CALGARY, Jan. 28 /CNW/ - Upper Lake Oil and Gas Ltd. (TSX:UP) ("Upper Lake" or the "Company") announced today that its Board of Directors has finalized the Company's budget for 2008. In addition, Upper Lake announced that it has exercised an option to acquire certain oil and gas assets in central Alberta and northeast British Columbia from Crocotta Energy Inc. for $3.2 million.
Certain information included in this News Release constitutes forward-looking information, including information concerning Upper Lake's plans to finance the acquisition of assets from Crocotta Energy Inc., the timing of closing of that acquisition and anticipated average production for 2008. Readers should review the cautionary statement that appears at the end of this News Release.
Operational update
Upper Lake estimates that its year-end exit production for 2007, based on field estimates, was approximately 820 barrels of oil equivalent per day (70% natural gas), exceeding the Company's year-end exit production guidance of 700 to 800 boe/d. In the fourth quarter, Upper Lake drilled two (1.48 net) wells, with a success rate of 100%, including a new pool discovery. The Company's current production, based on available field reports, is estimated at 1,000 boe/d, which includes flush production from the previously announced 15-04-43-28 w4 oil well in Ferrybank, Alberta and a gas well drilled in a newly discovered pool in the Ferrybank area.
Asset acquisition
Upper Lake also advises that it has exercised rights available to it under an agreement with Crocotta Energy Inc. to acquire certain oil and gas assets in central Alberta and northeast British Columbia for $3.2 million in cash, before closing adjustments. The assets include one (16.67% net) producing well at Tupper in northeast British Columbia, five (3.2 net) cased and tested wells awaiting tie-in in Alberta, and varying working interests in 16,000 acres of land in Alberta and British Columbia, including a one-third working interest in the Tupper area. The Tupper lands are in the vicinity of a developing Montney resource play. Upper Lake expects to finance the acquisition through its existing credit facilities. Closing of the acquisition is expected to occur by the end of February 2008, subject to the satisfaction of certain customary conditions.
Capex budget for 2008
On November 2, 2007, the Board of Directors of Upper Lake approved a preliminary 2008 capital program of between $9 and $12 million. That preliminary budget has been revised to a "cash flow" budget of $7 million plus the above noted $3.2 million acquisition of assets from Crocotta Energy Inc. The 2008 capital program assumes the drilling of eight (5.78 net) wells, and is based on an average natural gas price of $6.00 per gigajoule at AECO and $80 WTI per barrel for oil and liquids. Any significant variations from these assumed commodity prices may result in decreased or increased activity by the Company and the budget is subject to adjustment as circumstances dictate. Upper Lake believes the wells selected for drilling in connection with the 2008 capital program are consistent with management's medium-risk philosophy.
Guidance
Based on the Company's approved capital budget, average 2008 production is expected to be 1,000 boe/d, weighted approximately 70% to natural gas production.
Upper Lake Oil and Gas Ltd. is a Calgary-based company active in the exploration, development and production of oil and gas in Western Canada. The Company commenced active operations on October 12, 2007 when shareholders, optionholders and warrantholders of Diamond Tree Energy Ltd. ("Diamond Tree") approved an arrangement involving Upper Lake, Diamond Tree and Crocotta Energy Inc. at a special meeting. In connection with the arrangement, certain oil and gas properties of Diamond Tree in central and eastern Alberta consisting of exploration assets, producing properties, related tangibles and undeveloped lands were transferred to Upper Lake. Additional information concerning Upper Lake is available on the Company's website at www.upperlake.ca or on SEDAR at www.sedar.com.
Certain information set out in this News Release constitutes forward-looking information. Forward-looking statements are often, but not always, identified by the use of words such as "seek", "anticipate", "plan", "continue", "estimate", "expect", "may", "will", "intend", "could", "might", "should", "believe" and similar expressions. Forward-looking statements are based upon the opinions and expectations of management of the Company as at the effective date of such statements and, in certain cases, information received from third parties. Although the Company believes that the expectations reflected in such forward-looking statements are based upon reasonable assumptions and that information received from third parties is reliable, it can give no assurance that those expectations will prove to have been correct. Forward-looking statements are subject to certain risks and uncertainties that could cause actual events or outcomes to differ materially from those anticipated or implied by such forward-looking statements. These factors include, but are not limited to, such things as the volatility of prices for oil and gas and other commodities, commodity supply and demand, fluctuations in currency and interest rates, inherent risks associated with the exploration and development of oil and gas properties, ultimate recoverability of reserves, timing, results and costs of exploration and development activities, timing and costs of facilities and pipeline construction, availability of financial resources or third-party financing, availability of drilling and related equipment and new laws and regulations. Accordingly, readers should not place undue reliance upon the forward-looking statements contained in this News Release and such forward-looking statements should not be interpreted or regarded as guarantees of future outcomes. Forward-looking information respecting the use of the Company's current credit facility to finance the acquisition of assets from Crocotta and the timing of closing of the acquisition transaction is based upon the current capital budget developed for the Company (which is subject to change), the terms of the agreements governing the Company's credit facility with its principal lender, the terms of the governing agreement between the Company and Crocotta Energy Inc., advice received from Crocotta Energy Inc. with respect to the timing of closing and the satisfaction of all applicable conditions to completion of the transaction. Forward-looking information respecting anticipated 2008 production is based upon the assumptions noted above in this News Release and current production from the Company's oil and gas properties, anticipated exploration and development drilling activities for the balance of 2008, historical success rates associated with exploration and development drilling in the areas in which the Company proposes to drill oil and gas wells, management's prior experiences with the tie-in of successful wells in various areas, the availability of transportation and processing infrastructure, management's evaluation of the individual wells to be drilled, historical production rates and other data associated with prior wells drilled in the areas in which the Company proposes to drill oil and gas wells in 2008 and industry conditions including the applicable royalty structure. The forward-looking statements of Upper Lake contained in this News Release are expressly qualified, in their entirety, by this cautionary statement. Additional information concerning the various risk factors to which Upper Lake is exposed in the conduct of its business (and which may affect the expectations or outcomes reflected in the forward-looking statements contained in this News Release) are described in publicly available documents filed by or on behalf of Upper Lake with certain securities regulatory authorities in Canada, which are available through SEDAR at www.sedar.com, including the September 12, 2007 Management Information Circular and Proxy Statement prepared by Diamond Tree Energy Ltd. in connection with the special meeting of the securityholders of Diamond Tree Energy Ltd. held on October 12, 2007.
A barrel of oil equivalent (boe), derived by converting gas to oil in the ratio of six thousand cubic feet of gas to one barrel of oil, may be misleading, particularly if used in isolation. A boe conversion is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.