield services contractor that provides a broad range of drilling-related and production-related services to oil and natural gas companies, primarily onshore in Texas, Mississippi, and Mexico.
Forward-Looking Statements and Regulation G Reconciliation
This press release contains "forward-looking statements," as contemplated by the Private Securities Litigation Reform Act of 1995, in which the Company discusses factors it believes may affect its performance in the future. The accuracy of the Company's assumptions, expectations, beliefs and projections depend on events or conditions that change over time and are thus susceptible to change based on actual experience, new developments and known and unknown risks. The Company gives no assurance that the forward-looking statements will prove to be correct and does not undertake any duty to update them. The Company's actual future results might differ from the forward-looking statements made in this press release for a variety of reasons, which include: supply and demand for oilfield services and industry activity levels; potential for excess capacity; competition; and substantial capital requirements. Should one or more of the foregoing risks or uncertainties materialize, or should the Company's underlying assumptions prove incorrect, the Company's actual results may vary materially from those anticipated in its forward-looking statements, and the Company's business, financial condition and results of operations could be materially and adversely affected. Additional factors that you should consider are set forth in detail in the Risk Factors section of the Company's most recent quarterly report on Form 10- Q as well as other filings the Company has made with the Securities and Exchange Commission.
Forbes Energy's financial statements and management's discussion and analysis of financial condition and results of operations can be found in the Company's quarterly report on form 10-Q, which will be filed with the Securities and Exchange Commission and posted on the Company's website.
This press release also contains references to the non-GAAP financial measure of earnings, or net income, before interest, income taxes, depreciation and amortization, or EBITDA. For a reconciliation of EBITDA to net income, please see the table at the end of this release. Management's opinion regarding the usefulness of EBITDA to investors and a description of the ways in which management uses such measures can be found on the "Corporate" page of Forbes Energy's website, www.forbesenergyservices.com.
-Tables to Follow-
Selected Statement of Operations Data
(Unaudited)
Three Months Ended Nine Months Ended
September 30 September 30
Successor- Predecessor- Successor- Predecessor-
Consolidated Combined Consolidated Combined
2008 2007 2008 2007
Revenues
Well servicing $54,343,084 $30,911,863 $141,003,486 $70,815,164
Fluid logistics 50,802,304 24,927,025 123,265,951 73,824,746
Total revenues 105,145,388 55,838,888 264,269,437 144,639,910
Expenses
Well servicing 35,406,964 16,850,316 89,819,779 39,058,114
Fluid logistics 36,281,048 17,065,983 86,739,998 48,473,312
General and
administrative 4,511,599 3,576,245 12,371,906 6,089,872
Depreciation and
amortization 9,157,283 4,065,275 23,792,421 9,996,937
Total expenses 85,356,894 41,557,819 212,724,104 103,618,235
Operating income 19,788,494 14,281,069 51,545,333 41,021,675
Other income (expense)
Interest expense (6,532,810) (2,034,859) (19,091,945) (5,611,829)
Other income (expense) 2,493 33,525 109,060 58,563
Income before taxes 13,258,177 12,279,735 32,562,448 35,468,409
Income Tax Expense 4,928,570 - 52,509,787 -
Net income/(loss) $8,329,607 $12,279,735 $(19,947,339) $35,468,409
Earnings/(loss) per share
of common stock
Basic $0.15 $(0.49)
Diluted 0.15 (0.49)
Weighted average number
of shares outstanding
Basic 54,144,700 40,653,076
Diluted 54,144,700 40,653,076
Selected Balance Sheet Data
(Unaudited)
September 30, December 31,
2008 2007
Cash $10,027,617 $5,209,345
Accounts receivable 79,522,105 42,998,005
Working Capital (154,296) (28,247,697)
Goodwill and other intangibles 72,773,122 -
Total assets 518,594,889 259,995,166
Total debt 215,588,885 111,281,004
Deferred tax liability 47,828,963 500
Members'/Stockholders' equity $167,889,005 $70,459,267
Selected Operating Data
Three Months Ended September 30
2008 2007
Working days 64 61
Rig Hours 107,520 48,759
Truck hours 313,750 182,906
Reconciliation of EBITDA to Net Income
(Unaudited)
(in thousands)
Three Months Ended Nine Months Ended
September 30 September 30
2008 2007 2008 2007
Net Income (loss) $8,330 $12,280 $(19,947) $35,468
Depreciation and amortization 9,157 4,065 23,792 9,997
Interest expense 6,533 2,035 19,092 5,612
Income tax expense 4,929 - 52,510 -
EBITDA $28,949 $18,380 $75,447 $51,077
Contacts: Forbes Energy Services Ltd.
L. Melvin Cooper, SVP & CFO
361-664-0549
DRG&E
Ken Dennard, Managing Partner
Ben Burnham, AVP
713-529-6600
SOURCE Forbes Energy Services Ltd.
Fortress Energy Inc. Announces Third Quarter 2008 Financial and Operating Results
CALGARY, ALBERTA, Nov 14, 2008 (Marketwire via COMTEX) -- Fortress Energy Inc. ("Fortress" or the "Company") (TSX:FEI) announces results for the third quarter ended September 30, 2008.
Corporate Highlights
- Production has increased 44% to 1,478 for the third quarter of 2008 compared to the third quarter 2007. There remains additional production capacity which is constrained by the processing limitations of third party production facilities.
- Cash flow increased 82% for the nine months ended September 2008 to $5,844,000 or $0.22 per share compared to $3,210,000 for the nine month period ended September 30, 2007.
- Achieved net income after tax of $1,070,000 or $0.04 per share for the third quarter of 2008.
- Completed a $16.55 million equity financing resulting in net indebtedness being $18,026,000 for the three months ended September 30, 2008.
- Sold forward 55% of production until March 2010 to realize an average price of $8.41 per mcf.
- Drilling two high impact exploration wells prior to year-end.
Commodity Prices
During the third quarter of 2008 the Company experienced a significant decrease in natural gas prices. Well head spot reference price was pricing was $9.63 per mcf in July, 2008 and decreased to $6.18 per mcf in September, 2008. Although we remain bullish over the long term regarding the fundamentals for natural gas pricing we believe that the natural gas prices over the ensuing year will remain relatively weak. All of our product sales trade in reference to US dollars, a falling Canadian dollar helps mitigate the impact of declining natural gas prices as the majority of our costs are in Canadian dollars.
Hedging Program
Considering the uncertainty over economic conditions and the variations of supply and demand balances, Fortress has undertaken the following forward sale transactions to provide better certainty of cash flow through to March 2010.
In fourth quarter of 2007 the Fortress made a decision to sell forward 5,000 GJ/d being 60% of its production at the equivalent price of $7.16 per mcf until October 30, 2008. This has resulted in an average realized price of $7.69 per mcf compared to an average reference spot price of $8.51 per mcf over the nine months ended September 30, 2008. During the third quarter of 2008, Fortress sold forward 5,000 GJ/d at the equivalent price of $9.44 per mcf from November 1, 2008 until March 31, 2009. Also during the third quarter of 2008, Fortress has sold forward 5,100 GJ/d at the equivalent price of $7.92 per mcf from April 1, 2009 until December 31, 2009. Recently the Company sold forward 2,600 GJ/d at the equivalent price of $9.22 per mcf from January 1, 2010 until March 31, 2010.
The effect of these transactions is that an estimated 55% of Fortress's production is sold forward at an average price of $8.41 per mcf until March 31, 2010.
08/09 Winter Capital Program
The Company remains dedicated to our capital budget philosophy, which is to fund capital programs based on available cash flow from operations. Most of the Fortress's operations are conducted during the winter months from December until mid to late March. Fortress's capital expenditures planned for the 2009/10 winter program will amount to approximately $8.5 million which is expected to be in line with the expected 2009 cash flow.
Development Activity - Square Creek and Ladyfern
Fortress will be pursuing two additional development wells to further delineate the Square Creek Bluesky and Notikewin pools. One of the locations will be drilled and completed as a dual zone, optimizing production and reducing capital deployed. Fortress is working with the owner of the Clear Prairie facility to debottleneck the facility and associated infrastructure, thereby allowing an increase in net production from the current rate of 466 boe per day to 650 boe per day and accommodating additional gas volumes expected from the 2008/2009 winter capital program.
Fortress has over 50 development locations on it properties in the Ladyfern area in which it owns between 60% and 100% working interest. The Company is planning on pursuing a number of development drilling locations as part of the 08/09 winter capital program.
Exploration Activity - Square Creek, Clear Prairie and Pine Creek
During the winter 07/08, Fortress constructed a 41 km pipeline and natural gas processing facility to service the Square Creek area along which the Company owns approximately 40,000 net acres of undeveloped land. Fortress has identified a two new multi zone drilling prospects on it lands from 2D it had acquired and 3D seismic it has access to. One well will be drilled prior to year end offsetting the existing Square Creek Blue Sky and Notikewin pools currently producing 5.8mmcf/d. An additional well will be drilled prior to February 15, 2009 targeting Bluesky, Charlie Lake and Notikewin formations. If either of these wells is successful, it will lead to further multi-well development activity in future years.
Fortress will commence drilling a high-impact exploration well in the Pine Creek area on its 100% owned lands in late November 2008. The drilling location is offsetting a well currently producing 5.0 mmcf/d. If successful, this well can be placed on stream in the first quarter of 2009.
Balance Sheet
Fortress ends the quarter with a net debt of $18.0 million and a line of credit from the Alberta Treasure Branches of $25 million. The Company has no requirements to raise additional financing, despite an aggressive 2008/09 capital spending program being undertaken. In September 2008, the Company re-filed its income tax returns for the 1997 to 1999 tax years to claim additional scientific research and experimental development ("SR&ED") credits related to the bio-technology business of its predecessor company. These additional claims could result a refund of approximately $3.4 million to the Company. The Company has not recorded this refund at September 30, 2008.
Operating Costs
Fortress has experience a significant increase in third party charges related to field activities and as a consequence unit operating costs have increased to $14.48/boe for the nine months ended September 30, 2008 compared to $9.21/boe for the nine months ended September 30, 2007. During the third quarter of 2008, Fortress has undertaken a program to reduce operating costs and have acquired rental equipment and will be increasing volumes at Square Creek which will have the effect of allocating the fixed portion of operating costs over a larger volume of production thereby reducing per unit operating costs. The impact of these changes will not be seen until the fourth quarter of 2008 and the first quarter of 2009.
Mr. Bailey said .... "we continue to make progress towards growing production and developing a profitable business even with the uncertainty that surrounds the general market. The forward sale arrangements that are in place through to March 2010 will provide certainty of cash flow and allow us to continue to grow by developing our projects."
Investor Conference Call
Fortress would like to invite interested investors and shareholders to take part in a conference call scheduled for 3:00pm MST (5:00pm EST) Wednesday, November 19th, 2008. To access the call, please dial 416-695-9757 or 866-542-4270 and mention the name Fortress.
Replay of Conference Call
Fortress will also host a replay of the investor call which will be available for a week following the call. For those who are unable to dial in to the scheduled call, the number and passcode below will allow a replay of the call at any time before 11:59 November 27, 2008.
