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Press release from CNW Group

SURE ENERGY ANNOUNCES YEAR END 2010 FINANCIAL AND OPERATING RESULTS

Wednesday, March 09, 2011

SURE ENERGY ANNOUNCES YEAR END 2010 FINANCIAL AND OPERATING RESULTS16:36 EST Wednesday, March 09, 2011CALGARY, March 9 /CNW/ - Sure Energy Inc. ("Sure Energy" or the "Company") is pleased to announce results for the year ended December 31, 2010.The Company's MD&A, Financial Statements and Notes, and AIF can be viewed or downloaded at www.sureenergyinc.com or www.sedar.com. << During 2010, Sure Energy accomplished the following: - Increased average production for the year from 662 BOE/d to 944 BOE/d - Increased Proven plus Probable reserves from 3.25 MMBOE to 4.47 MMBOE - Increased Proven plus Probable reserves from 49% oil to 67% oil and NGL's - Increased cash flow from $1.8 million (0.04/share) to $6.3 million (0.13/share) - Increased NAV per share from $1.27 to $1.72 @ PV 8% before tax For the fourth quarter 2010 compared to the third quarter of 2010 Sure Energy accomplished the following: - Increased production from 762 BOE/d to 1,297 BOE/d - Increased from 8.4% crude oil production to 44.6% - Increased funds flow netback ($/BOE) to $30.12 from $7.93 - Drilled five successful light oil wells at Redwater - Increased funds flow from operations from $0.6 million ($0.01/share) to $3.6 million ($0.08/share) - Closed a $20 million secured Note Facility with Deans Knight Capital Management - Total credit capacity increased to $35 million HIGHLIGHTS Three Months Ended Year Ended December 31, December 31, 2010 2009 2010 2009 ------------------------------------------------------------------------- ($000 except share and per share amounts) Financial Petroleum and Natural Gas Revenues 5,813 2,193 13,063 6,765 Funds Flow from Operations(1) 3,594 672 6,299 1,766 Per Share, Basic and Diluted 0.08 0.01 0.13 0.04 Income (loss) 344 (828) (2,603) (3,760) Per Share, Basic and Diluted 0.01 (0.02) (0.06) (0.09) Capital Expenditures 9,366 1,631 17,827 11,398 Total Assets 51,517 37,908 Net Debt(1) 14,700 4,537 Shareholders' Equity 31,578 30,054 Common Shares Outstanding Basic 48,431,130 46,873,962 Diluted 52,224,464 50,112,962 Fully Diluted with Performance Rights and Warrants 57,604,464 53,617,962 Weighted Average Common Shares Outstanding Basic and Diluted 47,278,477 46,873,962 46,958,260 41,168,388 Share Trading High 2.00 0.68 2.00 0.68 Low 1.32 0.37 0.57 0.21 Close 1.75 0.61 1.75 0.61 Trading Volume 7,435,277 6,926,598 19,703,686 11,545,528 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Three Months Ended Year Ended December 31, December 31, HIGHLIGHTS 2010 2009 2010 2009 ------------------------------------------------------------------------- Operations Production Natural Gas (Mcf/d) 4,071 3,614 4,248 3,532 Oil (bbls/d) 578 66 196 42 NGLs (bbls/d) 41 39 40 31 BOE/d 1,297 708 944 662 Average Selling Price Natural Gas ($/Mcf) 3.82 4.69 4.26 4.07 Oil ($/bbl) 78.34 73.73 78.11 65.87 NGLs ($/bbl) 57.38 50.98 59.01 44.66 BOE ($/BOE) 48.70 33.66 37.90 28.02 Operating Netback ($/BOE)(1) 34.36 16.61 22.86 12.89 Funds Flow Netback ($/BOE)(1) 30.12 10.33 18.28 7.31 ------------------------------------------------------------------------- ------------------------------------------------------------------------- (1) Please refer to Management's Discussion and Analysis for a definition of Non-GAAP measures. >>RESERVESThe following presentation should be read in conjunction with reserves information contained in Sure Energy's Annual Information Form ("AIF") which has been released concurrently. The AIF presents the Company's reserves according to Canadian Securities Administrators National Instrument 51-101 (NI 51-101") along with the related Forms and per the NI 51-101 Companion Policy.Sure Energy engaged independent petroleum consultants Sproule Associates Limited ("Sproule") to evaluate reserves for all of Sure Energy's properties effective December 31, 2010. The Sproule report has been prepared in accordance with the standards contained in the COGE Handbook and the reserve definitions contained in NI 51-101 by Qualified Reserve Evaluators. Sproule has reviewed and consented to the information contained herein.All evaluations and future net cash flows are stated prior to any provisions for interest costs or general and administrative costs and after the deduction of estimated future capital expenditures and abandonment costs for wells to which reserves have been assigned. Values of future net revenues do not represent the fair market value of the reserves.Reserves and future