/NOT FOR DISTRIBUTION TO UNITED STATES NEWS WIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES OF AMERICA./
CALGARY, Nov. 26 /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 six months ended September 30, 2008. For a complete copy of Fairmount's quarterly financial statements and management's discussion and analysis ("MD&A") please visit www.sedar.com. Certain information contained in this news release, including reserves and present value of future net revenues, development plans, drilling locations, and anticipated production from Gold Creek and Thorsby constitute forward-looking information which are subject to risks and uncertainties. See "Forward - Looking Information".
Highlights:
- Net income of $42,713 for the three months ended September 30, 2008.
- Cash flow of $342,013 for the three months ended September 30, 2008.
- One well drilled (0.5 net) and two wells (1.0 net) completed in
multiple zones at Gold Creek during the quarter with tie in
operations nearing completion.
- Completed the sale of approximately 165 boe per day of production at
Harmattan for gross proceeds of $12,000,000 in cash.
- Completed the sale of approximately 45 boe per day of production at
Crossfield for gross proceeds of $2,250,000 in cash.
- Bank lines renewed at $7,000,000 for the operating revolving facility
and $4,000,000 for the acquisition and development facility with
drawings of $900,000 at September 30, 2008.
Operations
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Three Months Ended
September June March December
30, 30, 31, 31,
2008 2008 2008 2007
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Wells drilled - gross 3 1 2 3
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Wells drilled - net 2.5 0.5 1.0 1.8
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Natural gas production
- mcf/day 914 1,412 1,439 1,307
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Oil production bbl/day 8 7 12 13
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NGL production bbl/day 84 162 162 138
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Average daily production
- boe/day 245 404 414 369
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Average selling price -
natural gas $/mcf $8.73 $9.40 $7.94 $6.07
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Average selling price -
oil $/bbl $111.12 $123.35 $97.84 $86.70
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Average selling price -
NGL's $/bbl $62.73 $60.73 $52.91 $48.01
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Average selling price -
$/boe $57.82 $59.34 $51.16 $42.55
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Three Months Ended
September June March December
30, 30, 31, 31,
2007 2007 2007 2006
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Wells drilled - gross 0 1 3 6
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Wells drilled - net 0.0 0.1 1.6 1.9
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Natural gas production
- mcf/day 1,333 1,402 1,000 865
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Oil production bbl/day 19 17 15 25
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NGL production bbl/day 116 140 107 114
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Average daily production
- boe/day 357 390 289 284
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Average selling price -
natural gas $/mcf $5.17 $7.06 $7.32 $6.85
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Average selling price -
oil $/bbl $78.61 $69.99 $66.68 $67.06
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Average selling price -
NGL's $/bbl $40.26 $41.99 $37.93 $32.86
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Average selling price -
$/boe $36.51 $43.41 $42.89 $40.09
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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 30% to 84% in 13.75 contiguous sections of land in the Gold Creek area. Fairmount is the operator of all of its existing Gold Creek wells.
Production at Gold Creek was shut in for all of July and August with some production coming back on stream during September. As a result, Gold Creek contributed an average of only 63 boe/day of production for the three months ended September 30, 2008 as compared to the estimated productive capacity of over 600 boe/day and production in the first quarter of 225 boe/day.
In June, the BP Canada South Wapiti plant was shut down for a scheduled plant turn-around for what was anticipated to be a three week period. However due to a lengthened shut down of the system related to several issues, Fairmount's production was backed out of the gathering system until such time as flush production from wells which had priority over our wells came off. As a result, Fairmount's production at Gold Creek was nominal through all of July and August and into early September. Once the flush production from other wells decreased, we expected our production to increase to approximately 600 boe/day as our wells were brought onto production. However, we continue to have our two greatest productive capability wells shut in or severely restricted due to natural gas liquids handling constraints in the BP gathering system. Fairmount is currently working on solutions to resolve these previously unforeseen bottlenecks to allow us to utilize our full capacity in the gathering system.
During the quarter, Fairmount participated in the drilling of one new well (0.5 net) at Gold Creek and the completion of two wells (1.0 net), including one which was drilled in the first quarter. Both wells were completed in multiple formations and will be tied into our existing gathering system by the end of November, 2008. Since these wells tested significantly lower natural gas liquid rates than Fairmount's other wells in the area, we anticipate that there will be capacity available in the BP gathering system for the production from these wells. Initial production capability from the two wells is anticipated to be 800 boe/day (400 boe/day net).
Fairmount and partners own gathering and compression facilities sufficient to process 11.5 mmcf/day of raw gas from the Gold Creek area. After the two new wells are brought onto production and the liquid handling issues are resolved, we anticipate that there will be more productive capability from the area than current infrastructure capacity. This means we may need to wait for production declines from some wells before we can bring all the wells onto production or, depending upon stabilized production from existing wells and success with future drilling, create new or expand existing infrastructure to handle the total productive capability of our Gold Creek wells.