Dial-in number(s): 416-695-5800 / 800-408-3053 Passcode: 3275498
Prompts: Name, Company and Phone Number
FINANCIAL AND OPERATING SUMMARY ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Three months ended September 30, 2008 September 30, 2007 ($000's) $/boe ($000's) $/boe ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Petroleum and natural gas sales 6,591 48.44 2,893 30.67 Realized gain (loss) on commodity contracts (1,047) (7.70) 261 2.77 ---------------------------------------------------------------------------- 5,544 40.74 3,154 33.44 Royalties (1,158) (8.51) (380) (4.03) Operating costs (2,139) (15.72) (973) (10.31) ---------------------------------------------------------------------------- Operating netback (1) 2,247 16.51 1,801 19.10 General and administrative expenses (693) (5.09) (848) (8.99) Net interest expense (361) (2.65) (448) (4.75) ---------------------------------------------------------------------------- Funds from operations (1) 1,193 8.77 505 5.36 Unrealized gain (loss) on commodity contracts 4,323 31.77 (35) (0.37) Depletion, depreciation and accretion (3,805) (27.97) (2,536) (26.87) Stock-based compensation expense (77) (0.57) (150) (1.59) Gain (loss) on sale of pipeline asset 124 0.91 - - ---------------------------------------------------------------------------- Income (loss) before income taxes 1,758 12.91 (2,216) (23.47) Future income tax recovery (expense) (688) (5.06) 613 6.50 ---------------------------------------------------------------------------- Net income (loss) 1,070 7.85 (1,603) (16.97) ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Sales volume (boe/d) 1,478 1,025 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Nine months ended September 30, 2008 September 30, 2007 ($000's) $/boe ($000's) $/boe ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Petroleum and natural gas sales 20,195 52.55 9,499 38.61 Realized gain (loss) on commodity contracts (2,232) (5.81) 358 1.44 ---------------------------------------------------------------------------- 17,963 46.74 9,857 40.05 Royalties (3,421) (8.90) (1,371) (5.57) Operating costs (5,565) (14.48) (2,268) (9.21) ---------------------------------------------------------------------------- Operating netback (1) 8,977 23.36 6,218 25.27 General and administrative expenses (2,084) (5.42) (2,583) (10.50) Net interest expenses (1,049) (2.73) (425) (1.73) ---------------------------------------------------------------------------- Funds from operations (1) 5,844 15.21 3,210 13.04 Unrealized gain (loss) on commodity contracts 1,333 3.47 73 0.30 Depletion, depreciation and accretion (10,627) (27.65) (6,585) (26.75) Stock-based compensation expense (149) (0.39) (429) (1.74) Gain (loss) on sale of pipeline asset (428) (1.11) - - ---------------------------------------------------------------------------- Income (loss) before income taxes (4,027) (10.47) (3,731) (15.15) Future income tax recovery (expense) 898 2.34 1,203 4.89 ---------------------------------------------------------------------------- Net income (loss) (3,129) (8.13) (2,528) (10.26) ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Sales volume (boe/d) 1,403 901 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- (1) Non-GAAP measures. See discussion in the following MD&A.
MANAGEMENT'S DISCUSSION AND ANALYSIS
November 14, 2008
Management's discussion and analysis ("MD&A") should be read in conjunction with the unaudited interim financial statements of Fortress Energy Inc. ("Fortress" or the "Company") as at and for the three and nine months ended September 30, 2008 and the audited consolidated financial statements of Fortress Energy Inc. for the year ended December 31, 2007. The interim financial statements have been prepared in accordance with Canadian Generally Accepted Accounting Principles ("GAAP"). All tabular amounts in the following discussion are in thousands of Canadian dollars unless otherwise noted. Additional information is available on the Company's web site at http://www.fortressenergy.ca/ or under the Company's profile at http://www.sedar.com/.
This MD&A provides management's analysis of Fortress' historical financial and operating performance based on information currently available. Actual results will vary from estimates and variances may be significant. Historical results are not indicative of future performance.
Non-GAAP Measurements
The terms "funds from operations" and "operating netback" used in this MD&A are not recognized measures under GAAP. Management believes that in addition to net income, funds from operations and operating netback are useful supplemental measures as they provide an indication of the results generated by the Company's principal business activities before the consideration of how those activities are financed. Investors are cautioned, however, that these measures should not be construed as alternatives to net income determined in accordance with GAAP, as an indication of the Company's performance.
The Company's method of calculating funds from operations may differ from that of other companies, and, accordingly it may not be comparable to measures used by other companies. The Company calculates funds from operations by taking cash flow from operating activities as determined under GAAP before changes in non-cash operating working capital and abandonment expenditures. The statements of cash flows included in the financial statements present the reconciliation between net income (loss) and funds from operations. A summary of this reconciliation is as follows:
---------------------------------------------------------------------------- ---------------------------------------------------------------------------- ($000's) Three months ended Nine months ended September September September September 30, 2008 30, 2007 30, 2008 30, 2007 ---------------------------------------------------------------------------- Cash provided by (used in) operating activities 1,315 (879) 9,893 2,905 Change in non-cash operating working capital (122) 1,384 (4,130) 305 Abandonment expenditures - - 81 - ---------------------------------------------------------------------------- Funds from operations 1,193 505 5,844 3,210 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------
Funds from operations per share is calculated using the weighted average basic and diluted shares used to calculate earnings per share.
Operating netback is calculated as the average unit sales price less royalties, realized gain (loss) on commodity contracts, and operating expenses. Operating netback represents the cash margin for every barrel of oil equivalent and is a common benchmark used in the oil and gas industry. There is no GAAP measure that is reasonably comparable to operating netback.
BOE Presentation
Natural gas reserves and volumes recorded in thousand cubic feet are converted to barrels of oil equivalent ("boe") on the basis of six thousand cubic feet ("mcf") of gas to one barrel ("bbl") of oil. The term "barrels of oil equivalent" may be misleading, particularly if used in isolation. A boe conversion ratio of 6 mcf to 1 bbl is based on an energy equivalent conversion method primarily applicable at the burner tip and does not represent a value equivalent at the wellhead.
Forward Looking Statements
Statements in this MD&A may contain forward looking information including expectations of future production, components of cash flow and earnings, expected future events and/or financial results that are forward looking in nature and subject to substantial risks and uncertainties. Without limiting the generality of the foregoing, the Company has made materially forward looking statements:
(i) under the heading "Corporate Highlights" and "Share Capital" regarding the use of proceeds of the equity financing for the 2009 capital program and working capital requirements;
(ii) Under the heading "Corporate Highlights" regarding the Pine Creek exploration well and anticipated timing of production; and
(iii) Under the heading "Production" regarding the anticipated resolution of plant capacity issues.
The reader is cautioned that assumptions used in the preparation of such information may prove to be incorrect. The Company cautions the readers that actual performance will be affected by a number of factors, as many may respond to changes in economic and political circumstances throughout the world. Events or circumstances may cause actual results to differ materially from those predicted, a result of numerous known and unknown risks, uncertainties, and other factors, many of which are beyond the control of the Company. These risks include, but are not limited to: the risks associated with the oil and gas industry, commodity prices and exchange rate changes; industry related risks could include, but are not limited to, operational risks in exploration, development and production (applicable to the forward looking statements (i) through (iii) above), delays or changes in plans (applicable to the forward looking statements identified in (i) through (iii) above); risks associated with the uncertainty of reserve estimates, health and safety risks and the uncertainty of estimates and projections of production, costs and expenses. These external factors beyond the Company's control may affect the marketability of oil and natural gas produced, industry conditions including changes in laws and regulations, changes in income tax regulations, increased competition, fluctuations in commodity prices, interest rates, and variations in the Canadian/United States dollar exchange rate. The reader is cautioned not to place undue reliance on this forward looking information.
Statements throughout this MD&A that are not historical facts may be considered "forward looking statements." These forward looking statements sometimes include words to the effect that management believes or expects a stated condition or result. All estimates and statements that describe the Company's objectives, goals or future plans are forward looking statements. Since forward looking statements 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 any number of risks including, but not limited to:
(i) Risks associated with the oil and gas industry and regulatory bodies (e.g. operational risks in exploration, development and production, or changes in royalty rates);
(ii) Delays or changes in plans with respect to exploration or development projects or capital expenditures;
(iii) Uncertainty of estimates and projections relating to recoverable reserves, costs and expenses;
(iv) Health, safety and environmental risks; and
(v) Commodity price and exchange rate fluctuations.
In making its forward looking statements, the Company used among other things, the following material factors or assumptions: the 2009 capital program will proceed as anticipated, drilling will result in a commercial discovery and that parties can reach agreement as to expansion of plant capacity.
Forward looking statements contained herein are made as of the date hereof subject to the requirements of applicable securities legislation and except as otherwise required by law, the Company assumes no obligation to update any forward looking statements, whether as a result of new information, future events or results or otherwise. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, the reader is cautioned not to place undue reliance on forward looking statements.
DESCRIPTION OF THE BUSINESS
Fortress' primary focus is the exploration and development of natural gas reserves in Western Canada. The Company has approximately 93,000 net acres of undeveloped land in the Ladyfern, Velma and Buick Creek areas in NE British Columbia and the Chigwell, Bashaw, Square Creek, Halverson, Mearon and Dahl areas of Alberta.
The Company's strategy is to 'acquire and exploit' properties that are early in their development cycle that offer exploration, appraisal and development drilling opportunities, while maintaining low finding and development costs. Fortress operates most of its production enabling it to have complete control over cost management of its capital programs.
CORPORATE HIGHLIGHTS
The results for the three months ended September 30, 2008 are as follows:
- The Company completed the third closing of a $16.5 million ($14.7 million net of issuance costs) equity financing that was announced in May. The proceeds will be used to fund the Company's 2009 capital program and working capital requirements.
- Fortress announced plans to purchase certain of its common shares by way of a normal course issuer bid through the facilities of the Toronto Stock Exchange (the "TSX"). Fortress may purchase up to a maximum of 1,351,014 common shares, which represents approximately 5% of its current issued and outstanding common shares, during the twelve month term of the issuer bid. As of November 14, 2008, the Company has acquired 45,000 shares at an average price of $0.41 per share.
- Fortress will commence drilling a high-impact exploration well in the Pine Creek area on its 100% owned lands in late November 2008. The drilling location is offsetting a well currently producing 5.0 mmcf/d. If successful, this well will be placed on production in the first quarter of 2009.