net revenue have been made assuming that development of each property in respect of which the estimate is made will occur, without regard to the likely availability to Sure Energy of funding required for that development.The Company's total proved plus probable reserves increased by 38% in 2010 to 4.5 MMboe and proved reserves increased by 74% to 3.3 MMboe. These increases were largely the result of reserves attributed to 2010 drilling and additional undeveloped locations being assigned reserves. The Company's focus on oil prospects resulted in an increase in oil reserves of 1.43 MMbbl proved and 1.46 MMbbl proved plus probable which increased the Company's oil weighting to 67%. << Summary Of Oil And Gas Reserves Forecast Prices and Costs Light and 2010 Total Medium Oil Gas NGLs Reserves(1) (Mbbl) (MMcf) (Mbbl) (MBOE) Gross Net Gross Net Gross Net Gross Net ------------------------------------------------------------------------- Proved Developed producing 438.0 396.6 6,582 5,239 71.1 44.8 1,606.1 1,314.6 Developed non-produ- cing 49.9 46.5 165 157 8.9 7.4 86.4 80.0 Undevelo- ped 1,576.4 1,433.0 41 38 - - 1,583.1 1,439.4 ------------------------------------------------------------------------- Total Proved 2,064.3 1,876.1 6,788 5,434 80.1 52.2 3,275.6 2,834.0 Probable 848.8 740.7 1,951 1,606 20.4 14.2 1,194.5 1,022.6 ------------------------------------------------------------------------- Proved plus probable(1) 2,913.1 2,616.8 8,739 7,040 100.5 66.4 4,470.1 3,856.6 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Summary of Net Present Values of Future Net Revenue Forecast Prices and Costs ($000s) Before Income Taxes, Discounted at (% per year) (1) 0% 5% 8% 10% 15% 20% ------------------------------------------------------------------------- Proved Developed producing 45,857 36,602 33,027 31,119 27,437 24,765 Developed non-produ- cing 3,104 2,580 2,349 2,220 1,960 1,764 Undeveloped 51,728 36,828 30,420 26,895 19,996 15,036 ------------------------------------------------------------------------- Total Proved 100,689 76,010 65,797 60,234 49,393 41,566 Probable 47,405 32,093 26,633 23,856 18,814 15,453 ------------------------------------------------------------------------- Proved plus probable 148,095 108,103 92,430 84,090 68,207 57,019 ------------------------------------------------------------------------- ------------------------------------------------------------------------- (1) Columns may not add due to rounding >>Reserve Life IndexThe reserve life index is calculated by dividing gross company reserves as at the effective date of the reports (December 31, 2010) by Sproule's estimate of average production for the following year. The reserve life index represents a measure of the amount of time production could be sustained at the assumed production rates based on the reserves at the applicable point in time. << 2010 Proved plus Proved Probable ------------------------------------------------------------------------- 2011 Forecast Production (BOE/d) 1,177 1,327 Reserve Life Index (years) 7.6 9.2 ------------------------------------------------------------------------- ------------------------------------------------------------------------- >>UNDEVELOPED LANDFor the year ended December 31, 2010 Sure Energy's total non-reserve landholdings were 52,269 net acres as determined by Seaton-Jordan & Associates Ltd. The majority of Sure Energy's undeveloped land is located in the Plains area of Alberta. The Company's land acquisition strategy focuses primarily on acquiring lands to expand existing project areas and prospect inventory. << 2010 Reserves Non-Reserve Total ------------------------------------------------------------------------- Gross Net Gross Net Gross Net ------------------------------------------------------------------------- Alberta 63,638 26,670 72,032 48,522 135,670 75,192 Saskatchewan 468 468 3,826 3,746 4,294 4,214 ------------------------------------------------------------------------- 64,106 27,138 75,858 52,269 139,964 72,406 ------------------------------------------------------------------------- ------------------------------------------------------------------------- >>NET ASSET VALUEThe following table represents the net asset value ("NAV") of Sure Energy as at December 31, 2010 based on proved and probable reserves using forecast pricing (PV 8% discounted) as evaluated by Sproule, undeveloped land value as determined by Seaton Jordan & Associates Ltd., seismic value as determined by internal estimates, and internal estimates of value for tax pools. << Proved plus Probable ------------------------------------------------------------------------- Present value of reserves (PV 8%) (before tax) 92,430 Undeveloped lands 8,851 Seismic 1,129 Proceeds from in-the-money stock options 6,940 Working capital deficit (14,700) Tax pools (no value assigned) - ------------------------------------------------------------------------- 94,650 ------------------------------------------------------------------------- NAV per share $ 1.72 Number of diluted shares outstanding as of December 31, 2010 55,104,464 ------------------------------------------------------------------------- ------------------------------------------------------------------------- >>OPERATIONAL REVIEWDrillingCash expenditures for the period were as follows: << Three Months Ended Year Ended December 31, December 31, Capital Program Summary 2010 2009 2010 2009 ------------------------------------------------------------------------- ($000s) Land 108 7 837 444 Geological and geophysical 148 145 651 1,014 Drilling 6,851 683 11,063 821 Completions 1,151 575 2,007 616 Recompletions and workovers (440) 19 376 632 Production equipment and facilities 1,377 460 2,681 649 Capitalized exploration G&A 67 98 342 426 Drilling credits - (357) (451) (357) ------------------------------------------------------------------------- 9,262 1,630 17,506 4,245 Asset acquisition (disposition) - (149) 155 (149) Corporate acquisition - 21 - 7,173 Asset retirement obligation 95 129 157 129 Other assets 9 - 9 - ------------------------------------------------------------------------- 9,366 1,631 17,827 11,398 ------------------------------------------------------------------------- ------------------------------------------------------------------------- >>Drilling activity for the three months and year is summarized as follows: << Three Months Ended December 31, 2010 Dry and Gas Oil Abandoned Total ------------------------------------------------------------------------- Gross Net Gross Net Gross Net Gross Net ------------------------------------------------------------------------- Exploration - - - - - - - - Development - - 5 5.0 - - 5 5.0 ------------------------------------------------------------------------- Total - - 5 5.0 - - 5 5.0 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Year Ended December 31, 2010 Dry and Gas Oil Abandoned Total ------------------------------------------------------------------------- Gross Net Gross Net Gross Net Gross Net ------------------------------------------------------------------------- Exploration 1 1.0 - - 2 2.0 3 3.0 Development 1 1.0 9 7.8 - - 10 8.8 ------------------------------------------------------------------------- Total 2 2.0 9 7.8 2 2.0 13 11.8 ------------------------------------------------------------------------- ------------------------------------------------------------------------- >>Areas of ActivityPlains (Redwater)The Company owns 7,495 net acres of land on the Lower Viking light oil trend at Redwater, just north of Edmonton. The Lower Viking in the area is a shaley sand sequence over 26 miles long and 8 miles wide at 750 metre depth. The sequence, which is from 6 - 10 metres thick, is easily mappable and hydrocarbon bearing throughout, with a large gas cap to the northeast. Originally the trend was drilled vertically. These wells had low production rates but long producing lives indicating that they were accessing large reserves. Recent exploitation of the reservoir by horizontal wells has increased initial production rates to 80 - 275 barrels of oil per day, causing increased activity in the area.On the north end of the trend Sure Energy owns 5,280 acres of 100 percent working interest prospective land (8.25 sections). In early January of 2011, the Company completed a seven well horizontal drilling program designed to evaluate the productive potential of these lands. Six of the wells were dual lateral open-hole horizontal wells and were drilled on a two and 3/4 section contiguous land block. Of the six wells, which are all producing oil wells, three wells were producing in the period and helped significantly increase the Company's oil production from Redwater from 42 barrels per day to 347 barrels per day. The other three wells came on production in January and February 2011 and will further increase the Company's oil production from the area. The seventh well, which was drilled on a more risky three section land block to the north was a single leg horizontal appraisal well which was subsequently lined and is currently being evaluated. To date the first two producers, which came onstream in early November have produced