CALGARY, Nov. 7 /CNW/ - Breaker Energy Ltd. ("Breaker" or "Company") (TSX: WAV.A and WAV.B) is pleased to announce its financial and operating results for the three and nine month periods ended September 30, 2007.
Financial and Operating Summary
3 Months Ended 9 Months Ended
Sep 30, Sep 30, % Sep 30, Sep 30, %
2007 2006 Change 2007 2006 Change
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Financials ($000s
except per share
amounts)
Petroleum sales 13,947 9,609 45 34,981 17,538 99
Natural gas sales 7,356 7,209 2 27,658 16,417 68
Processing sales 322 79 308 753 81 830
Total petroleum and
natural gas revenue 21,625 16,897 28 63,392 34,036 86
Funds from
operations(1) 10,584 9,402 13 31,551 17,628 79
Per share basic 0.29 0.26 12 0.86 0.66 30
Per share diluted 0.28 0.26 8 0.85 0.64 33
Net earnings 607 555 9 1,943 1,006 93
Per share basic 0.02 0.02 - 0.05 0.04 25
Per share diluted 0.02 0.02 - 0.05 0.04 25
Capital
expenditures(2) 15,671 7,808 101 42,696 120,380 (65)
Net debt 47,026 22,746 107 47,026 22,746 107
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Operating, General
and Administrative
(G&A)
Production
Crude oil (bbls/d) 1,993 1,411 41 1,829 892 105
Natural gas
(mcf/d) 15,073 12,788 18 15,235 9,328 63
Total (boe/d) 4,506 3,543 27 4,368 2,447 79
Average realized
price:
Crude oil ($/bbl) 76.05 74.01 3 70.07 71.98 (3)
Natural gas ($/mcf) 5.30 6.13 (14) 6.65 6.45 3
Combined average
(incl. processing
revenue) ($/boe) 52.17 51.84 1 53.16 50.95 4
Netback ($/boe)
Petroleum and
natural gas sales 52.17 51.84 1 53.16 50.95 4
Royalties (9.02) (7.55) 19 (9.77) (7.54) 30
Operating expenses (11.77) (10.42) 13 (10.60) (11.31) (6)
Transportation
expenses (1.63) (1.63) - (1.72) (1.54) 12
Operating netback 29.75 32.24 (8) 31.07 30.56 2
G&A expenses (2.84) (2.13) 33 (2.86) (2.74) 4
Interest expense (1.36) (1.07) 27 (1.36) (0.80) 70
Corporate netback 25.55 29.04 (12) 26.85 27.02 (1)
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Common Shares (000s)
Class A Shares
outstanding, end
of period 35,127 34,845 1 35,127 34,845 1
Weighted average
Class A shares 35,125 34,845 1 35,078 25,545 37
Weighted average
Class B shares 900 900 - 900 900 -
Conversion of
Class B shares
- weighted
average(3) 1,552 1,277 22 1,552 1,277 22
Weighted average
basic shares
outstanding(3) 36,675 36,122 2 36,630 26,822 37
Stock option
dilution (treasury
method) 497 728 (32) 510 691 (26)
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Weighted average
diluted shares
outstanding(3) 37,172 36,850 1 37,140 27,513 35
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(1) Management uses funds from operations (before changes in non-cash
working capital) to analyze operating performance and leverage. Funds
from operations as presented does not have any standardized meaning
prescribed by Canadian GAAP and therefore it may not be comparable
with the calculation of similar measures for other entities.
(2) Capital expenditures includes all cash additions for the period,
including acquisition additions and capitalized general and
administrative expense.
(3) For the period ended September 30, 2007 the Class B shares are
converted at the quarter-end Class A share price of $5.80 and added
to the Class A shares to calculate basic shares outstanding. For the
period ended September 30, 2006 the conversion price was $7.05.
Highlights
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- The third quarter of 2007 marked Breaker's twelfth consecutive
quarter of per share production growth with record average production
of 4,506 boe/d.
- Production grew by 27 percent to a quarterly record of 4,506 boe/d
from 3,543 boe/d in 2006. Production per share grew by 25 percent in
the third quarter of 2007 as compared to the same period last year.
