/NOT FOR DISTRIBUTION TO UNITED STATES NEWS WIRE SERVICES OR FOR
DISSEMINATION IN THE UNITED STATES OF AMERICA./
CALGARY, Feb. 28 /CNW/ - Fairmount Energy Inc. ("Fairmount" or the "Company") (TSX-V - FMT) is pleased to present a summary of its operating and financial results for the three and nine months ended December 31, 2006. For a complete copy of Fairmount's third quarter financial statements and management's discussion and analysis ("MD & A"), please visit www.sedar.com. Certain information contained in this press release, including development plans, drilling locations, and capital expenditures, constitute forward looking statements which are subject to risks and uncertainties. See "Forward-Looking Statements".
All amounts are in Canadian dollars unless otherwise noted.
Highlights
We are pleased to report our sixth consecutive quarter of production growth. Average production for the third quarter increased 74% over the third quarter of last year to 284 boe/day as compared to 163 boe/day, based on a conversion rate of six thousand cubic feet of natural gas to one barrel of oil.
Fairmount had a very successful exploration program during the quarter. In particular, 3 successful wells were drilled (0.9 net) at Gold Creek and 2 successful wells were drilled (1.0 net) at Warner. Test results from the wells at Gold Creek indicate a potential to materially increase production and we are currently focused on bringing these wells into production as soon as possible.
Cash flow from operations, while modest, has grown in each of the last three quarters and should continue to increase as we continue to add production. Fairmount is cautiously optimistic in the recovery of natural gas prices, as prices in Alberta have recovered from the lows set in September, but have somewhat stabilized over the last month. Costs of overall services are coming off their 2005 - 2006 highs and we should be able to improve upon the cost structure of our operations going forward.
Fairmount was the operator for most of the activities undertaken this quarter. We drilled 6 wells (1.9 net) during the quarter with a success rate of 81%. Given the success of the Company's exploration program, the Company has been able to draw the full $2.0 million available under the acquisition and development line to assist in funding ongoing development activities. As a result, the Company has $9.25 million of approved borrowing capacity with the annual bank line review scheduled for April, 2007. At December 31, 2006 there were no drawings under these available credit lines.
During the quarter, Fairmount issued 2,555,000 common shares on a flow-through basis at a price of $1.95 per flow-through common share for aggregate gross proceeds of $4,982,250. This increase in equity, along with our increased bank lines provides Fairmount with the financial resources necessary for continued execution of our capital program.
Financial results and selected financial information
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Three Months Ended
$ except December September June March
number 31, 30, 30, 31,
of shares 2006 2006 2006 2006
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Natural gas sales 545,097 451,908 308,034 334,794
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Crude oil and natural
gas liquids sales 501,836 447,225 347,115 345,055
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Interest income 3,120 1,212 33,036 42,076
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Royalties (183,887) (153,217) (160,254) (189,450)
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Revenue 873,118 752,819 539,712 545,758
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Production expenses 207,473 168,924 119,307 75,234
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General and
administrative
expenses 170,267 231,169 159,191 245,451
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Depletion,
depreciation &
accretion 517,116 536,860 343,194 274,213
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Interest expense 23,049 28,786 6,980 16,547
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Net income (loss)
before income taxes (116,835) (284,342) (130,143) (140,498)
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Recovery of future
income taxes - - - (1,316,700)
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Net income (loss) (116,835) (284,342) (130,143) 1,176,202
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Net income (loss)
per share
- basic $(0.01) $(0.03) $(0.01) $0.10
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- diluted $(0.01) $(0.03) $(0.01) $0.10
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Weighted average
common shares
outstanding:
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- Basic 12,924,824 11,116,889 11,116,889 11,088,236
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- Diluted 12,924,824 11,116,889 11,116,889 11,433,660
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Three Months Ended
$ except December September June March
number 31, 30, 30, 31,
of shares 2005 2005 2005 2005
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Natural gas sales 595,204 377,424 195,345 191,076
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Crude oil and natural
gas liquids sales 336,150 201,417 110,600 85,986
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Interest income 25,749 20,622 31,281 26,465
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Royalties (225,954) (124,831) (74,771) (57,228)
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Revenue 736,150 479,046 262,455 246,299
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Production expenses 91,796 86,885 65,472 32,803
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General and
administrative
expenses 196,313 213,499 228,475 180,674
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Depletion,
depreciation &
accretion 291,857 196,568 133,542 136,491
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Interest expense 14,837 25,174 34,135 27,028
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Net income (loss)
before income taxes 92,855 (121,050) (270,876) (259,644)
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Recovery of future
income taxes - - - (1,615,200)
