CALGARY, March 9 /CNW/ - Breaker Energy Ltd. ("Breaker" or "Company") (TSX: WAV) achieved outstanding reserves growth in 2008 and is pleased to provide its 2008 reserves information (NI 51-101 compliant). Breaker grew its Proved plus Probable reserves at all six of its major properties, underlining the value and continued growth of Breaker's entire portfolio. The Company is also pleased to provide updated production results from its highly successful first horizontal multi-frac well at its liquids-rich Doig/Montney gas resource play in Fireweed, British Columbia.
As Breaker plans to announce its audited 2008 financial statements after the close of the market on March 18, 2009, certain financial estimates have been made herein to facilitate discussion of its 2008 capital program. Readers are advised that these financial estimates are subject to audit and may be revised as necessary.
Highlights ---------- Breaker grew its reserves in 2008 by 51 percent to 27.2 million boe. The Company achieved strong per share reserves growth on a cost effective basis. Through maintaining fiscal discipline and selecting quality capital investment opportunities, Breaker is pleased to report the following results for 2008: Proved plus Probable Reserves Replacement Ratio 5.2 times Proved plus Probable Reserve Life Index (est. Q4/08 average production 6,702 boe/d) 11.1 years Growth in Proved plus Probable reserves per fully diluted share 43% Growth in Proved reserves per fully diluted share 36% FD&A Proved (without future development capital (FDC)) $24.53/boe FD&A Proved plus Probable (without FDC) $16.10/boe FD&A Proved (with change in FDC discounted at 10%) $29.74/boe FD&A Proved plus Probable (with change in FDC discounted at 10%) $20.26/boe Breaker's netback for 2008 was $47.36/boe (unaudited). Using this netback the following recycle ratios are calculated: For FD&A without change in FDC (Proved plus Probable) 2.9 For FD&A with change in FDC, discounted at 10% (Proved plus Probable) 2.3 Estimated Net Asset Value (NAV) per fully diluted share BT10% (forecast pricing) $8.35/share The results presented above are based on unaudited, estimated total capital expenditures for 2008 of $183.6 million and unaudited, estimated 2008 production totaling 2,211 mboe or an average of 6,041 boe/d, and forecast pricing (Sproule December 31, 2008). Breaker 2008 Reserve Information --------------------------------
In accordance with National Instrument 51-101 - Standards of Disclosure for Oil and Gas Activities (NI 51-101), Sproule Associates Limited (Sproule) prepared the Breaker Sproule Report. This report evaluated, as at December 31, 2008, 100 percent of Breaker's oil, natural gas, and natural gas liquids reserves.
The tables below disclose in the aggregate, the Corporation's gross and net proved and proved plus probable reserves and Net Present Value (NPV) as estimated in the Breaker Sproule Report. These estimates were calculated using forecast prices and costs.
"Forecast prices and costs" means future prices and costs used by Sproule in the Sproule Report that are generally accepted as being a reasonable outlook of the future, or fixed or currently determinable future prices or costs to which the Corporation is bound.
"Gross" reserves equate to those reserves that are referred to as "Company Gross" reserves by the Canadian Securities Administrators (CSA) in NI 51-101. Gross Reserves are Company gross reserves, which are the Company's working interest (operating or non-operating) share before deduction of royalties and without including any royalty interests of the Company.
"Net After Royalty" reserves are the Company's working interest (operating or non-operating) share after deduction of royalty obligations plus the Company's royalty interests in reserves.
The net present value of future net revenue attributable to Breaker's reserves is stated without provision for interest costs and general and administrative costs, but after providing for estimated royalties, production costs, development costs, other income, future capital expenditures, and well abandonment costs for only those wells assigned reserves by Sproule. It should not be assumed that the undiscounted or discounted net present value of future net revenue attributable to Breaker's reserves estimated by Sproule represent the fair market value of those reserves. The estimates of reserves and future net revenue for individual properties may not reflect the same confidence level as estimates of reserves and future net revenue for all properties, due to effects of aggregations. Other assumptions and qualifications relating to costs, prices and future production and other matters are summarized herein. The recovery and reserve estimates of Breaker's oil, natural gas, and NGL reserves provided herein are estimates only and there is no guarantee that the estimated reserves will be recovered. Actual reserves may be greater than or less than the estimates provided herein.
Please note the following numbers may not add exactly due to rounding.