DETAILED FINANCIAL ANALYSIS Production ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Three months ended Nine months ended September September September September 30, 2008 30, 2007 30, 2008 30, 2007 ---------------------------------------------------------------------------- Sales volume: Natural gas (mcf/d) 8,733 6,111 8,272 5,302 Oil and NGL's (bbl/d) 23 7 24 17 Total(boe/d) 1,478 1,025 1,403 901 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------
Sales volumes for the three months ended September 30, 2008 were 1,478 boe/d compared to 1,025 boe/d for the three months ended September 30, 2007 - an increase of 453 boe/d or 44%. This increase is due to an asset acquisition in the Ladyfern, Mearon and Velma areas in July 2007, the start up of two wells at Velma in late August 2007, and the start up of 5 wells (2.5 net) at Square Creek in late March 2008. The anticipated sales volume on the start up of the Square Creek area was approximately 540 boe/d compared to an actual sales volume for the third quarter of 448 boe/d - an increase of 49 boe/d from the prior quarter. Capacity constraints at the Clear Prairie facility that processes gas from the Square Creek area have resulted in the Company producing the Square Creek area at much lower rates than anticipated. Two wells remain shut-in and others are flowing at reduced rates while the Company works with the third party plant operator to resolve the capacity issues which are currently expected to be resolved in the first quarter of 2009. The Velma wells are tied into the Ladyfern gathering system and the start-up of these wells increased the line pressures and reduced production volumes at Ladyfern resulting in the need for added compression. In the first quarter of 2008 the Company added compression to restore lost production; however, mechanical issues have resulted in substantial down time and with no significant production gains from this area. These compressor issues are on-going and the Company is continuing to work with the manufacturer to resolve the issues.
Sales volumes for the nine months ended September 30, 2008 were 1,403 boe/d compared to 901 boe/d for the nine months ended September 30, 2007. This increase is due to the asset acquisition in July 2007 and the start up of wells in the Velma and Square Creek areas.
Revenue ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Three months ended Nine months ended September September September September 30, 2008 30, 2007 30, 2008 30, 2007 ---------------------------------------------------------------------------- Petroleum and natural gas sales ($000's) 6,591 2,893 20,195 9,499 ---------------------------------------------------------------------------- Average realized prices: Natural gas ($/mcf) 7.99 5.07 8.66 6.36 Realized gain (loss) on commodity contracts ($/mcf) (1.28) 0.46 (0.97) 0.24 ---------------------------------------------------------------------------- Realized natural gas price ($/mcf) 6.71 5.53 7.69 6.60 Oil and NGLs ($/bbl) 82.29 71.42 86.35 65.29 ---------------------------------------------------------------------------- Total ($/boe) 40.74 33.44 46.74 40.05 ---------------------------------------------------------------------------- Benchmark prices: AECO average price ($/mcf) 7.76 5.12 8.51 6.56 Edmonton par ($/boe) 123.08 80.70 115.95 73.72 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------
Petroleum and natural gas sales for the three months ended September 30, 2008 were $6,591,000 compared to $2,893,000 for three months ended September 30, 2007. This increase is attributable to a 44% increase in sales volumes and a 22% increase in the price of natural gas realized by the Company.
Petroleum and natural gas sales for the nine months ended September 30, 2008 were $20,195,000 compared to $9,499,000 for the nine months ended September 30, 2007. This increase is due to a 56% increase in sales volumes and 17% increase in sales prices realized in the nine months ended September 30, 2008 compared to the nine months ended September 30, 2007.
The average natural gas price realized by the Company for the third quarter of 2008 was $7.99/mcf (net of transportation costs and before realized losses on commodity contracts) compared to the AECO average price of $7.76/mcf. This compares to the average natural gas price realized in the third quarter of 2007 of $5.07/mcf (net of transportation costs and before realized gains on commodity contracts) and an AECO average price of $5.12/mcf. For the nine months ended September 30, 2008, the Company realized an average price for natural gas of $8.66/mcf (net of transportation costs and before realized losses on commodity contracts) compared to an average AECO price of $8.51/mcf. For the nine months ended September 30, 2007, the Company realized an average natural gas price of $6.36/mcf (net of transportation costs and before realized gains on commodity contracts) compared to an AECO average price of $6.56/mcf.
The Company's current production is approximately 99% natural gas and revenues are reliant on North American natural gas prices. Natural gas prices increased in the second quarter based on bullish sentiment including lower than expected LNG (liquefied natural gas) imports to the United States, lower Canadian production, and an extended outage at the Independence Hub in the Gulf of Mexico resulting in a decline in storage levels. Sentiment changed in July and natural gas prices declined from a high of more than $12/mcf based on fears of a global credit crunch and U.S. recession resulting in reduced demand for natural gas.
The Company uses commodity contracts to manage its exposure to fluctuations in the price of natural gas. In the third quarter of 2008, the Company realized a loss on commodity contracts of $1,047,000, or $1.28/mcf, and recorded an unrealized gain on commodity contracts of $4,323,000. For the nine months ended September 30, 2008, the Company realized a loss on commodity contracts of $2,232,000, or $0.97/mcf, and an unrealized gain on commodity contracts of $1,333,000. Approximately 54% of the Company's current production is under contract. Contracts in place as of September 30, 2008 are as follows:
---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Type Period Volume (GJ/d) Fixed Price ($/GJ) ---------------------------------------------------------------------------- Swap January 1, 2008 to October 31, 2008 2,000 6.51 Swap January 1, 2008 to October 31, 2008 3,000 6.505 Swap November 1, 2008 to March 31, 2009 1,250 9.58 Swap November 1, 2008 to March 31, 2009 3,750 8.25 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Royalties ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Three months ended Nine months ended September September September September 30, 2008 30, 2007 30, 2008 30, 2007 ---------------------------------------------------------------------------- Royalties ($000's) 1,158 380 3,421 1,371 $/boe 8.51 4.03 8.90 5.57 Percentage of petroleum and natural gas sales 17.6 12.0 16.9 13.9 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------
Royalties were $1,158,000 for the three months ended September 30, 2008 compared to $380,000 for the three months ended September 30, 2007. This increase reflects increased volumes and natural gas prices, as noted previously. As a percentage of petroleum and natural gas sales (net of transportation costs and before realized gains/losses on commodity contracts), royalties increased to 17.6% in the third quarter of 2008 compared to 12.0% in the third quarter of 2007. This increase is attributed to increased production volumes from the Company's Velma, Mearon and Square Creek properties which record average royalty rates of 20% to 25%. The Company's wells at Ladyfern qualify for the Ultra-Marginal Royalty Program which assesses a reduced royalty rate for low producing wells in the province of British Columbia, resulting in an effective royalty rate of approximately 8% for these wells.
For the nine months ended September 30, 2008, the Company recorded royalties of $3,421,000 compared to $1,371,000 for the nine months ended September 30, 2007. As a percentage of petroleum and natural gas sales (net of transportation costs and before realized gains/losses on commodity contracts), royalties for the first nine months of 2008 were 16.9% compared to 13.9% for the comparable period in 2007. This increase is due to the change in property mix resulting from the asset acquisition in July 2007 and wells brought onto production since that time which have higher royalty rates than the average royalty rate realized by the Company.
Operating Expenses ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Three months ended Nine months ended September September September September 30, 2008 30, 2007 30, 2008 30, 2007 ---------------------------------------------------------------------------- Operating expenses ($000's) 2,139 973 5,565 2,268 $/boe 15.72 10.31 14.48 9.21 ---------------------------------------------------------------------------- Operating expenses ($000's) - adjusted for charges related to prior periods 2,031 973 5,457 2,268 $/boe 14.93 10.31 14.20 9.21 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------
Operating expenses increased in the three months ended September 30, 2008 to $2,139,000 from $973,000 in the third quarter of 2007. This increase is due to higher operating costs being experienced across all fields with the most significant increase from the Square Creek area which recorded operating expenses of approximately $16.41/boe in the third quarter due to higher than anticipated third party plant operating expenses and plant capacity constraints that resulted in lower production levels. In addition, the Company incurred additional compression and processing charges related to its Bashaw field that related to prior periods but were invoiced to Fortress in the third quarter of 2008 and which amounted to $108,000, or $0.79/boe, for the three months ending September 30, 2008.
For the nine months ended September 30, 2008 operating expenses were $5,565,000 compared to $2,268,000 for the nine months ended September 30, 2007. One a per boe basis, operating expenses were $14.48/boe for the nine months ended September 30, 2008 compared to $9.21/boe for the nine months ended September 30, 2007. The largest factors affecting operating expenses are gas processing fees, contract operating fees, chemicals and equipment rentals which account for approximately 75% of the Company's operating expenses.
The Company is taking steps to reduce its operating expenses. On November 1, 2008, the Company acquired the compressor that it had been renting at Square Creek. The Company is also in discussions to acquire other rental equipment to reduce its operating expenses.
General and Administrative Expenses ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Three months ended Nine months ended September 30, September 30, 2008 2007 2008 2007 ---------------------------------------------------------------------------- Gross ($000's) 1,027 1,167 3,056 3,605 Partner recoveries ($000's) (112) - (350) - Capitalized ($000's) (222) (319) (622) (1,022) ---------------------------------------------------------------------------- Net ($000's) 693 848 2,084 2,583 $/boe 5.09 8.99 5.42 10.50 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------
Net general and administrative expenses decreased to $693,000 in the third quarter of 2008 from $848,000 in the third quarter of 2007. Gross general and administrative expenses for the third quarter of 2008 reflect a 12% decrease from the third quarter of 2007 which is mainly attributable to a reduction in consulting fees charged to the Company.
Net general and administrative expenses decreased to $2,084,000 for the nine months ended September 30, 2008 from $2,583,000 for the nine months ended September 30, 2007. General and administrative expenses for the nine months ended September 30, 2008 were $5.42/boe compared to $10.50/boe for the nine months ended September 30, 2007. The decrease on a per boe basis is mainly due to an increase in production volumes in 2008 and reduced reliance on the use of consultants.
Partner recoveries reflect the portion of the Company's general and administrative expenses recoverable from partners related to the Company's capital program.
The Company's policy is to capitalize salaries, stock-based compensation, consulting fees and software costs that are directly attributable to exploration and development activities.
Stock-based Compensation Expense ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Three months ended Nine months ended September 30, September 30, 2008 2007 2008 2007 ---------------------------------------------------------------------------- Stock-based compensation expense ($000's): Stock options 93 150 125 429 Restricted stock units 35 - 155 - ---------------------------------------------------------------------------- 128 150 280 429 Stock-based compensation capitalized to property, plant and equipment (51) - (131) - ---------------------------------------------------------------------------- Net stock-based compensation expense 77 150 149 429 ---------------------------------------------------------------------------- $/boe 0.57 1.59 0.39 1.74 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------
The net stock-based compensation expense for the three months ended September 30, 2008 was $77,000 compared to $150,000 for the three months ended September 30, 2007. The gross stock-based compensation for the three months ended September 30, 2008 was $128,000 of which $93,000 was attributable to stock options and $35,000 to restricted stock units. This compares to $150,000 for the three months ended September 30, 2007 which was attributable to stock options granted in January 2007 that were later cancelled in November 2007. For the three and nine months ended September 30, 2008, the Company capitalized stock-based compensation of $51,000 and $131,000, respectively, directly related to exploration and development activities (three and nine months ended September 30, 2007 - $nil).
The net stock-based compensation expense for the nine months ended September 30, 2008 was $149,000, a decrease of $280,000 from the nine month period ended September 30, 2007. In the nine months ended September 30, 2008, a total of 1,684,633 stock options and 500,000 restricted stock units were granted.