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Net income (loss) 92,855 (121,050) (270,876) 1,355,556
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Net income (loss)
per share
- basic $0.01 $(0.01) $(0.03) $0.17
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- diluted $0.01 $(0.01) $(0.03) $0.17
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Weighted average
common shares
outstanding:
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- Basic 9,957,585 8,847,585 8,815,717 7,756,855
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- Diluted 10,386,819 8,847,585 8,815,717 8,006,460
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Cash Flow from Operations
The term "cash flow" or "cash flow from operations" as used below does not have any standardized meaning prescribed by GAAP and should not be considered an alternative to, or more meaningful than, cash flow from operating activities or net income (loss) as determined in accordance with GAAP as an indicator of the Company's performance. In addition, the Company's determination of cash flow from operations may not be comparable to that reported by other companies. The reconciliation between net income (loss) and cash flow from operations is set out below. Fairmount believes this measure is meaningful because it is an indicator of funding sources for on-going efforts to replace production volumes and increase reserve volumes. The Company also presents cash flow from operations per share which is calculated using the same methodology as earnings per share; however this measurement also does not correspond to GAAP.
Reconciliation of cash flow from operations to net income (loss):
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Three Months Ended
$ except December September June March
number 31, 30, 30, 31,
of shares 2006 2006 2006 2006
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Net Income (loss) (116,835) (284,342) (130,143) 1,176,202
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Depletion,
depreciation and
accretion 517,116 536,860 343,194 274,213
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Stock-based
compensation 72,048 71,422 41,183 74,811
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Future income taxes
(recovery) - - - (1,316,700)
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Cash flow from
operations 472,329 323,940 254,234 208,526
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Cash flow per common
share:
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- Basic $0.04 $0.03 $0.02 $0.02
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- Diluted $0.04 $0.03 $0.02 $0.02
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Three Months Ended
$ except December September June March
number 31, 30, 30, 31,
of shares 2005 2005 2005 2005
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Net Income (loss) 92,855 (121,050) (270,876) 1,355,556
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Depletion,
depreciation and
accretion 291,857 196,568 133,542 136,491
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Stock-based
compensation 48,492 77,970 71,707 128,947
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Future income taxes
(recovery) - - - (1,615,200)
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Cash flow from
operations 433,204 153,488 (65,627) 5,794
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Cash flow per common
share:
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- Basic $0.04 $0.02 $(0.01) $0.00
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- Diluted $0.04 $0.02 $(0.01) $0.00
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Operations
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Three Months Ended
December September June March
31, 30, 30, 31,
2006 2006 2006 2006
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Wells drilled - gross 6 5 13 4
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Wells drilled - net 1.9 0.8 5.8 1.2
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Natural gas
production - mcf/day 865 857 574 490
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Oil production bbl/day 25 23 19 13
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NGL production bbl/day 114 84 67 73
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Average daily
production - boe 284 250 182 167
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Average selling price
- natural gas $/mcf $6.85 $5.73 $5.90 $7.43
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Average selling price
- oil $/bbl $67.06 $78.64 $80.73 $68.71
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Average selling price
- NGL's $/boe $32.86 $36.46 $33.96 $39.01
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Average selling price
- $/boe $40.09 $39.13 $39.58 $44.95
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Three Months Ended
December September June March
31, 30, 30, 31,
2005 2005 2005 2005
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Wells drilled - gross 7 8 4 3
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Wells drilled - net 1.2 0.8 0.3 0.3
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Natural gas production
- mcf/day 569 434 326 340
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Oil production bbl/day 24 13 13 8
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NGL production bbl/day 44 29 9 13
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Average daily
production - boe 163 115 77 78
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Average selling price
- natural gas $/mcf $11.38 $9.46 $6.57 $6.03
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Average selling price
- oil $/bbl $69.33 $78.63 $68.84 $51.45
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Average selling price
- NGL's $/boe $44.97 $38.91 $32.61 $42.42
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Average selling price
- $/boe $62.08 $54.71 $43.66 $36.69
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Gold Creek
The Gold Creek area is located on the southern flank of the Peace River Arch, near Grande Prairie, Alberta. Fairmount has working interests ranging from 28% to 50% in 12 contiguous sections of land in the Gold Creek area with options on an additional 3 sections. Fairmount is the operator of all of its Gold Creek wells.
