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Press release from CNW Group

Calvalley Petroleum - 2010 Annual Results and Filing of Reserves Data

Wednesday, March 23, 2011

Calvalley Petroleum - 2010 Annual Results and Filing of Reserves Data19:53 EDT Wednesday, March 23, 2011CALGARY, March 23 /CNW/ - Calvalley Petroleum Inc., (TSX: CVI.A)Calvalley Petroleum Inc. (the "Company" or "Calvalley"), an international junior oil and gas company based in Calgary, Alberta, announces its financial and operating results for the year ended December 31, 2010.HIGHLIGHTSFinancialThese key financial indicators are discussed in more detail in the following sections.(in thousands of US dollars except per share amounts)Three monthsendedDecember 31Year endedDecember 312010200920102009Revenue (Gross)22,04214,13663,86750,839Revenue from crude oil sales (net of royalties and government share of profit oil)13,6818,74239,49431,354EBITDA(1)9,2125,43325,45415,992Operating income(1)6,5223,00016,0176,142Net income4,9872,10910,9412,951      Per share0.050.020.110.03Capital expenditures10,3024,81321,07711,803Funds flow from operations(1)7,7964,65221,91513,600      Per share0.080.050.220.14Cash flow from operating activities11,8639,27121,59213,971(1) See "Non-GAAP Measures" disclosure in 2010 Annual MD&A filed on www.sedar.comCalvalley's revenue from crude oil sales was $22.0 million (gross) and $13.7 million (net) for the quarter ended December 31, 2010 (2009 - $14.1 million (gross) and $8.7 million (net)). The significant increase in revenue is attributable to a 34.8% increase in sales volume and a 15.7% increase in selling price.  The increase in sales volume is due to the timing of lifts and is not directly correlated with production for the quarter, which was 199,359 bbls in 2010 versus 202,580 bbls in 2009.Net income was $5.0 million ($0.05 per share) for the three months ended December 31, 2010, as compared to $2.1 ($0.02 per share) for the same period of 2009.  Net income for the year ended December 31, 2010 was $10.9 million versus $3.0 million during the corresponding period of 2009.Funds flow from operations was $7.8 million ($0.08/share) for the three months ended December 31, 2010, as compared to $4.7 million ($0.05/share) for the same period of 2009.Operating costs, including transportation and facilities usage fees during the forth quarter of 2010 were $3.9 million ($13.91/bbl) as compared to $2.3 million ($12.12/bbl) for the three months ended December 31, 2009.Calvalley continues to be well financed and capitalized with no outstanding debt and working capital of $69.7 million.OperatingThe following table sets forth key operating information:Production(barrels of oil per day)Three months ended December 31Year ended December 312010200920102009Total Block 9 production4,3344,4044,5124,320Calvalley working interest (50.0%)2,1672,2022,2562,160Average daily production from Block 9 for the three months ended December 31, 2010 was 4,334 gross barrels per day (Calvalley working interest 2,167 bopd), a marginal decrease from the previous quarter's average of 4,512 bopd (2,256 bopd working interest share) and a marginal decrease from 2009 fourth quarter average production of 4,404 bopd (2,202 bopd working interest share).Due to a recent disruption of the export pipeline from Block 18 to the Ras Isa export terminal, Calvalley has stopped shipping oil to Block 18. Production from the Hiswah field continues and the produced crude oil is being stored in tanks at our CPF. We have a spare storage capacity to accommodate for an additional 7 days of production.  Based on our experience with similar situations in the past, we expect that the export pipeline will be repaired within a few days. Thus, it is unlikely that a production shut-down will be required. Upon resumption of oil shipments to Block 18, we will transport the cumulative inventory to compensate for lost days.Due to the success of the Ras Nowmah-2 well which was drilled during the third quarter of 2010, Calvalley acquired approximately 340 km of new 2D seismic data to delineate the new field discovery at the Ras Nowmah oil field for future development and to facilitate the exploration of the Qishn and Saar-Naifa in the Southern parts of the Umm El Radhuma Plateau (the "Plateau"). Processing of the data is complete and the Company is currently interpreting the results and has identified two additional prospects for a total of six prospects over the plateau.With regard to Block 9 infrastructure developments, Calvalley has recently commenced technical work associated an inter-field pipeline connecting the Al-Roidhat and Ras Nowmah fields to the Hiswah CPF.Calvalley has also commenced drilling of the