Interest Income and Expense
The Company recorded interest expense of $361,000 for the three months ended September 30, 2008 compared to $448,000 for the three months ended September 30, 2007. The Company recorded interest expense of 1,049,000 for the nine months ended September 30, 2008 compared to net interest expense in the nine months ended September 30, 2007 of $425,000. Interest expense in the first nine months of 2008 reflects interest on the Company's revolving credit facility and interest on unspent flow-through obligations. Net interest income for the nine months ended September 30, 2007 reflects interest earned on commercial paper investments prior to the reorganization of SignalEnergy Inc.
Depletion, Depreciation and Accretion Expense ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Three months ended Nine months ended September 30, September 30, 2008 2007 2008 2007 ---------------------------------------------------------------------------- Depletion and depreciation expense ($000's) 3,761 2,504 10,508 6,503 Accretion of asset retirement obligations ($000's) 44 32 119 82 ---------------------------------------------------------------------------- Total ($000's) 3,805 2,536 10,627 6,585 ---------------------------------------------------------------------------- Depletion and depreciation expense ($/boe) 27.65 26.54 27.34 26.42 Accretion of asset retirement obligations ($/boe) 0.32 0.33 0.31 0.33 ---------------------------------------------------------------------------- Total ($/boe) 27.97 26.87 27.65 26.75 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------
Depletion and depreciation are calculated based on capital expenditures, production rates, and reserves. Depletion and depreciation expense was $3,761,000 for three months ended September 30, 2008 compared to $2,504,000 for the three months ended September 30, 2007. This increase is attributable to increased production volumes in the third quarter of 2008, which have increased 44% from the third quarter of 2007. The depletion and depreciation expense rate for the third quarter of 2008 was $27.65/boe compared to $26.54/boe for the third quarter of 2007. For the nine months ended September 30, 2008, the Company recorded depletion and depreciation expense of $10,508,000 compared to $6,503,000 for the nine months ended September 30, 2007.
Estimated future development costs for proved undeveloped properties included in the calculation of depletion expense at September 30, 2008 decreased to $15,842,000 from $28,600,000 at September 30, 2007. Undeveloped land costs at September 30, 2008 increased to $8,508,000 from $7,371,000 at September 30, 2007 and were excluded from assets subject to depletion. Undeveloped land costs increased with the acquisition of Crown lands at Pine Creek in the third quarter of 2008.
Accretion expense for the three months ended September 30, 2008 was $44,000 compared to $32,000 for the three months ended September 30, 2007. This increase is due to the asset acquisition in the Ladyfern, Mearon and Velma areas in July 2007 and additional wells brought onto production in the first quarter of 2008. For the nine months ended September 30, 2008 the Company recorded accretion expense of $119,000 compared to $82,000 for the nine months ended September 30, 2007. The Company completed the construction of a refrigeration plant and sweetening facilities in the second and third quarters of 2007 and acquired a partners working interest in the Ladyfern North, Mearon North and Velma areas in July 2007, significantly increasing the Company's asset retirement obligation. In addition, the Company added 5 wells (2.5 net) in the first quarter of 2008 including production and gathering facilities at Square Creek which have increased the asset retirement obligation.
Income Tax
The Company recorded a future income tax expense for the three months ended September 30, 2008 of $688,000 compared to a recovery of future income taxes of $613,000 for the three months ended September 30, 2007. For the nine months ended September 30, 2008, the Company recorded a recovery of future income taxes of $898,000 compared to $1,203,000 for the first nine months of 2007. Future income tax reflects the difference between the underlying tax value and carrying value of the Company's assets and liabilities. The change in future income taxes reflects capital costs incurred since the third quarter of 2007. Based on current commodity prices and planned capital expenditures, the Company does not expect to be cash taxable in 2008.
The income tax effect of a $5 million flow-through share offering completed in December 2007 was recorded in the first quarter of 2008 with the filing of the renouncement documents to the taxation authorities. The effective date of the renouncement was December 31, 2007 with all expenditures to be incurred by December 31, 2008. As of September 30, 2008, the Company has incurred approximately $1 million of eligible expenditures.
The estimated tax pools of the Company at September 30, 2008 are as follows:
---------------------------------------------------------------------------- ---------------------------------------------------------------------------- ($000's) ---------------------------------------------------------------------------- Canadian Oil and Gas Property Expenses 16,406 Canadian Development Expenses 34,009 Canadian Exploration Expenses 11,383 Undepreciated Capital Cost 30,281 Share Issuance Costs 2,083 Investment Tax Credits 2,367 ---------------------------------------------------------------------------- 96,529 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Net Income (Loss) ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Three months ended Nine months ended ($000's except per share and per boe September 30, September 30, amounts) 2008 2007 2008 2007 ---------------------------------------------------------------------------- Net income (loss) 1,070 (1,603) (3,129) (2,528) Net income (loss) per share - basic and diluted 0.04 (0.12) (0.16) (0.19) Net income (loss) per boe 7.85 (16.97) (8.13) (10.26) ---------------------------------------------------------------------------- ----------------------------------------------------------------------------
The Company recorded net income of $1,070,000 for the three months ended September 30, 2008 compared to a net loss of $1,603,000 for the three months ended September 30, 2007. This translates into a basic and diluted net income per share of $0.04 for the three months ended September 30, 2008 compared to a basic and diluted net loss per share of $0.12 for the three months ended September 30, 2007. The change in net income in the three months ended September 30, 2008 is attributable to a net gain on commodity contracts of $3,276,000.
The net loss for the nine months ended September 30, 2008 was $3,129,000 compared to $2,528,000 for the nine months ended September 30, 2007. For the nine months ended September 30, 2008, the Company recorded a net loss on commodity contracts of 899,000 and a loss on the sale of a pipeline asset of $428,000.
Funds from Operations ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- ($000's except share and per boe Three months ended Nine months ended amounts) September 30, September 30, 2008 2007 2008 2007 ---------------------------------------------------------------------------- Funds from operations 1,193 505 5,844 3,210 Funds from operations ($/boe) 8.77 5.36 15.21 13.04 Funds from operations per share - basic and diluted 0.04 0.04 0.29 0.24 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------
Funds from operations for third quarter of 2008 were $1,193,000 compared to $505,000 for the third quarter of 2007. This increase is attributed to increased production volumes and realized prices. The operating netback realized by the Company for the three months ended September 30, 2008 decreased from $19.10/boe in the third quarter of 2007 to $16.51/boe due to an increase in realized losses on commodity contracts.
Funds from operations for the nine months ended September 30, 2008 increased to $5,844,000 from $3,210,000 for the nine months ended September 30, 2007. The increase is due to increased production and prices realized by the Company. The Company's operating netback for the nine months ended September 30, 2008 decreased by $1.91/boe compared to the nine months ended September 30, 2007 mainly due to an increase in operating expenses.
Capital Expenditures ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Three months ended Nine months ended September 30, September 30, ($000's) 2008 2007 2008 2007 ---------------------------------------------------------------------------- Land and seismic 1,578 117 2,161 194 Drilling and completions 48 553 5,089 10,126 Equipment and facilities (194) 4,813 15,801 9,107 Capitalized overhead costs 273 319 753 1,022 Abandonment expenditures - - 81 - Other 32 - 65 1,166 Acquisitions - 12,586 - 12,943 Dispositions - - (8,150) - ---------------------------------------------------------------------------- 1,737 18,388 15,800 34,558 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------
The total capital expenditures for the three months ended September 30, 2008 were $1,737,000 compared to additions of $18,388,000 for the three months ended September 30, 2007. The most significant additions in the three months ended September 30, 2008 were the acquisition of the Pine Creek lands and trade seismic data over the Company's Halverson lands. In the third quarter of 2007 the Company completed an asset acquisition in the Ladyfern, Mearon and Velma areas for proceeds of $12,535,000, completed the construction of a refrigeration unit at Ladyfern and an 11 km pipeline at Velma to tie two wells to production facilities. The total capital expenditures for the nine months ended September 30, 2008 were $15,800,000 (net of dispositions) compared to $34,588,000 for the nine months ended September 30, 2007. The capital program for the first quarter of 2008 was focused on the follow-up to the discovery of the Bluesky and Notikewin gas pools from the 2007 winter drilling program and compression and optimization at Ladyfern. Fortress drilled two additional wells in the Bluesky formation and three wells in the Notikewin to better delineate the two structures. The Company also constructed a 10 mmcf/d gathering and production facility to service eight wells it has in the Square Creek area.
The Company completed the construction of a 41 km pipeline to deliver gas to the Clear Prairie gas plant to service the Square Creek area, the corridor along which it owns 41,800 net acres of land opening up a significant exploration area for the Company. The pipeline was completed and commissioned in March 2008 for a total cost of $8,578,000 and was sold to a mid-stream service provider in April for proceeds of $8,150,000 resulting in a loss on the sale of the pipeline asset of $428,000.
Share Capital ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Three months ended Nine months ended September 30, September 30, 2008 2007 2008 2007 ---------------------------------------------------------------------------- Weighted average common shares outstanding - basic 26,964,795 13,266,288 19,937,734 13,263,711 Weighted average common shares outstanding - diluted 27,004,567 13,266,288 19,937,734 13,263,711 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Outstanding securities ---------------------------------------------------------------------------- Common shares 27,020,288 Warrants 5,516,700 Stock options 2,081,635 ---------------------------------------------------------------------------- Total outstanding securities at September 30, 2008 34,618,623 Common shares acquired under normal course issuer bid (45,000) ---------------------------------------------------------------------------- Total outstanding securities at November 14, 2008 34,573,623 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------
On December 21, 2007, the Company closed a public offering of 2,703,000 flow-through common shares at $1.85 per share for total gross proceeds of $5,000,550 ($4,395,000 net of share issuance costs). The full expenditure commitment was renounced to subscribers effective December 31, 2007 with all expenditures to be incurred by December 31, 2008. As of September 30, 2008, the Company has incurred eligible expenditures of approximately $1,000,000.
The Company closed a public offering of 11,033,400 units ("Units") on June 20, 2008, June 27, 2008 and July 4, 2008, for gross proceeds of $16,550,100 ($14,737,000 net of issuance costs). Each Unit consists of one common share of the Company and one-half of one common share purchase warrant. The warrants are exercisable on or before September 20, 2011 subject to the right of the Company to accelerate the expiry time on not less than 30 days notice to the warrant holders, if the aggregate sales price of the common shares during a period of 20 consecutive days divided by the aggregate number of common shares sold is at least $3.00. Each whole warrant entitles the holder to purchase one common share an at exercise price of $2.00. The proceeds of the financing will be used to fund the Company's 2009 capital program and working capital requirements.
Liquidity and Capital Resources
The Company has a $25,000,000 revolving, demand credit facility with its bank (the "Bank"), bearing interest at the Bank's prime lending rate plus 0.25% (effective interest rate for the three and nine months ended September 30, 2008 of 5.00% and 5.25% respectively, and for the three and nine months ended September 30, 2007 - 6.5%) and collateralized by an interest over all present and after acquired property of the Company. The authorized limit is subject to annual review and re-determination of the Company's borrowing base by the Bank. The Company has a $1,000,000 letter of credit which reduces its borrowing capacity on the revolving operating loan.