In October Fairmount commenced a program to drill 4 (1.36 net) wells in succession on its Gold Creek property as a follow up to its previously announced (August 2006) Gold Creek discovery well. At December 31, 2006, 3 of the 4 wells had been drilled resulting in 2 cased petroleum and/or natural gas wells (0.57 net) and 1 dry and abandoned well (0.28 net). Subsequent to quarter end, the fourth well was cased and completed as a prospective oil and/or natural gas well.
The Company is very pleased with the success of this exploration drilling program and has the following initial test results to report:
The first well (0.28 net) was completed and tested with the well flowing at a final gas rate of 3.4 mmcf/day and 204 bbls/day of condensate for a total of 770 boe/day (gross) after a 5 day period. Fairmount has negotiated a transportation and processing agreement for this well and our previously announced (August 2006) discovery well with pipeline construction underway and both wells expected to be producing in March, 2007.
The second well (0.30 net) has been completed and tested in two prospective zones. Based on preliminary testing results, the first zone flowed at a final gas rate of 3.5 mmcf/day and 155 bbls/day condensate for a total of 738 boe/day (gross) after a 3 day period. The second zone flowed at a final gas rate of 3.0 mmcf/day and 180 bbls/day condensate for a total of 680 boe/day after a 4 day period. Production from these two zones can be commingled and Fairmount plans to produce both zones simultaneously once the well is tied in. The combined total flow rates during the respective test periods was 6.5 mmcf/day of natural gas and 335 bbls/day of condensate for a total of approximately 1,400 boe/day (gross). Fairmount is currently in negotiation for a transportation and processing agreement for this well. Due to the significant potential deliverability of this well, some infrastructure additions will be required to bring this well on production with the Company estimating an on-stream date of July, 2007.
The third well (0.50 net) was cased in January, 2007 with completion and testing operations underway.
Based on the preliminary results of the five wells drilled to date on this property, geologic mapping, and/or 3D seismic Fairmount has identified an initial 5 additional drilling locations on existing Company lands.
Harmattan
Fairmount's Harmattan property is located approximately 100 kilometres north west of Calgary. Fairmount has an interest in approximately 20 sections of land at Harmattan, with an average working interest of approximately 8%. Most wells at Harmattan are oil wells with associated gas and natural gas liquids production.
Fairmount drilled 1 well (0.06 net) at Harmattan during the quarter. In total there had been 42 wells (3.6 net) drilled at Harmattan at December 31, 2006 with the Company estimating 5 to 10 additional locations remain for future development drilling. In the nine months ended December 31, 2006, Fairmount has drilled 11 wells (0.9 net) at Harmattan.
Net average production for the quarter from Harmattan was 241 boe/d consisting of 741 mcf/d of natural gas and 116 bbl of oil, condensate and natural gas liquids. Fairmount owns 10% of the gathering and field compression facilities at Harmattan which are currently running at or near capacity. At quarter end, 2 gross wells are awaiting completion and/or tie in and we expect to be able to maintain production at or near plant capacity for the rest of this fiscal year.
Crossfield
Fairmount has a land position of approximately 6.25 sections with an average working interest of approximately 50% in the Crossfield area, north west of Calgary. Fairmount is the operator of the Crossfield property with 1 well (0.28 net) on production for the quarter and 1 well (0.50 net) completed as a natural gas well. Construction for the tie-in for this well commenced subsequent to quarter end with production anticipated to be on stream by March 31, 2007.
Gilby
Fairmount has approximately 3.75 sections of land in the Gilby area, west of Red Deer, Alberta with an operated average working interest of 50%.
In the fourth quarter of fiscal 2006, a well was drilled, cased and completed for 2 gas zones within the Mannville formation. During this quarter, the well was tied-in. Production during the quarter was impaired by asphaltines in the reservoir which have restricted the flow rate of the well by reducing the effective permeability of the formation. The Company is optimistic it can address this issue through the use of chemicals. This well is currently producing approximately 10 boe/day net to Fairmount.