- Breaker achieved funds from operations per basic share of $0.29, an
increase of 12 percent from $0.26 per basic share in the same period
of 2006. Funds from operations grew by 12 percent to $10.5 million in
the third quarter of 2007 from $9.4 million in the third quarter of
2006.
- Breaker attained net income of $0.6 million in the third quarter of
2007 as compared to net income of $0.6 million in the third quarter
of 2006. Net income per share was $0.02 per basic and diluted share
in the third quarter of 2007.
- In the third quarter Breaker achieved a 100 percent success rate
drilling 7 gross (7 net) wells, investing $15.7 million and
concentrating its capital investments on high netback light oil
projects at Irricana and Girouxville as well as continuing to develop
its Provost property and advancing its farm-in in the Medicine Hat
area.
- At quarter-end, Breaker had access to approximately 325,000 net acres
of land. Breaker's management believes that access to a significant
land base fuels future growth opportunities.
- Breaker's operations in the third quarter of 2007 resulted in an
average operating netback (defined as revenue; less royalties,
operating and transportation expenses on a per boe basis) of
$29.75 per boe.
- At the end of the third quarter, Breaker's net debt to annualized
third quarter 2007 cash flow ratio was 1.1. Breaker's bank line is
$74 million and management forecasts a conservative level of leverage
at year end with a net debt to annualized fourth quarter 2007 cash
flow ratio of 1.0.
- During the quarter Breaker announced increases in light oil drilling,
cash flow, exit production guidance and the acquisition of a high
impact exploration property in British Columbia. Exit guidance was
increased to 5,600 boed and cash flow guidance was increased to
$43.5 million. Breaker's 2007 capital program was increased to
$60 million, with the additional $14 million of capital focused on
light oil prospects.
Operational update
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Throughout the year, Breaker has concentrated its capital investments on its high netback light oil projects at Irricana, Girouxville and East Prairie. Breaker's results to date include: encouraging early production rates at its first three multiple-fractured horizontal light oil wells in Irricana; 100 percent success on 3.5 net exploratory wells at Girouxville, and confirmation of substantial reserve adds via discovery of a water-floodable light oil pool at East Prairie. Breaker is also continuing with selective high-return, low cost gas development projects at Irricana, Medicine Hat, and Provost.
Irricana
In the quarter, Breaker has made great strides in developing its large light oil pool at Irricana. Breaker's first horizontal well, completed with a multiple fracture treatment, commenced production in July at approximately 400 boe/d. More than three months later, the well continues to perform above forecast at a current rate of approximately 210 boe/d, which rate has been stable for most of October. Breaker's second new drill commenced production at over 200 boe/d, and is currently producing at stable rates of approximately 100 boed. Breaker's third horizontal light oil well has recently finished drilling, with a 20% improvement in drilling time over the previous well drilled. It was drilled in an area of the pool comparable in quality to the first, very successful well, and will be fractured and on production before year end. Both new wells' production rates are significantly higher than the historical average well in the pool.
Breaker has recently used the same multiple fracture technique to recomplete one of the 25 horizontal wells drilled prior to Breaker acquiring the property. Early results are very encouraging, with a more than tenfold increase in production rate from 10 boe/d to a recent average rate of 110 boe/d, approximately one month after being put back on production. Current production rates are similar to the initial production rates of the well when it was first put on production nearly 10 years ago. As a multiple fracture on an existing well is only 1/3 of the total cost of a new drill, this result suggests that recompletions on the rest of the 25 wells could be very lucrative. The company is now looking at expediting several similar operations before year end.
A turnaround at a third party gas plant lasted a total of one month, twice as long as expected. This resulted in the shut-in of more than 300 boe/d for the quarter. As a result of increased expenses related to certain one time items, including the third party turnaround at Irricana, repairs and maintenance costs at East Prairie as well as high electricity rates, the third quarter of 2007 operating costs increased to $11.77 per boe from $9.91 per boe in the second quarter. Year to date operating costs have been reduced by six percent per boe as higher volumes and cost-saving measures have more than offset rising costs. Breaker's annual per boe operating expenses are forecast to decrease in 2007 as compared to 2006, as higher volumes and cost-saving measures are anticipated to continue to offset rising costs.