The credit facility has a covenant that requires the Company to maintain its working capital ratio at 1:1 or greater while the credit facility is outstanding. The working capital ratio is defined as current assets plus the unutilized portion of the credit facility divided by current liabilities less the balance drawn against the credit facility. The Company is in compliance with the working capital covenant at September 30, 2008.
Cash provided by operating activities was $1,315,000 for the third quarter of 2008 compared to cash used in operating activities of $879,000 for the third quarter of 2007. This increase is due to an increase in non-cash working capital balances and funds from operations in the three months ended September 30, 2008. Cash provided by operating activities for the nine months ended September 30, 2008 was $9,893,000 compared to $2,905,000 for the nine months ended September 30, 2007. This increase is due to increased funds from operations and changes in non-cash working capital balances. Funds from operations were $5,844,000 for the nine months ended September 30, 2008 compared to $3,210,000 for the nine months ended September 30, 2007.
Cash provided by financing activities for the three months ended September 30, 2008 was $3,363,000 compared to $17,630,000 for the three months ended September 30, 2007. On July 4, 2008, the Company completed the third closing of a $16,550,100 financing that was announced in May. The net proceeds received on the July 4 closing was $2,024,000. Cash provided by financing activities for the three months ended September 30, 2007 consisted of an increase in the Company's operating loan resulting from the asset acquisition completed in July 2007. Cash provided by financing activities for the nine months ended September 30, 2008 was $11,968,000 compared to cash used in financing activities for the nine months ended September 30, 2007 of $6,216,000. In the first quarter of 2007, the Company redeemed 23,076,923 common shares as part of its reorganization of Signal for $30,471,000 and in July secured a $24,000,000 bank operating loan.
Cash used in investing activities for the third quarter of 2008 was $4,680,000 compared to $16,758,000 for the third quarter of 2007. The Company's capital expenditures were $1,737,000 in the third quarter of 2008 compared to $18,388,000 in the third quarter of 2007. Cash used in investing activities for the nine months ended September 30, 2008 was $21,869,000 compared to $33,392,000 for the nine months ended September 30, 2007. In the second quarter of 2008, the Company recorded the sale of a 41 km pipeline connecting the Square Creek area to processing facilities for $8,150,000.
Related Party Transactions
(a) In the three and nine months ended September 30, 2008, the Company was charged $218,000 and $794,000 respectively (three and nine months ended September 30, 2007 - $81,000), in legal fees by a law firm where a director of the Company is a partner, of which $123,000 is included in accounts payable and accrued liabilities at September 30, 2008.
(b) In the three and nine months ended September 30, 2008, the Company was charged $25,000 (three and nine)
For full details for FEI
Corporate Highlights
- Production has increased 44% to 1,478 for the third quarter of 2008 compared to the third quarter 2007. There remains additional production capacity which is constrained by the processing limitations of third party production facilities.
- Cash flow increased 82% for the nine months ended September 2008 to $5,844,000 or $0.22 per share compared to $3,210,000 for the nine month period ended September 30, 2007.
- Achieved net income after tax of $1,070,000 or $0.04 per share for the third quarter of 2008.
- Completed a $16.55 million equity financing resulting in net indebtedness being $18,026,000 for the three months ended September 30, 2008.
- Sold forward 55% of production until March 2010 to realize an average price of $8.41 per mcf.
- Drilling two high impact exploration wells prior to year-end.
Commodity Prices
During the third quarter of 2008 the Company experienced a significant decrease in natural gas prices. Well head spot reference price was pricing was $9.63 per mcf in July, 2008 and decreased to $6.18 per mcf in September, 2008. Although we remain bullish over the long term regarding the fundamentals for natural gas pricing we believe that the natural gas prices over the ensuing year will remain relatively weak. All of our product sales trade in reference to US dollars, a falling Canadian dollar helps mitigate the impact of declining natural gas prices as the majority of our costs are in Canadian dollars.
Hedging Program
Considering the uncertainty over economic conditions and the variations of supply and demand balances, Fortress has undertaken the following forward sale transactions to provide better certainty of cash flow through to March 2010.
In fourth quarter of 2007 the Fortress made a decision to sell forward 5,000 GJ/d being 60% of its production at the equivalent price of $7.16 per mcf until October 30, 2008. This has resulted in an average realized price of $7.69 per mcf compared to an average reference spot price of $8.51 per mcf over the nine months ended September 30, 2008. During the third quarter of 2008, Fortress sold forward 5,000 GJ/d at the equivalent price of $9.44 per mcf from November 1, 2008 until March 31, 2009. Also during the third quarter of 2008, Fortress has sold forward 5,100 GJ/d at the equivalent price of $7.92 per mcf from April 1, 2009 until December 31, 2009. Recently the Company sold forward 2,600 GJ/d at the equivalent price of $9.22 per mcf from January 1, 2010 until March 31, 2010.
The effect of these transactions is that an estimated 55% of Fortress's production is sold forward at an average price of $8.41 per mcf until March 31, 2010.
08/09 Winter Capital Program
The Company remains dedicated to our capital budget philosophy, which is to fund capital programs based on available cash flow from operations. Most of the Fortress's operations are conducted during the winter months from December until mid to late March. Fortress's capital expenditures planned for the 2009/10 winter program will amount to approximately $8.5 million which is expected to be in line with the expected 2009 cash flow.
Development Activity - Square Creek and Ladyfern
Fortress will be pursuing two additional development wells to further delineate the Square Creek Bluesky and Notikewin pools. One of the locations will be drilled and completed as a dual zone, optimizing production and reducing capital deployed. Fortress is working with the owner of the Clear Prairie facility to debottleneck the facility and associated infrastructure, thereby allowing an increase in net production from the current rate of 466 boe per day to 650 boe per day and accommodating additional gas volumes expected from the 2008/2009 winter capital program.
Fortress has over 50 development locations on it properties in the Ladyfern area in which it owns between 60% and 100% working interest. The Company is planning on pursuing a number of development drilling locations as part of the 08/09 winter capital program.
Exploration Activity - Square Creek, Clear Prairie and Pine Creek
During the winter 07/08, Fortress constructed a 41 km pipeline and natural gas processing facility to service the Square Creek area along which the Company owns approximately 40,000 net acres of undeveloped land. Fortress has identified a two new multi zone drilling prospects on it lands from 2D it had acquired and 3D seismic it has access to. One well will be drilled prior to year end offsetting the existing Square Creek Blue Sky and Notikewin pools currently producing 5.8mmcf/d. An additional well will be drilled prior to February 15, 2009 targeting Bluesky, Charlie Lake and Notikewin formations. If either of these wells is successful, it will lead to further multi-well development activity in future years.
Fortress will commence drilling a high-impact exploration well in the Pine Creek area on its 100% owned lands in late November 2008. The drilling location is offsetting a well currently producing 5.0 mmcf/d. If successful, this well can be placed on stream in the first quarter of 2009.
Balance Sheet
Fortress ends the quarter with a net debt of $18.0 million and a line of credit from the Alberta Treasure Branches of $25 million. The Company has no requirements to raise additional financing, despite an aggressive 2008/09 capital spending program being undertaken. In September 2008, the Company re-filed its income tax returns for the 1997 to 1999 tax years to claim additional scientific research and experimental development ("SR&ED") credits related to the bio-technology business of its predecessor company. These additional claims could result a refund of approximately $3.4 million to the Company. The Company has not recorded this refund at September 30, 2008.
Operating Costs
Fortress has experience a significant increase in third party charges related to field activities and as a consequence unit operating costs have increased to $14.48/boe for the nine months ended September 30, 2008 compared to $9.21/boe for the nine months ended September 30, 2007. During the third quarter of 2008, Fortress has undertaken a program to reduce operating costs and have acquired rental equipment and will be increasing volumes at Square Creek which will have the effect of allocating the fixed portion of operating costs over a larger volume of production thereby reducing per unit operating costs. The impact of these changes will not be seen until the fourth quarter of 2008 and the first quarter of 2009.
Mr. Bailey said .... "we continue to make progress towards growing production and developing a profitable business even with the uncertainty that surrounds the general market. The forward sale arrangements that are in place through to March 2010 will provide certainty of cash flow and allow us to continue to grow by developing our projects."
Investor Conference Call
Fortress would like to invite interested investors and shareholders to take part in a conference call scheduled for 3:00pm MST (5:00pm EST) Wednesday, November 19th, 2008. To access the call, please dial 416-695-9757 or 866-542-4270 and mention the name Fortress.
Replay of Conference Call
Fortress will also host a replay of the investor call which will be available for a week following the call. For those who are unable to dial in to the scheduled call, the number and passcode below will allow a replay of the call at any time before 11:59 November 27, 2008.
Dial-in number(s): 416-695-5800 / 800-408-3053 Passcode: 3275498
Prompts: Name, Company and Phone Number
FINANCIAL AND OPERATING SUMMARY ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Three months ended September 30, 2008 September 30, 2007 ($000's) $/boe ($000's) $/boe ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Petroleum and natural gas sales 6,591 48.44 2,893 30.67 Realized gain (loss) on commodity contracts (1,047) (7.70) 261 2.77 ---------------------------------------------------------------------------- 5,544 40.74 3,154 33.44 Royalties (1,158) (8.51) (380) (4.03) Operating costs (2,139) (15.72) (973) (10.31) ---------------------------------------------------------------------------- Operating netback (1) 2,247 16.51 1,801 19.10 General and administrative expenses (693) (5.09) (848) (8.99) Net interest expense (361) (2.65) (448) (4.75) ---------------------------------------------------------------------------- Funds from operations (1) 1,193 8.77 505 5.36 Unrealized gain (loss) on commodity contracts 4,323 31.77 (35) (0.37) Depletion, depreciation and accretion (3,805) (27.97) (2,536) (26.87) Stock-based compensation expense (77) (0.57) (150) (1.59) Gain (loss) on sale of pipeline asset 124 0.91 - - ---------------------------------------------------------------------------- Income (loss) before income taxes 1,758 12.91 (2,216) (23.47) Future income tax recovery (expense) (688) (5.06) 613 6.50 ---------------------------------------------------------------------------- Net income (loss) 1,070 7.85 (1,603) (16.97) ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Sales volume (boe/d) 1,478 1,025 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Nine months ended September 30, 2008 September 30, 2007 ($000's) $/boe ($000's) $/boe ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Petroleum and natural gas sales 20,195 52.55 9,499 38.61 Realized gain (loss) on commodity contracts (2,232) (5.81) 358 1.44 ---------------------------------------------------------------------------- 17,963 46.74 9,857 40.05 Royalties (3,421) (8.90) (1,371) (5.57) Operating costs (5,565) (14.48) (2,268) (9.21) ---------------------------------------------------------------------------- Operating netback (1) 8,977 23.36 6,218 25.27 General and administrative expenses (2,084) (5.42) (2,583) (10.50) Net interest expenses (1,049) (2.73) (425) (1.73) ---------------------------------------------------------------------------- Funds from operations (1) 5,844 15.21 3,210 13.04 Unrealized gain (loss) on commodity contracts 1,333 3.47 73 0.30 Depletion, depreciation and accretion (10,627) (27.65) (6,585) (26.75) Stock-based compensation expense (149) (0.39) (429) (1.74) Gain (loss) on sale of pipeline asset (428) (1.11) - - ---------------------------------------------------------------------------- Income (loss) before income taxes (4,027) (10.47) (3,731) (15.15) Future income tax recovery (expense) 898 2.34 1,203 4.89 ---------------------------------------------------------------------------- Net income (loss) (3,129) (8.13) (2,528) (10.26) ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Sales volume (boe/d) 1,403 901 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- (1) Non-GAAP measures. See discussion in the following MD&A.