Summary of Reserves and Values
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Proved Total
Proved Developed Proved Proved
Developed Non- Undevel- Total Total Plus
Producing producing oped Proved Probable Probable
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MARKETABLE
RESERVES
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Light/Medium
Oil (mbbls)
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Gross 3,756 96 1,677 5,529 3,496 9,025
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Net After
Royalty 2,974 82 1,379 4,435 2,589 7,024
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Heavy Oil
(mbbls)
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Gross 367 24 528 918 595 1,513
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Net After
Royalty 276 19 423 718 477 1,195
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Gas (mmcf)
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Gross 32,766 5,196 22,856 60,818 31,770 92,587
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Net After
Royalty 26,331 3,736 18,322 48,389 24,648 73,037
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Natural Gas
Liquids
(mbbls)
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Gross 413 63 294 770 459 1,229
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Net After
Royalty 300 49 211 559 339 898
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Oil Equivalent
(mboe)
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Gross 9,996 1,049 6,307 17,353 9,845 27,198
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Net After
Royalty 7,938 773 5,065 13,776 7,513 21,289
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BEFORE TAX PRESENT VALUE ($MM)
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0% 345,168 23,694 143,038 511,900 363,330 875,231
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5% 255,787 18,481 87,683 361,951 215,110 577,062
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10% 206,604 15,399 56,397 278,400 144,608 423,008
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15% 174,990 13,331 36,339 224,660 104,289 328,949
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The above summary of reserves and values was based on the following price
and cost assumptions:
Summary of Pricing and Inflation Rate Assumptions (Forecast Prices and
Costs) Sproule December 31, 2008
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Edmonton Hardisty Cromer
Par Price Heavy Medium Natural
WTI 40 12 29.3 Gas AECO Infla-
Cushing degrees degrees degrees Spot tion Exchange
(Oklahoma) API API API Price Rate Rate
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($Cdn/ ($Cdn/ ($Cdn/ ($Cdn/ ($US/
Year ($US/bbl) bbl) bbl) bbl) mmbtu) (%/yr) $Cdn)
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2009 53.73 65.35 47.05 58.16 6.82 2.0 0.80
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2010 63.41 72.78 54.58 66.23 7.56 2.0 0.85
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2011 69.53 79.95 59.96 72.76 7.84 2.0 0.85
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2012 79.59 86.57 67.53 79.65 8.38 2.0 0.90
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2013 92.01 94.97 74.08 87.38 9.20 2.0 0.95
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2014 93.85 96.89 75.58 89.14 9.41 2.0 0.95
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2015 95.72 98.85 77.10 90.94 9.62 2.0 0.95
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2016 97.64 100.84 78.66 92.78 9.83 2.0 0.95
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2017 99.59 102.88 80.25 94.65 10.05 2.0 0.95
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2018 101.58 104.96 81.87 96.56 10.27 2.0 0.95
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2019 103.61 107.08 83.52 98.51 10.50 2.0 0.95
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There-
after +2.0%/yr +2.0%/yr +2.0%/yr +2.0%/yr +2.0%/yr +2.0%/yr
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Breaker Finding, Development, and Acquisition (FD&A) Costs (unaudited)
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Proved Plus
Capital Costs ($000s) unaudited Proved Probable
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2008 Exploration, Development and Acquisition
Capital Expenditures 183,636 183,636
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FDC year end 2008 (disc at 10%) 101,399 139,635
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FDC year end 2007 (disc at 10%) 62,327 92,250
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Change in FDC (disc at 10%) 39,072 47,385
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2008 Capital + Change in FDC (disc at 10%) 222,708 231,021
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Proved Plus
FD&A Costs ($/boe) unaudited Proved Probable
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Acquisition without FDC 29.93 19.23
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Exploration and Development without FDC 22.42 14.85
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Total: Exploration, Development and Acquisition
without FDC 24.53 16.10
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Proved Plus
FD&A Costs ($/boe) unaudited Proved Probable
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Exploration, Development and Acquisition
without FDC 24.53 16.10
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Exploration, Development and Acquisition with
change in FDC (disc at 10%) 29.74 20.26
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Breaker's exploration and development efforts on properties acquired during previous years added significant production and reserves which were recognized at year end 2008. Breaker will continue to develop its asset base with the expectation of further additions to both production and reserves in the future, and in accordance with its business strategy will obtain new growth platforms for continued growth.