Approximately 66% of Breaker's current Irricana production is obtained from freehold mineral acreage.
Girouxville
Breaker continues to demonstrate a 100 percent success rate discovering high rate light oil pools. The 100 percent working interest 14-19 dual zone discovery drilled in the second quarter has been producing at its allowable rate of 125 bbls/d. The 50 percent working interest (before payout) 7-32 second quarter discovery is also producing at its allowable of 110 bbls/d. In the third quarter, Breaker discovered another new pool at 13-10, which tested at 200 bbls/d. Breaker is currently drilling another exploratory well at 1-21, which is a direct offset to the significant dual zone discovery at 13-15 which has been producing since July 2006. The 13-15 well has produced approximately 240,000 bbls of light sweet oil in 15 months. All 3 wells brought on production this year will qualify for new pool royalty holidays.
Breaker has recently increased its opportunity inventory in the area via an undeveloped land acquisition several miles east of its recent 7-32 discovery. Currently non-producing, Breaker sees up to five 100 percent working interest locations on the land.
With many uphole zones behind pipe, its four most productive gross wells currently rate-limited by the EUB, and more than a dozen drilling locations in the exploration and development inventory, Breaker is well positioned to continue growing this high netback property. Breaker will seek to accelerate development of this sizeable inventory to take advantage of current royalties and high netbacks.
East Prairie
Breaker continues to advance development of its large original light oil in place discovery. Construction of a central battery and treater was ongoing in the third quarter, which will significantly drop operating costs and increase the netbacks received. The facility will be operational before year end. The company is preparing to waterflood this high quality reservoir, and has recently tested a water source well which has confirmed sufficient deliverability. A waterflood application will be submitted to the EUB before year end. Internal waterflood design based on analogs and classical waterflood analysis suggest a recovery factor in the range of 25 percent would result from successful waterflood implementation. The impact to Breaker would be additions of approximately 2 million proved plus probable barrels of light oil.
This discovery is only one of several oil pools recently discovered by Breaker at East Prairie, all of which still have significant room to grow via further delineation drilling, currently planned for the first quarter of 2008.
Medicine Hat and Provost
Five gas wells were drilled in these areas in the third quarter for a 100 percent success rate, taking advantage of lower service costs for shallow activity. The program was very lucrative, delivering an average initial rate in excess of 400 mcf/d.
At Medicine Hat, the company drilled three farmin wells, all of which continued to delineate an aerially extensive gas bearing sand first produced by the company in late 2006. Breaker continues to cost effectively acquire land and fulfill its farmin commitments on this sizeable gas trend, significantly increasing its gas drilling inventory for future growth.
At Provost, several standing wells were completed and tied in, adding production at low cost and providing pilot production information in areas with substantial tight gas resource but limited production history.
Both areas contain a large number of gas drilling locations that are still commercially viable under current industry conditions; however the company has deferred most of these activities in favour of light oil opportunities which are currently realizing a higher netback.
Breaker is preparing an innovative enhanced oil recovery scheme at Millard to increase the currently low recovery factor on its 100% owned large original oil in place pool. The EUB has recently approved the project, which will begin its pilot phase in early 2008 with only modest capital investment.
Monias, British Columbia
Breaker recently acquired a 100 percent working interest in a deep Leduc reef prospect with an unrisked potential target size of 1 TCF. Preparations to shoot a 3-D seismic program on the prospect this winter are ongoing, with the original near-miss well being prepared for re-entry. The original well established the presence of more than 130 metres of tight dolomite, allowing for the possibility of a world-class pay column similar to other deep Leduc gas pools elsewhere in western Canada.
Royalty Review
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On October 25, 2007 the Government of Alberta announced increases to royalties on conventional oil and natural gas as well as oil sands production. The core of the New Royalty Framework ("NRF") is available with further clarifications being released since the October 25th announcement. Breaker has investigated the changes internally and has also commissioned GLJ Petroleum Consultants ("GLJ") to assess financial impacts to the best of their ability and using publicly available information on the NRF.