MANAGEMENT'S DISCUSSION AND ANALYSIS
November 14, 2008
Management's discussion and analysis ("MD&A") should be read in conjunction with the unaudited interim financial statements of Fortress Energy Inc. ("Fortress" or the "Company") as at and for the three and nine months ended September 30, 2008 and the audited consolidated financial statements of Fortress Energy Inc. for the year ended December 31, 2007. The interim financial statements have been prepared in accordance with Canadian Generally Accepted Accounting Principles ("GAAP"). All tabular amounts in the following discussion are in thousands of Canadian dollars unless otherwise noted. Additional information is available on the Company's web site at http://www.fortressenergy.ca/ or under the Company's profile at http://www.sedar.com/.
This MD&A provides management's analysis of Fortress' historical financial and operating performance based on information currently available. Actual results will vary from estimates and variances may be significant. Historical results are not indicative of future performance.
Non-GAAP Measurements
The terms "funds from operations" and "operating netback" used in this MD&A are not recognized measures under GAAP. Management believes that in addition to net income, funds from operations and operating netback are useful supplemental measures as they provide an indication of the results generated by the Company's principal business activities before the consideration of how those activities are financed. Investors are cautioned, however, that these measures should not be construed as alternatives to net income determined in accordance with GAAP, as an indication of the Company's performance.
The Company's method of calculating funds from operations may differ from that of other companies, and, accordingly it may not be comparable to measures used by other companies. The Company calculates funds from operations by taking cash flow from operating activities as determined under GAAP before changes in non-cash operating working capital and abandonment expenditures. The statements of cash flows included in the financial statements present the reconciliation between net income (loss) and funds from operations. A summary of this reconciliation is as follows:
---------------------------------------------------------------------------- ---------------------------------------------------------------------------- ($000's) Three months ended Nine months ended September September September September 30, 2008 30, 2007 30, 2008 30, 2007 ---------------------------------------------------------------------------- Cash provided by (used in) operating activities 1,315 (879) 9,893 2,905 Change in non-cash operating working capital (122) 1,384 (4,130) 305 Abandonment expenditures - - 81 - ---------------------------------------------------------------------------- Funds from operations 1,193 505 5,844 3,210 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------
Funds from operations per share is calculated using the weighted average basic and diluted shares used to calculate earnings per share.
Operating netback is calculated as the average unit sales price less royalties, realized gain (loss) on commodity contracts, and operating expenses. Operating netback represents the cash margin for every barrel of oil equivalent and is a common benchmark used in the oil and gas industry. There is no GAAP measure that is reasonably comparable to operating netback.
BOE Presentation
Natural gas reserves and volumes recorded in thousand cubic feet are converted to barrels of oil equivalent ("boe") on the basis of six thousand cubic feet ("mcf") of gas to one barrel ("bbl") of oil. The term "barrels of oil equivalent" may be misleading, particularly if used in isolation. A boe conversion ratio of 6 mcf to 1 bbl is based on an energy equivalent conversion method primarily applicable at the burner tip and does not represent a value equivalent at the wellhead.
Forward Looking Statements
Statements in this MD&A may contain forward looking information including expectations of future production, components of cash flow and earnings, expected future events and/or financial results that are forward looking in nature and subject to substantial risks and uncertainties. Without limiting the generality of the foregoing, the Company has made materially forward looking statements:
(i) under the heading "Corporate Highlights" and "Share Capital" regarding the use of proceeds of the equity financing for the 2009 capital program and working capital requirements;
(ii) Under the heading "Corporate Highlights" regarding the Pine Creek exploration well and anticipated timing of production; and
(iii) Under the heading "Production" regarding the anticipated resolution of plant capacity issues.
The reader is cautioned that assumptions used in the preparation of such information may prove to be incorrect. The Company cautions the readers that actual performance will be affected by a number of factors, as many may respond to changes in economic and political circumstances throughout the world. Events or circumstances may cause actual results to differ materially from those predicted, a result of numerous known and unknown risks, uncertainties, and other factors, many of which are beyond the control of the Company. These risks include, but are not limited to: the risks associated with the oil and gas industry, commodity prices and exchange rate changes; industry related risks could include, but are not limited to, operational risks in exploration, development and production (applicable to the forward looking statements (i) through (iii) above), delays or changes in plans (applicable to the forward looking statements identified in (i) through (iii) above); risks associated with the uncertainty of reserve estimates, health and safety risks and the uncertainty of estimates and projections of production, costs and expenses. These external factors beyond the Company's control may affect the marketability of oil and natural gas produced, industry conditions including changes in laws and regulations, changes in income tax regulations, increased competition, fluctuations in commodity prices, interest rates, and variations in the Canadian/United States dollar exchange rate. The reader is cautioned not to place undue reliance on this forward looking information.
Statements throughout this MD&A that are not historical facts may be considered "forward looking statements." These forward looking statements sometimes include words to the effect that management believes or expects a stated condition or result. All estimates and statements that describe the Company's objectives, goals or future plans are forward looking statements. Since forward looking statements 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 any number of risks including, but not limited to:
(i) Risks associated with the oil and gas industry and regulatory bodies (e.g. operational risks in exploration, development and production, or changes in royalty rates);
(ii) Delays or changes in plans with respect to exploration or development projects or capital expenditures;
(iii) Uncertainty of estimates and projections relating to recoverable reserves, costs and expenses;
(iv) Health, safety and environmental risks; and
(v) Commodity price and exchange rate fluctuations.
In making its forward looking statements, the Company used among other things, the following material factors or assumptions: the 2009 capital program will proceed as anticipated, drilling will result in a commercial discovery and that parties can reach agreement as to expansion of plant capacity.
Forward looking statements contained herein are made as of the date hereof subject to the requirements of applicable securities legislation and except as otherwise required by law, the Company assumes no obligation to update any forward looking statements, whether as a result of new information, future events or results or otherwise. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, the reader is cautioned not to place undue reliance on forward looking statements.
DESCRIPTION OF THE BUSINESS
Fortress' primary focus is the exploration and development of natural gas reserves in Western Canada. The Company has approximately 93,000 net acres of undeveloped land in the Ladyfern, Velma and Buick Creek areas in NE British Columbia and the Chigwell, Bashaw, Square Creek, Halverson, Mearon and Dahl areas of Alberta.
The Company's strategy is to 'acquire and exploit' properties that are early in their development cycle that offer exploration, appraisal and development drilling opportunities, while maintaining low finding and development costs. Fortress operates most of its production enabling it to have complete control over cost management of its capital programs.
CORPORATE HIGHLIGHTS
The results for the three months ended September 30, 2008 are as follows:
- The Company completed the third closing of a $16.5 million ($14.7 million net of issuance costs) equity financing that was announced in May. The proceeds will be used to fund the Company's 2009 capital program and working capital requirements.
- Fortress announced plans to purchase certain of its common shares by way of a normal course issuer bid through the facilities of the Toronto Stock Exchange (the "TSX"). Fortress may purchase up to a maximum of 1,351,014 common shares, which represents approximately 5% of its current issued and outstanding common shares, during the twelve month term of the issuer bid. As of November 14, 2008, the Company has acquired 45,000 shares at an average price of $0.41 per share.
- Fortress will commence drilling a high-impact exploration well in the Pine Creek area on its 100% owned lands in late November 2008. The drilling location is offsetting a well currently producing 5.0 mmcf/d. If successful, this well will be placed on production in the first quarter of 2009.
DETAILED FINANCIAL ANALYSIS Production ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Three months ended Nine months ended September September September September 30, 2008 30, 2007 30, 2008 30, 2007 ---------------------------------------------------------------------------- Sales volume: Natural gas (mcf/d) 8,733 6,111 8,272 5,302 Oil and NGL's (bbl/d) 23 7 24 17 Total(boe/d) 1,478 1,025 1,403 901 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------
Sales volumes for the three months ended September 30, 2008 were 1,478 boe/d compared to 1,025 boe/d for the three months ended September 30, 2007 - an increase of 453 boe/d or 44%. This increase is due to an asset acquisition in the Ladyfern, Mearon and Velma areas in July 2007, the start up of two wells at Velma in late August 2007, and the start up of 5 wells (2.5 net) at Square Creek in late March 2008. The anticipated sales volume on the start up of the Square Creek area was approximately 540 boe/d compared to an actual sales volume for the third quarter of 448 boe/d - an increase of 49 boe/d from the prior quarter. Capacity constraints at the Clear Prairie facility that processes gas from the Square Creek area have resulted in the Company producing the Square Creek area at much lower rates than anticipated. Two wells remain shut-in and others are flowing at reduced rates while the Company works with the third party plant operator to resolve the capacity issues which are currently expected to be resolved in the first quarter of 2009. The Velma wells are tied into the Ladyfern gathering system and the start-up of these wells increased the line pressures and reduced production volumes at Ladyfern resulting in the need for added compression. In the first quarter of 2008 the Company added compression to restore lost production; however, mechanical issues have resulted in substantial down time and with no significant production gains from this area. These compressor issues are on-going and the Company is continuing to work with the manufacturer to resolve the issues.
Sales volumes for the nine months ended September 30, 2008 were 1,403 boe/d compared to 901 boe/d for the nine months ended September 30, 2007. This increase is due to the asset acquisition in July 2007 and the start up of wells in the Velma and Square Creek areas.
Revenue ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Three months ended Nine months ended September September September September 30, 2008 30, 2007 30, 2008 30, 2007 ---------------------------------------------------------------------------- Petroleum and natural gas sales ($000's) 6,591 2,893 20,195 9,499 ---------------------------------------------------------------------------- Average realized prices: Natural gas ($/mcf) 7.99 5.07 8.66 6.36 Realized gain (loss) on commodity contracts ($/mcf) (1.28) 0.46 (0.97) 0.24 ---------------------------------------------------------------------------- Realized natural gas price ($/mcf) 6.71 5.53 7.69 6.60 Oil and NGLs ($/bbl) 82.29 71.42 86.35 65.29 ---------------------------------------------------------------------------- Total ($/boe) 40.74 33.44 46.74 40.05 ---------------------------------------------------------------------------- Benchmark prices: AECO average price ($/mcf) 7.76 5.12 8.51 6.56 Edmonton par ($/boe) 123.08 80.70 115.95 73.72 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------
Petroleum and natural gas sales for the three months ended September 30, 2008 were $6,591,000 compared to $2,893,000 for three months ended September 30, 2007. This increase is attributable to a 44% increase in sales volumes and a 22% increase in the price of natural gas realized by the Company.
Petroleum and natural gas sales for the nine months ended September 30, 2008 were $20,195,000 compared to $9,499,000 for the nine months ended September 30, 2007. This increase is due to a 56% increase in sales volumes and 17% increase in sales prices realized in the nine months ended September 30, 2008 compared to the nine months ended September 30, 2007.