Breaker's netback for 2008 was $47.36/boe (unaudited). Using this netback the following recycle ratios are calculated:
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Proved Plus
Recycle Ratio, unaudited Proved Probable
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For FD&A without FDC 1.9 2.9
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For FD&A with change in FDC (disc at 10%) 1.6 2.3
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Breaker 2008 Net Asset Value per Fully Diluted Share Information
(unaudited)
Using Reserve Value at December 31, 2008 - Forecast Pricing and Costs:
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($MM except share amounts) 15% BT 10% BT
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Proved Plus Probable Reserve Value (with FDC) 328.9 423.0
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Undeveloped Land (125,000 acres at $180/acre) 22.5 22.5
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Estimated Net Debt (99.5) (99.5)
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Option Proceeds 3.7 3.7
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Total Net Assets 255.6 349.7
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Fully Diluted Shares Outstanding (MM) 41.9 41.9
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Estimated Net Asset Value per Fully Diluted
Share ($/share) 6.10 8.35
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In addition to the approximately 125,000 net acres of undeveloped land
that Breaker has an ownership interest in, the Company also had access to
approximately 100,000 acres via farm-in.
Operational Update
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Breaker is very pleased with its first full month of production from its first horizontal multi-frac well at its wholly-owned Doig/Montney gas resource property in Fireweed, British Columbia. From its field production estimates, and internal benchmarking studies based on public production data, Breaker believes that the well's first-month daily average production of approximately 1,540 boe/d is superior to all known horizontal wells in analogous deep basin Montney reservoirs. This benchmarking data set includes 1,810 producing horizontal wells drilled since January 2006 with public production data available up to year end 2008.
Initially tested at approximately 10 mmcf/d, the well produced an average of approximately 7.8 mmcf/d during February, with an additional 240 bbls/d of natural gas liquids, totalling approximately 1,540 boe/d. Entering March, the well was still producing at a strong daily rate of approximately 1,460 boe/d. Included in these numbers is estimated H2S content of 3.9 percent and CO2 of 1.5 percent, both lower than the initial test. All numbers are raw gas and liquids production from field estimates. On an acid-gas free basis and after separation from lease condensates, the heating value of the gas is at least 1,225 btu/scf, earning the Fireweed gas a significantly higher sales price per mcf than typical dry gas.
This industry-leading well was completed with six fracture treatments. The company is investigating an increase in the number of frac treatments on subsequent wells to further improve results.
Due to the high pressure and flow rates of the new well, nearly all of Breaker's pre-existing Fireweed production of approximately 750 boe/d was backed out during the month of February. The company is currently undertaking facility modifications to be completed before the end of the first quarter to accommodate production from its second multi-frac well. In addition, expansion of the gathering system is planned for the second half of 2009 to enable full production from the company's backed-out wells and accommodate its growing volumes in the area.
Breaker recently finished drilling the horizontal leg of its second Fireweed multi-frac well. The Company experienced gas kicks while drilling, suggesting minimal depletion from offset wells and potential for good permeability. A multi-frac completion will be performed on the well before the end of the first quarter.
This ongoing success confirms the potential of the Fireweed high rate, liquids rich resource play. Currently, Breaker has identified 14 additional drilling locations at Fireweed and the Company's horizontal multi-frac resource play inventory is now approximately 160 potential new locations. The resource play areas include Fireweed, Irricana light oil, and Provost sweet gas.
Summary
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During 2008, Breaker added 11.4 million boe of high-quality oil and gas
Proved plus Probable Reserves via total capital expenditures of approximately
$183.6 million (unaudited). Breaker continues to execute on its business plan
of making strategic acquisitions balanced with a focused exploration,
development and exploitation plan, which resulted in the following at year end
2008:
- Proved plus Probable reserves growth to 27,198 mboe; a 51 percent
increase over year end 2007.
- Increased Proved plus Probable reserves per fully diluted share by
43 percent in 2008.
- Net Asset Value (BT 10%) of $8.35 per fully diluted share based on
forecast price assumptions.
- Proved plus Probable Recycle Ratio (with change in FDC discounted at
10%) of 2.3.
- Proved plus Probable Reserve Life Index (based on est. Q4 2008
average production) of 11.1 years.
- Current inventory of approximately 375 gross oil and natural gas
drilling locations.
- Proved Developed Producing light oil reserves grew by 46%, reflecting
continued drilling success at the company's light oil multi-frac
horizontal resource play at Irricana.
- Currently Breaker has a bank line of $125 million. As of March 9,
2009 Breaker had drawn approximately $81 million with net debt
estimated at approximately $93 million including working capital
deficit. Breaker has submitted its 2009 year end reserve report to
its lenders for its annual review and expects the review to be
completed by early June 2009 at the latest.
The government of Alberta has recently announced a drilling royalty credit
and new well incentive program. The program is expected to have a positive
impact on Breaker, as the Company's portfolio of Alberta drilling locations
are well located to maximize available benefits under the programs.
