/NOT FOR DISTRIBUTION TO UNITED STATES NEWS WIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES OF AMERICA/
CALGARY, Aug. 27 /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 months ended June 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, anticipated production from Gold Creek, and the sale of the Harmattan property, constitute forward-looking information which are subject to risks and uncertainties. See "Forward - Looking Information".
Highlights:
- Cash flow for the quarter increased 76% to $683,357 as compared to
$388,227 in the prior year period.
- Production for the three months ended June 30, 2008 was 404 boe/day
in spite of reduced production due to plant turn-around operations at
both Harmattan and Gold Creek.
- Subsequent to quarter end, Fairmount entered into agreements to sell
approximately 210 boe per day of production at Crossfield and
Harmattan for gross proceeds of $14.25 million.
- Excluding the Harmattan and Crossfield properties, Fairmount's
productive capacity is currently estimated at 625 boe/day before the
impact of our recent drilling program. However, production levels
subsequent to June 30 have been impacted by the extended plant turn
around and gathering and processing issues at Gold Creek. We
anticipate Gold Creek production to be restored during September and
at that time expect total corporate production to reach 675 boe/day
following the tie in of the Thorsby well.
- Fairmount's five well (4.0 net) summer drilling program is underway
with 2 wells (1.0 net) drilled and cased at Gold Creek, 2 wells
(2.0 net) drilled and cased at Chin Coulee, and 1 well (1.0 net) at
Thorsby planned for September. Completion programs are underway and
the outcome of this program will direct the drilling for the balance
of the year.
Operations
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Three Months Ended
June March December September
30, 31, 31, 30,
2008 2008 2007 2007
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Wells drilled - gross 1 2 3 0
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Wells drilled - net 0.5 1.0 1.8 0.0
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Natural gas production
- mcf/day 1,412 1,439 1,307 1,333
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Oil production bbl/day 7 12 13 19
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NGL production bbl/day 162 162 138 116
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Average daily production
- boe/day 404 414 369 357
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Average selling price -
natural gas $/mcf $9.40 $7.94 $6.07 $5.17
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Average selling price -
oil $/bbl $123.35 $97.84 $86.70 $78.61
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Average selling price -
NGL's $/bbl $60.73 $52.91 $48.01 $40.26
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Average selling price -
$/boe $59.34 $51.16 $42.55 $36.51
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Three Months Ended
June March December September
30, 31, 31, 30,
2007 2007 2006 2006
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Wells drilled - gross 1 3 6 5
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Wells drilled - net 0.1 1.6 1.9 0.8
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Natural gas production
- mcf/day 1,402 1,000 865 857
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Oil production bbl/day 17 15 25 23
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NGL production bbl/day 140 107 114 84
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Average daily production
- boe/day 390 289 284 250
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Average selling price -
natural gas $/mcf $7.06 $7.32 $6.85 $5.73
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Average selling price -
oil $/bbl $69.99 $66.68 $67.06 $78.64
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Average selling price -
NGL's $/bbl $41.99 $37.93 $32.86 $36.46
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Average selling price -
$/boe $43.41 $42.89 $40.09 $39.13
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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.
Gold Creek contributed an average of 225 boe/day of production for the three months ended June 30, 2008, up from 107 boe/day during the prior year period. The BP South Wapiti plant which processes approximately 290 mmcf of natural gas per day was shut down for a scheduled plant turn-around for what was anticipated to be a three week period in the first week of June, 2008. While the main plant came back up following the scheduled shut down, there were several mechanical problems which delayed production coming on stream from the portion of the gathering system to which our wells are connected. Due to the lengthened shut down of the gathering system, some wells which have priority in the gathering system experienced a large build up in pressure, and have effectively squeezed us out of the gathering system until such time as their flush production has blown down. As a result, Fairmount's production at Gold Creek has been nominal through all of July and is expected to remain that way until early September. Once this flush production from other wells has decreased, we expect production from the area will be approximately 600 boe/day. Fairmount and partners own gathering and compression facilities sufficient to process 12.5 mmcf/day of raw gas allowing capacity for future wells in the Gold Creek area.
Fairmount participated in the drilling of one well (0.5 net) at Gold Creek during the quarter and one well (0.5 net) immediately following the first well during July as part of our summer drilling program. Both wells have been cased and are awaiting completion operations. The Company plans to drill up to three more wells (1.3 net) at Gold Creek this year.
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 4 to 8 drilling locations on existing Company lands.
Harmattan
In total Fairmount has drilled 47 wells (3.8 net) at Harmattan as at June 30, 2008 with the Company estimating 12 additional locations (1.5 net) remain for future development drilling. Harmattan averaged 138 boe/day of production during the quarter as compared to 208 boe/day during the same period last year. Production in the current year quarter was hampered by scheduled maintenance and plant turnaround at Harmattan during the quarter.
Subsequent to quarter end, On August 18, 2008 the Company entered into a letter of intent to sell its interests in the Harmattan area for $12,000,000 before closing adjustments with an effective date of August 1, 2008 and an anticipated closing date of September 18. 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. 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.