The average natural gas price realized by the Company for the third quarter of 2008 was $7.99/mcf (net of transportation costs and before realized losses on commodity contracts) compared to the AECO average price of $7.76/mcf. This compares to the average natural gas price realized in the third quarter of 2007 of $5.07/mcf (net of transportation costs and before realized gains on commodity contracts) and an AECO average price of $5.12/mcf. For the nine months ended September 30, 2008, the Company realized an average price for natural gas of $8.66/mcf (net of transportation costs and before realized losses on commodity contracts) compared to an average AECO price of $8.51/mcf. For the nine months ended September 30, 2007, the Company realized an average natural gas price of $6.36/mcf (net of transportation costs and before realized gains on commodity contracts) compared to an AECO average price of $6.56/mcf.
The Company's current production is approximately 99% natural gas and revenues are reliant on North American natural gas prices. Natural gas prices increased in the second quarter based on bullish sentiment including lower than expected LNG (liquefied natural gas) imports to the United States, lower Canadian production, and an extended outage at the Independence Hub in the Gulf of Mexico resulting in a decline in storage levels. Sentiment changed in July and natural gas prices declined from a high of more than $12/mcf based on fears of a global credit crunch and U.S. recession resulting in reduced demand for natural gas.
The Company uses commodity contracts to manage its exposure to fluctuations in the price of natural gas. In the third quarter of 2008, the Company realized a loss on commodity contracts of $1,047,000, or $1.28/mcf, and recorded an unrealized gain on commodity contracts of $4,323,000. For the nine months ended September 30, 2008, the Company realized a loss on commodity contracts of $2,232,000, or $0.97/mcf, and an unrealized gain on commodity contracts of $1,333,000. Approximately 54% of the Company's current production is under contract. Contracts in place as of September 30, 2008 are as follows:
---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Type Period Volume (GJ/d) Fixed Price ($/GJ) ---------------------------------------------------------------------------- Swap January 1, 2008 to October 31, 2008 2,000 6.51 Swap January 1, 2008 to October 31, 2008 3,000 6.505 Swap November 1, 2008 to March 31, 2009 1,250 9.58 Swap November 1, 2008 to March 31, 2009 3,750 8.25 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Royalties ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Three months ended Nine months ended September September September September 30, 2008 30, 2007 30, 2008 30, 2007 ---------------------------------------------------------------------------- Royalties ($000's) 1,158 380 3,421 1,371 $/boe 8.51 4.03 8.90 5.57 Percentage of petroleum and natural gas sales 17.6 12.0 16.9 13.9 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------
Royalties were $1,158,000 for the three months ended September 30, 2008 compared to $380,000 for the three months ended September 30, 2007. This increase reflects increased volumes and natural gas prices, as noted previously. As a percentage of petroleum and natural gas sales (net of transportation costs and before realized gains/losses on commodity contracts), royalties increased to 17.6% in the third quarter of 2008 compared to 12.0% in the third quarter of 2007. This increase is attributed to increased production volumes from the Company's Velma, Mearon and Square Creek properties which record average royalty rates of 20% to 25%. The Company's wells at Ladyfern qualify for the Ultra-Marginal Royalty Program which assesses a reduced royalty rate for low producing wells in the province of British Columbia, resulting in an effective royalty rate of approximately 8% for these wells.
For the nine months ended September 30, 2008, the Company recorded royalties of $3,421,000 compared to $1,371,000 for the nine months ended September 30, 2007. As a percentage of petroleum and natural gas sales (net of transportation costs and before realized gains/losses on commodity contracts), royalties for the first nine months of 2008 were 16.9% compared to 13.9% for the comparable period in 2007. This increase is due to the change in property mix resulting from the asset acquisition in July 2007 and wells brought onto production since that time which have higher royalty rates than the average royalty rate realized by the Company.
Operating Expenses ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Three months ended Nine months ended September September September September 30, 2008 30, 2007 30, 2008 30, 2007 ---------------------------------------------------------------------------- Operating expenses ($000's) 2,139 973 5,565 2,268 $/boe 15.72 10.31 14.48 9.21 ---------------------------------------------------------------------------- Operating expenses ($000's) - adjusted for charges related to prior periods 2,031 973 5,457 2,268 $/boe 14.93 10.31 14.20 9.21 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------
Operating expenses increased in the three months ended September 30, 2008 to $2,139,000 from $973,000 in the third quarter of 2007. This increase is due to higher operating costs being experienced across all fields with the most significant increase from the Square Creek area which recorded operating expenses of approximately $16.41/boe in the third quarter due to higher than anticipated third party plant operating expenses and plant capacity constraints that resulted in lower production levels. In addition, the Company incurred additional compression and processing charges related to its Bashaw field that related to prior periods but were invoiced to Fortress in the third quarter of 2008 and which amounted to $108,000, or $0.79/boe, for the three months ending September 30, 2008.
For the nine months ended September 30, 2008 operating expenses were $5,565,000 compared to $2,268,000 for the nine months ended September 30, 2007. One a per boe basis, operating expenses were $14.48/boe for the nine months ended September 30, 2008 compared to $9.21/boe for the nine months ended September 30, 2007. The largest factors affecting operating expenses are gas processing fees, contract operating fees, chemicals and equipment rentals which account for approximately 75% of the Company's operating expenses.
The Company is taking steps to reduce its operating expenses. On November 1, 2008, the Company acquired the compressor that it had been renting at Square Creek. The Company is also in discussions to acquire other rental equipment to reduce its operating expenses.
General and Administrative Expenses ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Three months ended Nine months ended September 30, September 30, 2008 2007 2008 2007 ---------------------------------------------------------------------------- Gross ($000's) 1,027 1,167 3,056 3,605 Partner recoveries ($000's) (112) - (350) - Capitalized ($000's) (222) (319) (622) (1,022) ---------------------------------------------------------------------------- Net ($000's) 693 848 2,084 2,583 $/boe 5.09 8.99 5.42 10.50 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------
Net general and administrative expenses decreased to $693,000 in the third quarter of 2008 from $848,000 in the third quarter of 2007. Gross general and administrative expenses for the third quarter of 2008 reflect a 12% decrease from the third quarter of 2007 which is mainly attributable to a reduction in consulting fees charged to the Company.
Net general and administrative expenses decreased to $2,084,000 for the nine months ended September 30, 2008 from $2,583,000 for the nine months ended September 30, 2007. General and administrative expenses for the nine months ended September 30, 2008 were $5.42/boe compared to $10.50/boe for the nine months ended September 30, 2007. The decrease on a per boe basis is mainly due to an increase in production volumes in 2008 and reduced reliance on the use of consultants.
Partner recoveries reflect the portion of the Company's general and administrative expenses recoverable from partners related to the Company's capital program.
The Company's policy is to capitalize salaries, stock-based compensation, consulting fees and software costs that are directly attributable to exploration and development activities.
Stock-based Compensation Expense ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Three months ended Nine months ended September 30, September 30, 2008 2007 2008 2007 ---------------------------------------------------------------------------- Stock-based compensation expense ($000's): Stock options 93 150 125 429 Restricted stock units 35 - 155 - ---------------------------------------------------------------------------- 128 150 280 429 Stock-based compensation capitalized to property, plant and equipment (51) - (131) - ---------------------------------------------------------------------------- Net stock-based compensation expense 77 150 149 429 ---------------------------------------------------------------------------- $/boe 0.57 1.59 0.39 1.74 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------
The net stock-based compensation expense for the three months ended September 30, 2008 was $77,000 compared to $150,000 for the three months ended September 30, 2007. The gross stock-based compensation for the three months ended September 30, 2008 was $128,000 of which $93,000 was attributable to stock options and $35,000 to restricted stock units. This compares to $150,000 for the three months ended September 30, 2007 which was attributable to stock options granted in January 2007 that were later cancelled in November 2007. For the three and nine months ended September 30, 2008, the Company capitalized stock-based compensation of $51,000 and $131,000, respectively, directly related to exploration and development activities (three and nine months ended September 30, 2007 - $nil).
The net stock-based compensation expense for the nine months ended September 30, 2008 was $149,000, a decrease of $280,000 from the nine month period ended September 30, 2007. In the nine months ended September 30, 2008, a total of 1,684,633 stock options and 500,000 restricted stock units were granted.
Interest Income and Expense
The Company recorded interest expense of $361,000 for the three months ended September 30, 2008 compared to $448,000 for the three months ended September 30, 2007. The Company recorded interest expense of 1,049,000 for the nine months ended September 30, 2008 compared to net interest expense in the nine months ended September 30, 2007 of $425,000. Interest expense in the first nine months of 2008 reflects interest on the Company's revolving credit facility and interest on unspent flow-through obligations. Net interest income for the nine months ended September 30, 2007 reflects interest earned on commercial paper investments prior to the reorganization of SignalEnergy Inc.
Depletion, Depreciation and Accretion Expense ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Three months ended Nine months ended September 30, September 30, 2008 2007 2008 2007 ---------------------------------------------------------------------------- Depletion and depreciation expense ($000's) 3,761 2,504 10,508 6,503 Accretion of asset retirement obligations ($000's) 44 32 119 82 ---------------------------------------------------------------------------- Total ($000's) 3,805 2,536 10,627 6,585 ---------------------------------------------------------------------------- Depletion and depreciation expense ($/boe) 27.65 26.54 27.34 26.42 Accretion of asset retirement obligations ($/boe) 0.32 0.33 0.31 0.33 ---------------------------------------------------------------------------- Total ($/boe) 27.97 26.87 27.65 26.75 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------
Depletion and depreciation are calculated based on capital expenditures, production rates, and reserves. Depletion and depreciation expense was $3,761,000 for three months ended September 30, 2008 compared to $2,504,000 for the three months ended September 30, 2007. This increase is attributable to increased production volumes in the third quarter of 2008, which have increased 44% from the third quarter of 2007. The depletion and depreciation expense rate for the third quarter of 2008 was $27.65/boe compared to $26.54/boe for the third quarter of 2007. For the nine months ended September 30, 2008, the Company recorded depletion and depreciation expense of $10,508,000 compared to $6,503,000 for the nine months ended September 30, 2007.
Estimated future development costs for proved undeveloped properties included in the calculation of depletion expense at September 30, 2008 decreased to $15,842,000 from $28,600,000 at September 30, 2007. Undeveloped land costs at September 30, 2008 increased to $8,508,000 from $7,371,000 at September 30, 2007 and were excluded from assets subject to depletion. Undeveloped land costs increased with the acquisition of Crown lands at Pine Creek in the third quarter of 2008.
Accretion expense for the three months ended September 30, 2008 was $44,000 compared to $32,000 for the three months ended September 30, 2007. This increase is due to the asset acquisition in the Ladyfern, Mearon and Velma areas in July 2007 and additional wells brought onto production in the first quarter of 2008. For the nine months ended September 30, 2008 the Company recorded accretion expense of $119,000 compared to $82,000 for the nine months ended September 30, 2007. The Company completed the construction of a refrigeration plant and sweetening facilities in the second and third quarters of 2007 and acquired a partners working interest in the Ladyfern North, Mearon North and Velma areas in July 2007, significantly increasing the Company's asset retirement obligation. In addition, the Company added 5 wells (2.5 net) in the first quarter of 2008 including production and gathering facilities at Square Creek which have increased the asset retirement obligation.