The Company drilled 1 well (0.50 net) in the second quarter with the well cased and completed in the Edmonton sands in the third quarter. Subsequent to quarter end, the well was tied in and placed on production in February, 2007. The well is currently producing approximately 25 boe/day (net).
Forward-Looking Statements
Certain statements included in this MD&A or other parts of this document, including the "Message to Shareholders" constitute forward-looking statements under applicable securities legislation. These statements relate to future events or the Company's future performance. All statements other than statements of historical fact are forward-looking statements. In some cases, forward-looking statements can be identified by terminology such as "may", "will", "should", "expect", "plan", "anticipate", "believe", "estimate", "predict", "potential", "continue", or the negative of these terms or other comparable terminology. Forward-looking statements or information in this MD&A include, but are not limited to, business strategy and objectives, reserve quantities and the discounted present value of future net cash flows from such reserves, net revenue, future production levels, capital expenditures, exploration plans, development plans, acquisition and disposition plans and the timing thereof, operating and other costs, and royalty rates. These statements are only predictions. Actual events or results may differ materially. In addition, this MD&A may contain forward-looking statements attributed to third party industry sources. Undue reliance should not be placed on these forward-looking statements, as there can be no assurance that the plans, intentions or expectations upon which they are based will occur. By its nature, forward-looking information involves numerous assumptions, known and unknown risks and uncertainties, both general and specific, that contribute to the possibility that the predictions, forecasts, projections and other forward-looking statements will not occur. In addition to other assumptions identified in this MD&A, assumptions in respect of forward-looking statements have been made regarding, among other things:
- the Company's ability to benefit from the combination of growth
opportunities and the ability to grow through the capital markets;
- the Company's acquisition strategy, the criteria to be considered in
connection therewith and the benefits to be derived therefrom;
- sustainability and growth of production and reserves through prudent
management and acquisitions;
- the emergence of accretive growth opportunities;
- the impact of Canadian governmental regulation on the Company;
- the strategy of the Company regarding commodity price risk
management;
- changes in oil and natural gas prices and the impact of such changes
on cash flow;
- the level of capital expenditures devoted to development activity
rather than exploration;
- the use of development activity and/or acquisitions to replace and
add to reserves;
- the quantity of oil and natural gas reserves and oil and natural gas
production levels; and
- currency, exchange and interest rates.
Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, there can be no assurance that such expectations will prove to be correct. The Company can not guarantee future results, levels of activity, performance, or achievements. Moreover, neither the Company nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. Some of the risks and other factors, some of which are beyond the Company's control, which could cause results to differ materially from those expressed in the forward-looking statements contained in this MD&A include, but are not limited to:
- general economic conditions in Canada, the United States and
globally;
- industry conditions, including fluctuations in the price of crude
oil, natural gas and natural gas liquids and services used by the
Company;
- uncertainties associated with estimating reserves;
- royalties payable in respect of oil and gas production;
- governmental regulation of the oil and gas industry, including income
tax, royalty and environmental regulation;
- fluctuation in foreign exchange or interest rates;
- stock market volatility and market valuations;
- the impact of environmental events;
- the need to obtain required approvals from regulatory authorities;
- unanticipated operating events which can reduce production or cause
production to be shut-in or delayed;
- failure to obtain industry partner and other third party consents and
approvals, when required; and
- third party performance of obligations under contractual
arrangements.
Statements relating to "reserves" are deemed to be forward-looking statements, as they involve the implied assessment, based on certain estimates and assumptions, that the reserves described can be profitably produced in the future. Readers are cautioned that the foregoing list of factors is not exhaustive. The forward-looking statements contained in this MD&A are expressly qualified by this cautionary statement. Subject to the Company's obligations under applicable securities laws, the Company is not under any duty to update any of the forward-looking statements after the date of this MD&A to conform such statements to actual results or to changes in the Company's expectations.
Per barrel of oil equivalent ("boe") amounts have been calculated using a conversion rate of six thousand cubic feet of natural gas to one barrel of oil (6:1). Boes may be misleading, particularly if used in isolation. A boe conversion ratio of 6 mcf:1 bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.
The TSX Venture Exchange does not accept responsibility for the adequacy
or accuracy of this release.