We expect average production from Gold Creek of 240 boe/day during October and November, increasing to 700 boe/day during December as production from existing wells is ramped up and the two new wells are placed on production, and increasing further to 900 boe/day after the natural gas liquids bottlenecks are resolved.
Based on the results of the nine wells drilled to date on this property, geologic mapping, and/or 3D seismic Fairmount has identified an additional 6 drilling locations on existing Company lands.
Thorsby
The Thorsby property is located in west central Alberta, approximately 32 kilometres southwest of Edmonton. Fairmount entered into a farm-in agreement with a major Canadian independent oil and gas company and drilled a successful exploratory well in January 2008, and as a result earned a 100% working interest in 2 sections of land, with drilling options on additional lands. The well was completed in 3 zones and was placed on production during September 2008. During the quarter, this well contributed 8 boe/day of production but is expected to produce at a stabilized rate of 25 boe/day going forward. Subsequent to quarter end, Fairmount drilled and cased 1 well (0.5 net) at Thorsby. Completion operations for this well are expected to occur in early December. This well was originally planned to be drilled 100% by Fairmount. Prior to drilling the well, Fairmount was approached by an offsetting leaseholder to pool our lands, resulting in Fairmount having a 50% working interest in the well and the offsetting section. As a result of this pooling, Fairmount has another potential location for future drilling.
Chin Coulee
The Chin Coulee property is located in southern Alberta, approximately 50 kilometres east of Lethbridge. Fairmount drilled and cased two wells (2.0 net) on these lands during the quarter but completion operations were not successful and these wells will be abandoned.
Harmattan
The Harmattan property is located approximately 105 kilometres north west of the city of Calgary. Fairmount had 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 also owned 10% of the gathering and field compression facilities at Harmattan.
On September 30, 2008 the Company completed the sale of its interests in the Harmattan area to Pengrowth Energy Trust for $12,000,000 before closing adjustments. The Harmattan property was assigned 528,000 boe of proved reserves with a net present value before tax discounted at 10% of $10,556,000 in the Company's NI 51-101 compliant independent reservoir engineering report as at March 31, 2008(1). Prior to the sale on September 30, Harmattan contributed 140 boe/day of production for the quarter as compared to 191 boe/day during the prior year quarter. Production during the quarter was impacted by plant turn around operations, and the Company considers normalized production would have been 165 boe/day.
The Harmattan property was the Company's first oil and gas property. Fairmount participated in the drilling of 47 wells (3.8 net) during the four years prior to its sale. The sale of the Harmattan property was the final step in the full cycle business model with respect to this property. Over the past four years, Fairmount participated in the drilling and the construction of infrastructure to bring this property onto production and create reserve value. The exploration and development opportunity for this property was largely exhausted and the reserve value confirmed through production history. As a long life producing asset, Harmattan no longer fit with the Company's high growth business model and was successfully monetized.
Crossfield
Fairmount had a land position of approximately 5 sections with an average working interest of approximately 47.5% in the Crossfield area, north west of Calgary. On August 15, 2008 the Company completed the sale of its interests in the Crossfield area to Bonavista Energy Trust for $2,250,000 before closing adjustments. The Crossfield property was assigned 89,000 boe of proved reserves with a net present value before tax discounted at 10% of $1,602,000 in the Company's NI 51-101 compliant independent reservoir engineering report as at March 31, 2008(1). This same report assigned 117,000 boe of proved plus probable reserves with a net present value before tax discounted at 10% of $1,842,000(1). Prior to the sale on August 15, Crossfield contributed 26 boe/day of production for the quarter as compared to 37 boe/day during the prior year quarter. Production during the quarter was impacted by plant turn around and infrastructure construction operations and the Company considers normalized production would have been 45 boe/day.