Ras Nowmah East-1 ("RNE-1") exploration well. The well is targeting both the Qishn and Saar Formations similar to those of the Ras Nowmah wells. The well is expected to reach total depth by mid-April 2011 at which time the drilling rig will be mobilized to the Ras Nowmah Field to drill two successive development wells (RN-4 and RN-5).The Hiswah-35 development well was drilled and completed successfully during the fourth quarter. This well is currently shut-in awaiting a new ESP. The Company is also continuing its pressure maintenance and production optimization program for the Hiswah field.During Q4 2010, Calvalley successfully drilled a development well at the Al Roidhat field encountering 22 meters (72 feet) of net oil pay with average porosity of 23.5%. The well is now completed and is currently being production tested.Due to political developments in Yemen, we have experienced some delays that have impacted the supply of goods from Sana'a into our area of operations. While we continue to operate in key areas of development, including operation of our production facilities and drilling activities with available materials on hand, transportation logistics have been challenging.Truck Offloading Facility (TOF)Construction of the Truck Offloading Facilities ("TOF") at Block 51, which is 95% complete, continues to face a setback due to transportation challenges. The final component required for the TOF's telecommunication system for the metering system is currently being delayed in Sana'a due to transportation impediments. As an alternative measure, Calvalley is in discussions with the operator of Block 51 regarding the utilization of their existing metering system on a temporary basis. Should this alternative become available, the commissioning of the TOF could be completed within the next two weeks. Upon completion of TOF, we expect to gradually increase production to 10,000 bopd (5,000 net Calvalley working interest).EthiopiaSurface geological work at the Metema and Gimbi Blocks in Ethiopia has been completed and fully evaluated. Based on the surface geological work, Calvalley selected a key prospective region covering an area of approximately 26,000 square km for the acquisition of an aeromagnetic survey. The survey has been completed and processed. The company is currently interpreting and mapping the coverage area based on the results of this aeromagnetic survey.OPERATIONS REPORTProduction OverviewAverage daily production from Block 9 for the three months ended December 31, 2010 was 4,334 gross barrels per day (Calvalley working interest 2,167 bopd), a marginal decrease from the previous quarter's average of 4,512 bopd (2,256 bopd working interest share) and a marginal decrease from 2009 fourth quarter average production of 4,404 bopd (2,202 bopd working interest share).  All production came from the partially developed Hiswah oil field, which produces high-quality sweet crude oil that is sold at a price comparable to Dated Brent Crude.Gross field production at Hiswah continues to fluctuate between 4,000 to 5,000 (2,000 to 2,500 net) bopd from 19 wells. Currently, the field has 12 shut-in wells awaiting arrival of new down-hole pumps (ESP). Upon full implementation of the field pressure maintenance program through water and gas injection, we expect to see a meaningful increase in well productivity as indicated by the simulation study. During 2010, Calvalley commenced Hiswah water injection at 6,500 barrels a day with a single horizontal well, H-26, which has been performing better than expected. The Company also commissioned a second water injector (H-25) and is monitoring the well performance. Up to five more water injectors are included in the 2011 drilling program. Two of these wells will be drilled in the first half of 2011. We expect a total water injection volume greater than 25,000bbl/d by the end of 2011.Truck Offloading FacilityAs Calvalley nears completion of the Truck Offloading Facilities ("TOF") at Block 51, the Company is entering an active phase of the development and appraisal drilling program to unlock the production and reserves potential of Block 9. As well, with the Company having established an improved export outlet, via the Masila Export Pipeline System ("MEPS"), the TOF will enable the Company to market its blend of better than 26˚ API crude at a price equivalent to the traditional Masila Blend.In the long run, the trucking will be replaced by an expandable capacity pipeline connecting Block 9 to the export line. Initial planning for construction of a pipeline to deliver blended oil from the Company's Central Processing Facility ("CPF") at Block 9 to the Masila system has commenced.Drilling, Completion, and TestingDevelopment wells at HiswahCalvalley successfully completed the drilling of the Hiswah 35 producer during the fourth quarter. The Company is also continuing its pressure maintenance and production optimization program for the Hiswah field.Ras NowmahThe Company commenced the testing of the Ras Nowmah-2 discovery well on September 13, 2010.  