approximately 22,000 and 14,200 barrels of oil, respectively. In the fourth quarter of 2010 the Company realized $60.91 per barrel operating netback on its oil in the area.Based on the North Redwater drilling program the Company's independent reserve engineers have recognized 14 additional dual lateral horizontal drilling locations at current spacing. These 14 locations plus the 7 drilled locations account for proved plus probable reserve additions of 1,278 MBOE; 98 percent of which is oil. In keeping with the practice of adjacent operators, Sure Energy is currently applying for downspacing to 8 wells (legs) per 1/4 section, up from 4 wells (legs) per 1/4 section. In areas where the rock is finer grained and less permeable the Company will consider drilling single leg cased monobore wells which can be fractured multiple times along their length.In South Redwater the Company owns 3,048 net acres of land. In this area the Company and its partner drill single leg multi-fractured wells using "Packers Plus" technology. The Company has six gross (2.6 net) producing horizontal wells in the area and three 100 percent vertical wells. The Company's reserve engineers recognize 29 gross (18.2 net) proved undeveloped horizontal locations and six gross (4.8 net) probable undeveloped horizontal locations in the South Redwater area based on three single leg wells per 1/4 section. These locations along with the producing wells account for proved plus probable reserves of 1,375 MBOE.SE SaskatchewanSure Energy owns 1,415 acres of land at Queensdale in southeast Saskatchewan. Queensdale is an area of prolific light oil production from the Alida formation, a subcropping carbonate reservoir of Mississippian age. The Company identified an extension of an existing pool on its 100 percent land using proprietary 3D seismic and drilled a successful well in the third quarter of 2010. To date this well, which came on production in early October, has produced 27,000 barrels of oil and is still producing at approximately 100 BOE/d. In the fourth quarter of 2010 Sure Energy realized $66.87 per barrel operating netback on its oil at Queensdale. Based on its geological and geophysical interpretation of the subcrop edge the Company recognises four more development locations, two of which are planned to be drilled in the first quarter of 2011. In Queensdale Sure Energy is securing more land and anticipates shooting additional 3D seismic in 2011 to fine tune drilling locations, which will evaluate new exploration ideas.Peace River ArchSure Energy produced 239 BOE/d from the Peace River Arch in the fourth quarter of 2010. Most of the Company's production in the area is natural gas and because of the depressed gas prices experienced in the period the Company elected not to spend capital on drilling additional wells or optimizing production. The Company has an inventory of drillable gas locations in the area but has no plans to drill for gas in 2011..Southern Plains (Chinook)Sure Energy produced 216 BOE/d of gas in Chinook in the fourth quarter of 2010. The Chinook assets are three high working interest, operated high netback wells which were drilled by the Company.TweedieSure Energy produced 140 BOE/d of shallow sweet cretaceous gas from its Tweedie property in the fourth quarter of 2010. As with the Company's other gas prone areas it has an inventory of drillable locations but in the present price environment the Company is planning to spend its capital program on its oil prospects.West CentralSure Energy produced 96 BOE/d from its West Central properties in the period. The West Central assets are non-operated, liquids rich gas assets.ProductionProduction for the period by major property is as follows: << Three Months Ended December 31, 2010 --------------------------------------------------- Gas Oil NGLs Total Mcf/d Bbls/d Bbls/d BOE/d ------------------------------------------------------------------------- Peace River 1,256 14 15 239 Plains 274 347 - 393 Saskatchewan - 213 - 213 Southern Plains 1,248 - 8 216 Tweedie 838 - - 140 West Central 455 4 18 96 ------------------------------------------------------------------------- Total 4,071 578 41 1,297 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Year Ended December 31, 2010 --------------------------------------------------- Gas Oil NGLs Total Mcf/d Bbls/d Bbls/d BOE/d ------------------------------------------------------------------------- Peace River 1,470 15 16 276 Plains 125 121 - 142 Saskatchewan - 54 - 54 Southern Plains 1,312 - 8 227 Tweedie 858 - - 143 West Central 483 6 16 102 ------------------------------------------------------------------------- Total 4,248 196 40 944 ------------------------------------------------------------------------- ------------------------------------------------------------------------- >>Production and Netback TransformationIn the third quarter of 2010 Sure Energy produced 762 BOE/d, 87 percent of which was natural gas. In the fourth quarter 2010, the Company produced 1,297 BOE/d, only 52 percent of which was natural gas. Operating netbacks in the fourth quarter correspondingly increased from $13.05/BOE in the third quarter of 2010 to $34.36/BOE. The percentage of oil in the Company's production mix will continue to increase in 2011 as the base budget of $ 20 million includes a drilling program dedicated to drilling light oil at Redwater and Queensdale. Oil operating netbacks in Redwater were $60.91 per barrel and in Queensdale were $66.87 per barrel in the fourth quarter of 2010.OUTLOOKThe fourth quarter of 2010 saw Sure Energy increase its production to 1,297 BOE/d and its oil weighting to 48%. The Company is positioned to continue this transition from predominantly a gas producer to primarily an oil producer with its inventory of at least 32 low risk drilling locations at Redwater and three to four at Queensdale. Successful evaluation of more peripheral lands in both areas would add to this inventory. Although wells in both areas experience the initial high decline rates typical of horizontal wells, after the first year the declines stabilize to 10 - 18% per year. These wells will therefore create a stable platform on which to build the production base. The current inventory should allow for steady growth over the next three years by drilling 11 to 12 wells per year.The Company has a $20 million base budget approved for 2011 which will be financed with cash flow and bank lines. This budget includes three 100 percent wells in North Redwater, 5 gross (3.2 net) wells in South Redwater, two 100 percent wells in Queensdale and one 100 percent exploration well and is scheduled to be spent by the end of August. At that time Sure Energy will evaluate the drilling results and general market conditions with a view to expanding the budget in the final four months of the year. Only three wells, one in Redwater and two in Queensdale are planned to be drilled in the first quarter of 2011. However, the Company is actively seeking a new project area to augment and diversify its portfolio and which it hopes will provide the base for the next step growth of the production base. With no improvement in gas prices in sight for the immediate future the Company will continue to focus its efforts and its capital on oil projects.ADVISORIESForward-looking InformationCertain statements contained in this release constitute forward-looking information. These statements relate to future events or Sure Energy's future performance. The use of any of the words "could", "expect", "believe", "will", "projected", "estimated" and similar expressions and statements relating to matters that are not historical facts are intended to identify forward-looking information and are based on Sure Energy's current belief or assumptions as to the outcome and timing of such future events. Actual future results may differ materially. In particular, Sure Energy's stated exploration and development intentions for its principal oil and natural gas properties, land acquisition strategy and statements under "Outlook" contain forward looking information. Sure Energy's Annual Information Form and other documents filed with securities regulatory authorities (accessible through the SEDAR website www.sedar.com) describe the risks, material assumptions and other factors that could influence actual results and which are incorporated herein by reference. Sure disclaims any intention or obligation to publicly update or revise any forward-looking information, whether as a result of new information, future events or otherwise, except as may be expressly required by applicable securities laws.Use of BOEsIn this press release the calculation of barrels of oil equivalent (BOE) is calculated at a conversion rate of 6,000 cubic feet (Mcf) of natural gas for one barrel (bbl) of oil based on an energy equivalency conversion method. 