GLJ previously conducted the evaluation of Breaker, which formed the basis of Breaker's reserves disclosure effective December 31, 2006. The associated economic forecasts were modified by GLJ and rerun to include the provisions of the NRF (the "NRF rerun").
A comparison of results from the base evaluation and the NRF rerun indicates that, if implemented, the NRF would have a negative impact on Breaker's net present value of less than five percent (based on 10% discounted cash flow pre-tax net present value of Proved plus Probable reserves). The reduction in present value was also found to be less than five percent when the base and NRF projections were rerun utilizing October 30, 2007 strip prices.
The NRF is estimated to have a maximum reduction in cash flow of six percent in 2009, the first year of the NRF. This estimate is based on the GLJ 2007-01 price forecast.
Guidance
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Breaker's prospects for continued per share growth in reserves, production and cash flow are excellent. Breaker re-iterates its guidance of average production of 4,650 boe/d and exit production of 5,600 boe/d in 2007.
Breaker is well positioned to meet its 2007 guidance as follows:
Average Production Rate 4,650 boe/d
Exit Production Rate 5,600 boe/d
Cash flow $43.5 million
Cash flow per A share $1.24
Capital Program $60 million
Year End Debt $52 million
Authorized Bank Line $74 million
Unused Bank Line Capacity at Year End $22 million
Q4 Annualized Debt to Cash Flow 1.0 times
The above guidance assumes US$75.00/Bbl WTI, CDN$5.25/Mcf AECO and US$/CDN$1.00 for the fourth quarter.
Financial Statements and Management's Discussion and Analysis
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Breaker has filed with Canadian securities regulatory authorities its unaudited financial statements for the three and nine month periods ended September 30, 2007 and 2006 and the accompanying Management's Discussion and Analysis. These filings are available for review at www.sedar.com.
Breaker Energy Ltd. is a junior oil and gas company focused on creating shareholder value by growing per share production and reserves through acquisitions and a focused exploration, development and exploitation plan.
Breaker has 35,130,258 Class A shares and 900,000 Class B shares outstanding.
Breaker Energy trades on the TSX under the symbols WAV.A and WAV.B.
Forward-Looking Statements
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This press release contains forward-looking statements concerning the Company's expectations of future production, cash flow, earnings and expansion of its oil and gas property interests and concerning the Company's exploration and development drilling, seismic operations, regulatory applications, payout estimates, capital expenditures, number and drilling locations, seismic acquisitions and facility upgrades. These statements are based on current expectations that involve a number of risks and uncertainties, which could cause actual results to differ from those anticipated. These risks include, but are not limited to: the risks associated with the oil and gas industry (e.g., operational risks in development, exploration and production; delays or changes in plans with respect to exploration or development projects or capital expenditures; the uncertainty of reserve estimates; the uncertainty of estimates and projections relating to production, costs and expenses, and health, safety and environmental risks), acquisitions, commodity price, price and exchange rate fluctuation and uncertainties resulting from competition from other producers and ability to access sufficient capital from internal and external sources. Additional information on these and other risk factors that could affect the Company's operations and/or financial results are included in the Company's reports on file with Canadian securities regulatory authorities.
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.
Oil and Gas Advisory
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This press release contains disclosure expressed as "Boe/d". Boe means barrel of oil equivalent and Boe/d means Boe per day. All oil and natural gas equivalency volumes have been derived using the ratio of 6,000 cubic feet of natural gas to 1 barrel of oil. Boe equivalency measures may be misleading, particularly if used in isolation. A conversion ratio of 6,000 cubic feet of natural gas to 1 barrel of oil is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the well head.
In this press release: (i) mmboe means million boe; (ii) boe/d means boe per day; (iii) bbls/d means barrels per day; (iv) mcf means thousand cubic feet; (v) mmcf means million cubic feet; (vi) mcf/d means thousand cubic feet per day; and (vii) mmcf/d means million cubic feet per day.
The TSX does not accept responsibility for the adequacy or accuracy of
this release.
%SEDAR: 00021180E