Financial Results and selected financial information
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Three Months Ended
September June March December
30, 30, 31, 31,
$ except number of shares 2008 2008 2008 2007
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Natural gas sales 734,434 1,207,795 1,039,287 729,918
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Crude oil and natural
gas liquids sales 566,234 974,173 888,314 714,465
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Interest income - - 111 3,511
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Royalties (250,232) (614,863) (537,145) (317,908)
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Revenue 1,307,152 1,419,772 1,351,713 1,142,088
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Production expenses 216,791 340,903 328,057 288,903
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General and administrative
expenses 322,300 359,315 303,737 247,875
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Depletion, depreciation
& accretion 478,442 886,186 907,170 834,993
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Interest expense 171,763 197,207 176,920 164,867
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Net income (loss) before
income taxes 42,713 (479,032) (408,837) (463,674)
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Recovery of future
income taxes - - 1,402,166 -
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Net income (loss) 42,713 (479,032) 993,329 (463,674)
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Net income (loss) per share
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- basic $0.00 $(0.03) $0.06 $(0.03)
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- diluted $0.00 $(0.03) $0.06 $(0.03)
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Weighted average common
shares outstanding:
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- Basic 17,167,204 17,198,400 17,241,614 15,457,889
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- Diluted 17,277,979 17,198,400 17,241,614 15,457,889
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Three Months Ended
September June March December
30, 30, 31, 31,
$ except number of shares 2007 2007 2007 2006
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Natural gas sales 633,856 900,622 658,422 545,097
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Crude oil and natural
gas liquids sales 565,123 641,013 455,324 501,836
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Interest income 3,840 4,667 6,956 3,120
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Royalties (345,581) (420,662) (321,739) (183,887)
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Revenue 865,907 1,133,766 806,166 873,118
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Production expenses 315,449 215,645 262,958 207,473
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General and administrative
expenses 344,248 394,290 220,661 170,267
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Depletion, depreciation
& accretion 764,453 789,912 569,914 517,116
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Interest expense 179,169 135,604 21,405 23,049
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Net income (loss) before
income taxes (820,840) (503,684) (376,085) (116,835)
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Recovery of future
income taxes - - 1,475,074 -
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Net income (loss) (820,840) (503,684) 1,098,989 (116,835)
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Net income (loss) per share
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- basic $(0.06) $(0.04) $0.08 $(0.01)
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- diluted $(0.06) $(0.04) $0.08 $(0.01)
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Weighted average common
shares outstanding:
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- Basic 13,671,889 13,671,889 13,671,889 12,949,824
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- Diluted 13,671,889 13,671,889 13,920,761 12,949,824
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Reconciliation of cash flow from operations to net income (loss):
The terms "cash flow" or "cash flow from operations" as used below do 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.
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Three Months Ended
September June March December
30, 30, 31, 31,
$ except per share amounts 2008 2008 2008 2007
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Net Income (loss) 42,713 (479,032) 993,329 (463,674)
Depletion, depreciation
and accretion 478,442 886,186 907,170 834,993
Stock-based compensation 75,143 115,193 44,666 69,124
Loss (gain) on forward
commodity contracts (254,285) 161,010 44,350 -
Future income taxes
(recovery) - - (1,402,166) -
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Cash flow from operations 342,013 683,357 587,349 440,443
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Cash flow per common share:
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- Basic $0.02 $0.04 $0.03 $0.03
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- Diluted $0.02 $0.04 $0.03 $0.03
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Three Months Ended
September June March December
30, 30, 31, 31,
$ except per share amounts 2007 2007 2007 2006
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Net Income (loss) (820,840) (503,684) 1,098,989 (116,835)
Depletion, depreciation
and accretion 764,453 789,912 569,914 517,116
Stock-based compensation 83,428 101,999 107,313 72,048
Future income taxes
(recovery) - - (1,475,074) -
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Cash flow from operations 27,041 388,227 301,142 472,329
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Cash flow per common share:
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- Basic $0.00 $0.03 $0.02 $0.04
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- Diluted $0.00 $0.03 $0.02 $0.04
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Forward - Looking Information
This news release contains forward-looking information, including but not limited to estimated reserves and future net revenues, future exploration and development plans, anticipated production levels, and potential drilling locations. Information relating to reserves and related future net revenue has been independently evaluated by GLJ Petroleum Consultants Ltd. and is forward-looking information as it involves the implied assessment, based on certain estimates and assumptions, that the reserves described can be profitably produced in the future. Additionally, estimates of future net value involve assumptions relating to production rates, commodity prices and exchange rates, operating costs, capital expenditures and well abandonment costs. This information relates to future events or the Company's future performance. All statements and information other than statements of historical fact are forward-looking information. In some cases, forward-looking information 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 information relating to reserves and future net revenue are estimates only. Actual reserves and future net revenues will differ from those estimated by GLJ Petroleum Consultants Ltd. and such differences may be material. 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 information will not occur. Forward-looking information is based on assumptions, including, 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; commodity prices, 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 financial performance; 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 information 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 information. 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 press release include, but are not limited to, general economic conditions in Canada, the United States and globally; the actual productive capacity from new and existing wells in the Gold Creek area and Thorsby area may differ materially from the Company's forecasted production rates once wells come onto production and the timing of wells coming onto production may differ materially from that expected by the Company; 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 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. Subject to the company's obligations under applicable securities laws, the Company is not under any duty to update any of the forward-looking information after the date of this news release to conform such statements to actual results or to changes in the Company's expectations.
Per barrel of oil equivalent amounts have been calculated using a conversion rate of six thousand cubic feet of natural gas to one barrel of oil (6:1). Barrel of oil equivalents ("boe") may be misleading, particularly if used in isolation. A boe conversion of ratio 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. Present values of future net revenue do not represent fair market value of Fairmount's reserves.
Note 1: Additional information regarding the Company's reserves can be found in the Company's NI 51-101 F1 Statement of Reserves Data and Other Oil and Gas Information as filed on Sedar at www.sedar.com. The reader is cautioned that 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 the effects of aggregation.
The TSX Venture Exchange does not accept responsibility for the adequacy or accuracy of this release.