Shareholder Rights Plan
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Breaker's Board of Directors has adopted a Shareholder Rights Plan (the "Rights Plan"), effective immediately, subject to acceptance by the Toronto Stock Exchange.
The Rights Plan is designed to encourage the fair treatment of Breaker's shareholders in connection with any take-over offer for the Company by providing the Board of Directors and the shareholders with more time than is afforded under existing Canadian legislation to properly evaluate any unsolicited take-over bid or for the Board of Directors to seek alternatives to such a bid that are in the best interests of the Company and to maximize value for all shareholders. The Rights Plan has not been adopted in response to any specific take-over bid or other proposal to acquire control of Breaker and Breaker is not aware of any such pending or contemplated proposals.
Shareholders will be asked to confirm the Rights Plan at Breaker's next annual shareholder meeting to be held on May 26, 2009. Upon such confirmation, the Rights Plan will have an initial term that would expire at the annual shareholder meeting of the Company to be held in 2012 unless terminated earlier in accordance with its terms. If the Rights Plan is not confirmed at the upcoming shareholder meeting, the Rights Plan and all rights issued pursuant to it will terminate. The Rights Plan may be extended for an additional three years after 2012 by resolution of the shareholders.
The Rights Plan is similar to rights plans adopted by other Canadian corporations. Subject to the terms of the Rights Plan, the rights issuable under the Rights Plan become exercisable only when a person, including any party related to it, acquires or announces its intention to acquire 20 percent or more of the Company's outstanding shares without complying with the "Permitted Bid" provisions of the Rights Plan or without approval of the Board of Directors. In the event of such an acquisition, each right would entitle the holder, other than the acquiring person and related persons, to purchase shares of Breaker at one half of the prevailing market price at the time.
The Rights Plan is not intended to prevent take-over bids. Under the Rights Plan, a Permitted Bid is a bid made for all of the Company's shares to all shareholders that is open for not less than 60 days. If, at the end of the 60 days, at least 50 percent of the outstanding shares, other than those owned by the offeror and related parties, have been tendered to the bid, the offeror may take up and pay for the shares but must extend the bid for a further 10 days to allow other shareholders to tender.
Additional details regarding the Rights Plan will be provided in the management information circular that will be available on SEDAR and mailed to the shareholders of the Company prior to the annual shareholder meeting.
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 Energy Ltd. has 46.0 million Class A shares and 3.8 million options outstanding, and trades on the TSX under the symbol WAV.
Forward-looking Statements
This press release contains forward-looking statements concerning Breaker's future production, reserves and reserves values, exploration and development plans and the anticipated results thereof, and management's future plans and strategies and what they intend and expect to achieve. Such forward-looking statements or information are based on a number of assumptions, including current commodity price forecasts for petroleum and natural gas, current exploration and production forecasts, assumptions regarding royalties and expenses, drilling results consistent with expectations and general economic and business conditions, which may prove to be incorrect.
Although Breaker 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 Breaker 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 Breaker and described in the forward-looking statements or information. These risks and uncertainties include but are not limited to: volatility in market prices for oil and natural gas, liabilities inherent in Breaker's operations, uncertainties associated with estimating oil and natural gas reserves, Breaker's ability to access external sources of debt and equity capital, imprecision in estimating the timing, costs and levels of production, results of exploration, development, results of acquisitions and drilling, Breaker's ability to secure the necessary product processing and transportation, changes in environmental, tax or other regulation or the interpretation of such regulations.
Additional information on these and other factors that could affect Breaker's operations and/or financial results are included in Breaker's reports on file with Canadian securities regulatory authorities. Readers are cautioned that the foregoing lists of factors are not exhaustive. The forward-looking statements contained in this press release are made as of the date hereof and Breaker 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, except as so required by applicable securities laws.
Note: Boe means barrel of oil equivalent on the basis of 1 boe to 6,000 cubic feet of natural gas. Boe's may be misleading, particularly if used in isolation. A boe conversion ratio of 1 boe for 6,000 cubic feet of natural gas is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Boe/d means barrel of oil per day.
In this press release: (i) mboe means thousand boe; (ii) boe/d means boe per day; (iii) bbls means barrels; (iv) mbbls means thousand barrels; (v) bbls/d means barrels per day; (vi) cf means cubic feet; (vii) mcf means thousand cubic feet; (viii) mmcf means million cubic feet; (ix) mmcf/d means million cubic feet per day; (x) H2S means hydrogen sulfide; (xi) CO2 means carbon dioxide, and (xii) btu means British thermal units; (xiii) mmbtu means million British thermal units.
The TSX does not accept responsibility for the adequacy or accuracy of this release.
%SEDAR: 00021180E