Income Tax
The Company recorded a future income tax expense for the three months ended September 30, 2008 of $688,000 compared to a recovery of future income taxes of $613,000 for the three months ended September 30, 2007. For the nine months ended September 30, 2008, the Company recorded a recovery of future income taxes of $898,000 compared to $1,203,000 for the first nine months of 2007. Future income tax reflects the difference between the underlying tax value and carrying value of the Company's assets and liabilities. The change in future income taxes reflects capital costs incurred since the third quarter of 2007. Based on current commodity prices and planned capital expenditures, the Company does not expect to be cash taxable in 2008.
The income tax effect of a $5 million flow-through share offering completed in December 2007 was recorded in the first quarter of 2008 with the filing of the renouncement documents to the taxation authorities. The effective date of the renouncement was December 31, 2007 with all expenditures to be incurred by December 31, 2008. As of September 30, 2008, the Company has incurred approximately $1 million of eligible expenditures.
The estimated tax pools of the Company at September 30, 2008 are as follows:
---------------------------------------------------------------------------- ---------------------------------------------------------------------------- ($000's) ---------------------------------------------------------------------------- Canadian Oil and Gas Property Expenses 16,406 Canadian Development Expenses 34,009 Canadian Exploration Expenses 11,383 Undepreciated Capital Cost 30,281 Share Issuance Costs 2,083 Investment Tax Credits 2,367 ---------------------------------------------------------------------------- 96,529 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Net Income (Loss) ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Three months ended Nine months ended ($000's except per share and per boe September 30, September 30, amounts) 2008 2007 2008 2007 ---------------------------------------------------------------------------- Net income (loss) 1,070 (1,603) (3,129) (2,528) Net income (loss) per share - basic and diluted 0.04 (0.12) (0.16) (0.19) Net income (loss) per boe 7.85 (16.97) (8.13) (10.26) ---------------------------------------------------------------------------- ----------------------------------------------------------------------------
The Company recorded net income of $1,070,000 for the three months ended September 30, 2008 compared to a net loss of $1,603,000 for the three months ended September 30, 2007. This translates into a basic and diluted net income per share of $0.04 for the three months ended September 30, 2008 compared to a basic and diluted net loss per share of $0.12 for the three months ended September 30, 2007. The change in net income in the three months ended September 30, 2008 is attributable to a net gain on commodity contracts of $3,276,000.
The net loss for the nine months ended September 30, 2008 was $3,129,000 compared to $2,528,000 for the nine months ended September 30, 2007. For the nine months ended September 30, 2008, the Company recorded a net loss on commodity contracts of 899,000 and a loss on the sale of a pipeline asset of $428,000.
Funds from Operations ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- ($000's except share and per boe Three months ended Nine months ended amounts) September 30, September 30, 2008 2007 2008 2007 ---------------------------------------------------------------------------- Funds from operations 1,193 505 5,844 3,210 Funds from operations ($/boe) 8.77 5.36 15.21 13.04 Funds from operations per share - basic and diluted 0.04 0.04 0.29 0.24 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------
Funds from operations for third quarter of 2008 were $1,193,000 compared to $505,000 for the third quarter of 2007. This increase is attributed to increased production volumes and realized prices. The operating netback realized by the Company for the three months ended September 30, 2008 decreased from $19.10/boe in the third quarter of 2007 to $16.51/boe due to an increase in realized losses on commodity contracts.
Funds from operations for the nine months ended September 30, 2008 increased to $5,844,000 from $3,210,000 for the nine months ended September 30, 2007. The increase is due to increased production and prices realized by the Company. The Company's operating netback for the nine months ended September 30, 2008 decreased by $1.91/boe compared to the nine months ended September 30, 2007 mainly due to an increase in operating expenses.
Capital Expenditures ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Three months ended Nine months ended September 30, September 30, ($000's) 2008 2007 2008 2007 ---------------------------------------------------------------------------- Land and seismic 1,578 117 2,161 194 Drilling and completions 48 553 5,089 10,126 Equipment and facilities (194) 4,813 15,801 9,107 Capitalized overhead costs 273 319 753 1,022 Abandonment expenditures - - 81 - Other 32 - 65 1,166 Acquisitions - 12,586 - 12,943 Dispositions - - (8,150) - ---------------------------------------------------------------------------- 1,737 18,388 15,800 34,558 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------
The total capital expenditures for the three months ended September 30, 2008 were $1,737,000 compared to additions of $18,388,000 for the three months ended September 30, 2007. The most significant additions in the three months ended September 30, 2008 were the acquisition of the Pine Creek lands and trade seismic data over the Company's Halverson lands. In the third quarter of 2007 the Company completed an asset acquisition in the Ladyfern, Mearon and Velma areas for proceeds of $12,535,000, completed the construction of a refrigeration unit at Ladyfern and an 11 km pipeline at Velma to tie two wells to production facilities. The total capital expenditures for the nine months ended September 30, 2008 were $15,800,000 (net of dispositions) compared to $34,588,000 for the nine months ended September 30, 2007. The capital program for the first quarter of 2008 was focused on the follow-up to the discovery of the Bluesky and Notikewin gas pools from the 2007 winter drilling program and compression and optimization at Ladyfern. Fortress drilled two additional wells in the Bluesky formation and three wells in the Notikewin to better delineate the two structures. The Company also constructed a 10 mmcf/d gathering and production facility to service eight wells it has in the Square Creek area.
The Company completed the construction of a 41 km pipeline to deliver gas to the Clear Prairie gas plant to service the Square Creek area, the corridor along which it owns 41,800 net acres of land opening up a significant exploration area for the Company. The pipeline was completed and commissioned in March 2008 for a total cost of $8,578,000 and was sold to a mid-stream service provider in April for proceeds of $8,150,000 resulting in a loss on the sale of the pipeline asset of $428,000.
Share Capital ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Three months ended Nine months ended September 30, September 30, 2008 2007 2008 2007 ---------------------------------------------------------------------------- Weighted average common shares outstanding - basic 26,964,795 13,266,288 19,937,734 13,263,711 Weighted average common shares outstanding - diluted 27,004,567 13,266,288 19,937,734 13,263,711 ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- ---------------------------------------------------------------------------- Outstanding securities ---------------------------------------------------------------------------- Common shares 27,020,288 Warrants 5,516,700 Stock options 2,081,635 ---------------------------------------------------------------------------- Total outstanding securities at September 30, 2008 34,618,623 Common shares acquired under normal course issuer bid (45,000) ---------------------------------------------------------------------------- Total outstanding securities at November 14, 2008 34,573,623 ---------------------------------------------------------------------------- ----------------------------------------------------------------------------
On December 21, 2007, the Company closed a public offering of 2,703,000 flow-through common shares at $1.85 per share for total gross proceeds of $5,000,550 ($4,395,000 net of share issuance costs). The full expenditure commitment was renounced to subscribers effective December 31, 2007 with all expenditures to be incurred by December 31, 2008. As of September 30, 2008, the Company has incurred eligible expenditures of approximately $1,000,000.
The Company closed a public offering of 11,033,400 units ("Units") on June 20, 2008, June 27, 2008 and July 4, 2008, for gross proceeds of $16,550,100 ($14,737,000 net of issuance costs). Each Unit consists of one common share of the Company and one-half of one common share purchase warrant. The warrants are exercisable on or before September 20, 2011 subject to the right of the Company to accelerate the expiry time on not less than 30 days notice to the warrant holders, if the aggregate sales price of the common shares during a period of 20 consecutive days divided by the aggregate number of common shares sold is at least $3.00. Each whole warrant entitles the holder to purchase one common share an at exercise price of $2.00. The proceeds of the financing will be used to fund the Company's 2009 capital program and working capital requirements.
Liquidity and Capital Resources
The Company has a $25,000,000 revolving, demand credit facility with its bank (the "Bank"), bearing interest at the Bank's prime lending rate plus 0.25% (effective interest rate for the three and nine months ended September 30, 2008 of 5.00% and 5.25% respectively, and for the three and nine months ended September 30, 2007 - 6.5%) and collateralized by an interest over all present and after acquired property of the Company. The authorized limit is subject to annual review and re-determination of the Company's borrowing base by the Bank. The Company has a $1,000,000 letter of credit which reduces its borrowing capacity on the revolving operating loan.
The credit facility has a covenant that requires the Company to maintain its working capital ratio at 1:1 or greater while the credit facility is outstanding. The working capital ratio is defined as current assets plus the unutilized portion of the credit facility divided by current liabilities less the balance drawn against the credit facility. The Company is in compliance with the working capital covenant at September 30, 2008.
Cash provided by operating activities was $1,315,000 for the third quarter of 2008 compared to cash used in operating activities of $879,000 for the third quarter of 2007. This increase is due to an increase in non-cash working capital balances and funds from operations in the three months ended September 30, 2008. Cash provided by operating activities for the nine months ended September 30, 2008 was $9,893,000 compared to $2,905,000 for the nine months ended September 30, 2007. This increase is due to increased funds from operations and changes in non-cash working capital balances. Funds from operations were $5,844,000 for the nine months ended September 30, 2008 compared to $3,210,000 for the nine months ended September 30, 2007.
Cash provided by financing activities for the three months ended September 30, 2008 was $3,363,000 compared to $17,630,000 for the three months ended September 30, 2007. On July 4, 2008, the Company completed the third closing of a $16,550,100 financing that was announced in May. The net proceeds received on the July 4 closing was $2,024,000. Cash provided by financing activities for the three months ended September 30, 2007 consisted of an increase in the Company's operating loan resulting from the asset acquisition completed in July 2007. Cash provided by financing activities for the nine months ended September 30, 2008 was $11,968,000 compared to cash used in financing activities for the nine months ended September 30, 2007 of $6,216,000. In the first quarter of 2007, the Company redeemed 23,076,923 common shares as part of its reorganization of Signal for $30,471,000 and in July secured a $24,000,000 bank operating loan.
Cash used in investing activities for the third quarter of 2008 was $4,680,000 compared to $16,758,000 for the third quarter of 2007. The Company's capital expenditures were $1,737,000 in the third quarter of 2008 compared to $18,388,000 in the third quarter of 2007. Cash used in investing activities for the nine months ended September 30, 2008 was $21,869,000 compared to $33,392,000 for the nine months ended September 30, 2007. In the second quarter of 2008, the Company recorded the sale of a 41 km pipeline connecting the Square Creek area to processing facilities for $8,150,000.
Related Party Transactions
(a) In the three and nine months ended September 30, 2008, the Company was charged $218,000 and $794,000 respectively (three and nine months ended September 30, 2007 - $81,000), in legal fees by a law firm where a director of the Company is a partner, of which $123,000 is included in accounts payable and accrued liabilities at September 30, 2008.
(b) In the three and nine months ended September 30, 2008, the Company was charged $25,000 (three and nine)
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