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. << SURE ENERGY INC. BALANCE SHEETS As at December 31 2010 2009 ($000's) ------------------------------------------------------------------------- Assets Current assets Accounts receivable $ 3,110 $ 1,829 Prepaid expenses 853 457 ------------------------------------------------------------------------- 3,963 2,286 Deferred financing costs 2,179 - Property, plant and equipment 45,375 35,622 ------------------------------------------------------------------------- 51,517 37,908 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Liabilities and Shareholders' Equity Current liabilities Accounts payable and accrued liabilities 8,223 3,777 Bank debt 440 3,046 ------------------------------------------------------------------------- 8,663 6,823 Note facility 10,000 - Asset retirement obligations 1,276 1,031 ------------------------------------------------------------------------- 19,939 7,854 Shareholders' equity Share capital 37,055 35,732 Warrants 2,065 - Contributed surplus 3,891 3,152 Deficit (11,433) (8,830) ------------------------------------------------------------------------- 31,578 30,054 ------------------------------------------------------------------------- $ 51,517 $ 37,908 ------------------------------------------------------------------------- ------------------------------------------------------------------------- SURE ENERGY INC. STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS AND DEFICIT Year Ended Year Ended December 31, December 31, ($000's, except per share amounts) 2010 2009 ------------------------------------------------------------------------- Revenue Petroleum and natural gas revenues $ 13,063 $ 6,765 Royalties (1,108) (940) Interest income - 15 ------------------------------------------------------------------------- 11,955 5,840 ------------------------------------------------------------------------- Expenses Operating 3,432 2,363 Transportation 645 348 General and administration 1,328 1,330 Interest and financing 281 33 Stock compensation 710 513 Depletion, depreciation and accretion 8,162 5,763 ------------------------------------------------------------------------- 14,558 10,350 ------------------------------------------------------------------------- Loss before future income tax recovery (2,603) (4,510) Future income tax recovery - 750 ------------------------------------------------------------------------- Loss and comprehensive loss (2,603) (3,760) Deficit, beginning of year (8,830) (5,070) ------------------------------------------------------------------------- Deficit, end of year (11,433) (8,830) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Loss per common share Basic and diluted $ (0.06) $ (0.09) ------------------------------------------------------------------------- ------------------------------------------------------------------------- SURE ENERGY INC. STATEMENTS OF CASH FLOWS Year Ended Year Ended December 31, December 31, ($000's) 2010 2009 ------------------------------------------------------------------------- Cash provided by (used in): Operating Loss $ (2,603) $ (3,760) Items not affecting cash: Depletion, depreciation and accretion 8,162 5,763 Non-cash interest expense 30 - Stock compensation 710 513 Future income tax recovery - (750) Abandonment expenditures - (132) Changes in non-cash working capital 594 24 ------------------------------------------------------------------------- 6,893 1,658 ------------------------------------------------------------------------- Investing Drilling and development of petroleum and natural gas properties (17,506) (4,245) Corporate acquisitions, net of cash acquired - (4,513) Disposition (acquisition) of petroleum and natural gas properties (155) 149 Other asset purchases (9) - Changes in non-cash working capital 2,174 (2,138) ------------------------------------------------------------------------- (15,496) (10,747) ------------------------------------------------------------------------- Financing Increase (decrease) in bank debt (2,606) 3,046 Increase in note facility 10,000 - Issue of common shares for cash, net of share issue costs 1,353 - Deferred financing costs (144) - ------------------------------------------------------------------------- 8,603 3,046 ------------------------------------------------------------------------- Net change in cash and cash equivalents - (6,043) Cash and cash equivalents, beginning of year - 6,043 Cash and cash equivalents, end of year $ - $ - ------------------------------------------------------------------------- ------------------------------------------------------------------------- >>For further information: please visit our website at www.sureenergyinc.com or contact: Mr. Jeff Boyce, Chairman and CEO; Mr. Chris Baker, President and COO; Mr. Lance Wirth, Vice President, Finance and CFO, Phone: (403) 410-3100, Fax: (403) 410-3111, Email: info@sureenergyinc.com