Crossfield
Fairmount has a land position of approximately 5 sections with an average working interest of approximately 47.5% in the Crossfield area, northwest of Calgary. Fairmount is the operator of the Crossfield property with 2 wells (0.78 net). During the quarter, Crossfield contributed 20 boe/day of production. Subsequent to quarter end, on August 14, 2008 the Company sold its interest in the Crossfield area for $2,250,000 before closing adjustments. The Crossfield property was assigned 117,000 boe of proved plus probable reserves with a net present value before tax discounted at 10% of $1,842,000 in the Company's NI 51-101 compliant independent reservoir engineering report as at March 31, 2008.
Thorsby
The Thorsby property is located in west central Alberta, approximately 32 kilometres southwest of Edmonton. Fairmount 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 is expected to be placed on production during September 2008. As part of our summer drilling program, Fairmount intends to drill 1 well (1.0 net) at Thorsby in September 2008.
Chin Coulee
The Chin Coulee property is located in southern Alberta, approximately 50 kilometres east of Lethbridge. Subsequent to quarter end, Fairmount drilled and cased two wells (2.0 net) on these lands in July.
Financial Results and selected financial information
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Three Months Ended
June March December September
$ except number of shares 30, 31, 31, 30,
2008 2008 2007 2007
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Natural gas sales 1,207,795 1,039,287 729,918 633,856
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Crude oil and natural
gas liquids sales 974,173 888,314 714,465 565,123
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Interest income - 111 3,511 3,840
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Royalties (614,863) (537,145) (317,908) (345,581)
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Revenue 1,419,772 1,351,713 1,142,088 865,907
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Production expenses 340,903 328,057 288,903 315,449
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General and administrative
expenses 359,315 303,737 247,875 344,248
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Depletion, depreciation
& accretion 886,186 907,170 834,993 764,453
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Interest expense 197,207 176,920 164,867 179,169
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Net income (loss) before
income taxes (479,032) (408,837) (463,674) (820,840)
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Recovery of future
income taxes - 1,402,166 - -
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Net income (loss) (479,032) 993,329 (463,674) (820,840)
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Net income (loss) per
share - basic $(0.03) $0.06 $(0.03) $(0.06)
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- diluted $(0.03) $0.06 $(0.03) $(0.06)
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Weighted average common
shares outstanding:
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- Basic 17,198,400 17,241,614 15,457,889 13,671,889
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- Diluted 17,198,400 17,241,614 15,457,889 13,671,889
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Three Months Ended
June March December September
$ except number of shares 30, 31, 31, 30,
2007 2007 2006 2006
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Natural gas sales 900,622 658,422 545,097 451,908
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Crude oil and natural
gas liquids sales 641,013 455,324 501,836 447,225
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Interest income 4,667 6,956 3,120 1,212
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Royalties (420,662) (321,739) (183,887) (153,217)
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Revenue 1,133,766 806,166 873,118 752,819
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Production expenses 215,645 262,958 207,473 168,924
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General and administrative
expenses 394,290 220,661 170,267 231,169
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Depletion, depreciation
& accretion 789,912 569,914 517,116 536,860
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Interest expense 135,604 21,405 23,049 28,786
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Net income (loss) before
income taxes (503,684) (376,085) (116,835) (284,342)
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Recovery of future
income taxes - 1,475,074 - -
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Net income (loss) (503,684) 1,098,989 (116,835) (284,342)
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Net income (loss) per
share - basic $(0.04) $0.08 $(0.01) $(0.03)
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- diluted $(0.04) $0.08 $(0.01) $(0.03)
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Weighted average common
shares outstanding:
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- Basic 13,671,889 13,671,889 12,949,824 11,116,889
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- Diluted 13,671,889 13,920,761 12,949,824 11,116,889
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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
June March December September
$ except per share amounts 30, 31, 31, 30,
2008 2008 2007 2007
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Net Income (loss) (479,032) 993,329 (463,674) (820,840)
Depletion, depreciation
and accretion 886,186 907,170 834,993 764,453
Stock-based compensation 115,193 44,666 69,124 83,428
Loss on forward commodity
contracts 161,010 44,350 - -
Future income taxes
(recovery) - (1,402,166) - -
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Cash flow from operations 683,357 587,349 440,443 27,041
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Cash flow per common share:
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- Basic $0.04 $0.03 $0.03 $0.00
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- Diluted $0.04 $0.03 $0.03 $0.00
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Three Months Ended
June March December September
$ except per share amounts 30, 31, 31, 30,
2007 2007 2006 2006
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Net Income (loss) (503,684) 1,098,989 (116,835) (284,342)
Depletion, depreciation
and accretion 789,912 569,914 517,116 536,860
Stock-based compensation 101,999 107,313 72,048 71,422
Future income taxes
(recovery) - (1,475,074) - -
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Cash flow from operations 388,227 301,142 472,329 323,940
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Cash flow per common share:
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- Basic $0.03 $0.02 $0.04 $0.03
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- Diluted $0.03 $0.02 $0.04 $0.03
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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 and anticipated production levels. 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; 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. Additionally, completion of the sale of the Company's Harmattan property is subject to negotiation of a mutually acceptable definitive agreement, customary due diligence procedures and satisfaction of customary conditions to closing. Certain of these factors are beyond the control of the Company and thus completion of this sale is subject to the risk of non-completion. 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.
The TSX Venture Exchange does not accept responsibility for the adequacy or accuracy of this release.