A number of tests were conducted with two different size pumps. The final test data were obtained utilizing a larger capacity downhole pump ("ESP") which was installed by the Company for this latest phase of testing operations. The well produced at a stabilized rate of approximately 3,000 bbl/d of sweet crude (approximately 30 degree API) and no formation water with only 9.5% pressure drawdown to the maximum operational capability of the ESP. Based on the pressure drawdown and build-up data, this 2nd phase of testing clearly indicates that the Ras Nowmah-2 well is potentially capable of producing at much higher flow rates. The test data were analyzed by an independent reservoir engineering firm in Calgary. The independent reservoir engineers calculated a flow rate in excess of 5,000bbl/d at a 20% pressure drawdown.Due to the above success, We have successfully completed a 2D seismic program of 340 km over the Plateau area which covers the Ras Nowmah discovery and nearby prospects such as Sueda, Ras Nowmah East, Al Hedba, Al Gadafir, and the Malik Plateau. The recent mapping and interpretation of the seismic program data indicates a better than expected prospectivity of the coverage area. Two new prospects over the Plateau have also been identified.Qarn QaymahDrilling of the Qarn Qaymah-3 ("QQ-3") appraisal well was completed on March 8, 2011 to a total depth of 4,460 meters including an openhole section of approximately 1,000 meters in the Fractured Granitic Basement ("FGB"). The wellbore image logs and electrical logs indicate that the openhole section encountered a number of fractured sections in the FGB.  On March 9, 2011, Calvalley began testing of QQ-3. The well is currently undergoing pressure build up. The testing program is expected to be completed in April 2011. Calvalley has retained services of two of the well-known reservoir consulting firms in Calgary to analyze the well bore image logs and electrical logs in order to better define the reservoir.EthiopiaSurface geological work at the Metema and Gimbi Blocks in Ethiopia has been completed and fully evaluated. Based on the surface geological work, Calvalley has completed the acquisition of aeromagnetic survey data over a region covering an area of approximately 26,000 square km. The company is currently interpreting and mapping the coverage area based on the results of this aeromagnetic survey.Reserves2010 Year-end  ReservesProved Reserves (1P) - Calvalley's 1P reserves increased 31%, to 15.6 million barrels of oil (MMBbl), over the quantities estimated by McDaniel at December 31, 2009. This increase in 1P reserves represents a production replacement of 544 percent.Proved plus Probable Reserves (2P) - Calvalley's 2P reserves increased 20%, to 31.8 MMbbl of oil, over the quantities estimated by McDaniel at December 31, 2009. This increase in 2P reserves represents a production replacement of 740 percent.Proved and Probable plus Possible Reserves (3P) - Calvalley's 3P reserves increased 21%, to 47.6 MMbbl of oil, over the quantities estimated by McDaniel at December 31, 2009. This increase in 3P reserves represents a production replacement of 1,082 percent.Contributing factors in the reserves increases were the test results of the Ras Nowmah-2 well and an improved recovery factor as a results of recently implemented water and gas injection for the Hiswah Field. Other contributors were additional successful development wells at the Hiswah and Al Roidhat Fields.Capital efficienciesCalvalley continues to achieve one of the best capital efficiency performances in the E&P sector.   In 2010, the company drilled five (5) development wells in the Hiswah Field, one (1) development well in the Al Roidhat Field, and one (1) appraisal well at Ras Nowmah. Calvalley also commenced drilling of the Qarn Qaymah-3 appraisal well which is expected to be reach target depth within the next week. During the year, a total capital expenditure of approximately $18.4 million incurred. As a result, Finding and Development (F&D) costs have been as follows:In 2010, F&D costs were $3.22(1) (1P) and $0.64(1) (2P).On a three year average basis, F&D costs were $5.14(1) (1P) and $2.20(1) (2P).(1) See "Non-GAAP Measures" disclosure in 2010 Annual MD&A filed on www.sedar.comBased on McDaniel's Report forecast, Calvalley's share of future development costs for Block 9 will be as follow:$MM (US Dollars) 200920101P      51.6      47.72P99.384.93P159.0147.7Estimated Net Present Values of Future Net RevenuesAll estimates of net cash flow are stated after current and estimated costs of Calvalley's technical team, after all general and administrative costs in Yemen and after Yemen Government's share of production including royalties and profit oil.The estimated future net present values at 2010 Year End, presented below, are calculated using McDaniel's forecast of future Brent Crude prices, at December 31, 2010.Summary of Calvalley Share of Net Present Values Before Income Taxes      $MM (US Dollars)  Reserves Category0.0%5.0%8.0%10.0%12.0%15.0%20.0%Total Proved116.7103.597.193.289.785.078.2Proved Developed140.6125.2117.6113.1108.9103.395.3Proved Undeveloped298.8236.6208.7193.1179.3161.5137.9Total Proved439.4361.8326.3306.1288.2264.8233.1Probable490.0361.4307.1277.5252.1220.2179.5Proved + Probable929.4723.2633.4583.6540.2484.9412.6Possible542.9359.8290.7255.1225.8190.6148.2Proved + Probable + Possible1,472.31,083.0924.1838.7766.0675.5560.8        Summary of Calvalley Share of Net Present Values After Income Taxes      $MM (US Dollars)  Reserves Category0.0%5.0%8.0%10.0%12.0%15.0%20.0%Total Proved92.783.378.575.773.169.664.4Proved Developed108.397.692.389.186.282.276.4Proved Undeveloped193.7153.5135.5125.3116.4104.989.6Total Proved301.9251.1227.8214.4202.6187.1166.0Probable319.0235.0199.6180.2163.7142.9116.3Proved + Probable620.9486.1427.3394.7366.2329.9282.3Possible352.5233.3188.2165.0145.9122.995.2Proved + Probable + Possible973.4719.4615.5559.7512.1452.8377.5McDaniel's Brent Crude Price Forecast at December 31, 2010$/Barrel (US Dollars)201120122013201420152016201720182019202085.0087.2089.5092.3095.2098.30100.30102.30104.20106.40Filing of Reports on SEDARCalvalley's Management's Discussion and Analysis and Consolidated Financial Statements for the year ended December 31, 2010 can be found for viewing by electronic means on The System for Electronic Document Analysis and Retrieval at www.sedar.com. They can also be found on the Company's website at www.calvalleypetroleum.com.Calvalley is listed on the Toronto Stock Exchange, trading under the symbol "CVI.A".THE TORONTO STOCK EXCHANGE HAS NOT REVIEWED AND DOES NOT ACCEPT RESPONSIBILITY FOR THE ADEQUACY OR ACCURACY OF THIS RELEASE.This press release may contain forward-looking statements including, without limitation, financial and business prospects and financial outlooks, and such statements may be forward-looking statements which reflect management's expectations regarding future plans and intentions, growth, results of operations, performance and business prospects and opportunities. Words such as "may", "will", "should", "could", "anticipate", "believe", "expect", "intend", "plan", "potential", "continue", and similar expressions have been used to identify these forward-looking statements. These statements reflect management's current beliefs and are based on information currently available to management. Forward-looking statements involve significant risk and uncertainties. A number of factors could cause actual results to differ materially from the results discussed in the forward-looking statements including, but not limited to, changes in general economic and market conditions and other risk factors. Although the forward-looking statements contained herein are based upon what management believes to be reasonable assumptions, management cannot assure that actual results will be consistent with these forward-looking statements. Investors should not place undue reliance on forward-looking statements. These forward-looking statements are made as of the date hereof.Forward-looking statements and other information contained herein concerning the oil and gas industry and Calvalley's general expectations concerning this industry are based on estimates prepared by management using data from publicly available industry sources as well as from reserve reports, market research and industry analysis and on assumptions based on data and knowledge of this industry which Calvalley believes to be reasonable. However, this data is inherently imprecise, although generally indicative of relative market positions, market shares and performance characteristics. While Calvalley is not aware of any misstatements regarding any industry data presented herein, the industry involves risks and uncertainties and is subject to change based on various factors. For further information: For additional information, please contact: investorrelations@calvalleypetroleum.com     Edmund Shimoon, Chairman & CEO          Memet Kont, President & COO Zacharie Magnan, Acting CFO +1 (403) 297-0490