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Press release from CNW Group


Wednesday, May 25, 2011

SURE ENERGY ANNOUNCES FIRST QUARTER 2011 FINANCIAL AND OPERATING RESULTS11:12 EDT Wednesday, May 25, 2011CALGARY, May 25 /CNW/ - Sure Energy Inc. ("Sure Energy" or the "Company") today announced its financial and operating results for the quarter ended March 31, 2011.The Company's MD&A, Financial Statements and Notes, and AIF can be viewed or downloaded at or the first quarter of 2011, Sure Energy accomplished the following: << - Sure Energy secured a new oil project area at Virginia Hills. The project consists of 160 BOE/d of production, 44,320 gross acres of land and extensive horizontal drilling potential for light oil in the Viking and Beaverhill Lake formation - Production remained stable for the first quarter of 2011 at 1,266 BOE/d (50% crude oil & liquids) - Cash Flow from the first quarter of 2011 was $3.4 million ($0.07/share) compared with $1.2 million ($0.03/share) for the first quarter 2010 - Earnings for the period increased to $545,000 ($0.01/share) Three Months Ended March 31, HIGHLIGHTS 2011 2010 ------------------------------------------------------------------------- ($000 except share and per share amounts) Financial Petroleum and Natural Gas Revenues 6,268 3,073 Funds Flow from Operations(1) 3,369 1,220 Per Share, Basic and Diluted 0.07 0.03 Income (loss) 545 114 Per Share, Basic and Diluted 0.01 0.00 Capital Expenditures 9,953 2,240 Total Assets 61,499 38,620 Net Debt(1) 21,214 5,594 Shareholders' Equity 34,075 29,394 Common Shares Outstanding Basic 48,528,630 46,849,464 Diluted 52,259,464 49,996,464 Fully Diluted with Performance Rights and Warrants 57,609,464 53,501,464 Weighted Average Common Shares Outstanding Basic and Diluted 46,852,127 Share Trading High 1.88 0.99 Low 1.50 0.57 Close 1.80 0.93 Trading Volume 4,861,438 2,816,123 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Three Months Ended March 31, HIGHLIGHTS 2011 2010 ------------------------------------------------------------------------- Operations Production Natural Gas (Mcf/d) 3,794 4,978 Oil (bbls/d) 584 72 NGLs (bbls/d) 50 44 BOE/d 1,266 945 Average Selling Price Natural Gas ($/Mcf) 4.19 5.17 Oil ($/bbl) 86.30 77.92 NGLs ($/bbl) 66.93 63.89 BOE ($/BOE) 55.00 36.11 Operating Netback ($/BOE)(1) 38.15 18.65 Funds Flow Netback ($/BOE)(1) 27.42 14.33 ------------------------------------------------------------------------- ------------------------------------------------------------------------- (1) Please refer to Management's Discussion and Analysis for a definition of Non-GAAP measures. OPERATIONAL REVIEW Drilling Cash expenditures for the period were as follows: Three Months Ended March 31, Capital Program Summary 2011 2010 ------------------------------------------------------------------------- ($000s) Land 355 569 Geological and geophysical 35 106 Drilling 1,648 1,186 Completions 1,049 278 Recompletions and workovers 207 168 Production equipment and facilities 2,243 110 Capitalized exploration G&A 187 63 Drilling credits 296 (450) ------------------------------------------------------------------------- 6,020 2,030 Asset acquisition (disposition) - 171 Asset acquisition 3,735 - Decommissioning obligation 198 39 Other assets - - ------------------------------------------------------------------------- 9,953 2,240 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Drilling activity for the three months and year is summarized as follows: Three Months Ended March 31, 2011 Dry and Gas Oil Abandoned Total ------------------------------------------------------------------------- Gross Net Gross Net Gross Net Gross Net ------------------------------------------------------------------------- Exploration - - - - - - - - Development - - 2 2.0 - - 2 2.0 ------------------------------------------------------------------------- Total - - 2 2.0 - - 2 2.0 ------------------------------------------------------------------------- ------------------------------------------------------------------------- >>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. This includes 9.25 sections (5,920 acres) of 100 percent land on the north end of the trend which it acquired prior to the recent horizontal drilling activity in the area and 3,048 net acres on the south end of the trend, most of which it acquired through the acquisition of Conifer Exploration Ltd. in the summer of 2009. The southern lands vary from 40 to 100 percent working interest.On its northern land base Sure Energy drilled six development wells and one appraisal well from October 2010 to January 2011. The six development wells exhibited first 30 day on production rates varying from 35 to 305 barrels of oil per day. All the wells were openhole, dual lateral wells of approximately the same length. Because the wells were openhole, meaning no casing or liner was run in the horizontal sections of the hole, no fracturing was necessary; the wells were simply drilled, swabbed and placed on production. The rationale behind drilling all the wells in the same way was so that the resultant production was a reflection of the rock qualities and not of the drilling or completion technique. The initial production rates vary because some of the wells encountered sections of more porous and permeable pay; like all resource plays the reservoir is not uniform across the whole fairway. Those wells which exhibited lower initial production rates are in the finer grained reservoir which is more typical of the overall trend. These wells should produce at higher productive rates if they are fracture stimulated as is the practice on most of the trend. Based on two openhole dual lateral locations per quarter section the Company has 16 low risk development wells to drill on its northern lands. Sure Energy will drill one of these in a drilling program scheduled to commence approximately July 1st. The Company still has 6 1/2 100 percent sections of land to evaluate in North Redwater.In South Redwater the Company has six producing single leg horizontals. Wells in this area are all fracture stimulated and initial rates vary from 60 to 100 barrels of oil per day. To date Sure Energy has used the "Packers Plus" fracturing technique which utilizes external packers on an uncemented liner and incorporates 6 to 7 fracs in a 650 to 700 metre horizontal section. Recently other Operators in the area have employed "monobores", fully cased and cemented wellbores, (including the horizontal section) which can be fractured 10 to 15 times in a similar length horizontal section. Initial production rates are still in the 60 to 100 barrels of oil per day but the costs are significantly cheaper at $1.2 million per well as compared to $1.5 million per well. The Company has 30 gross (18.5 net) low risk locations in the South Redwater area with 1 1/2 sections of land still to be evaluated. In the three well drilling program scheduled for after break-up (which includes the well in North Redwater) the Company plans to drill two 80 percent working interest locations, both of which are planned to be "monobore" style wells. In a separate program being implemented by Sure Energy's partner in the area two additional 40 percent working interest locations will be drilled.In total the Company has 46 (34.5) low risk locations on the Redwater trend, each of which should add 60 barrels of oil (or more) per day initial production and add 55 to 65 thousand barrels of oil.SE SaskatchewanUsing a proprietary 3D program shot by Sure Energy in July 2009 the Company identified an extension of the North Queensdale Alida light oil pool on its 100 percent working interest lands. The Alida formation is one of the Mississippian carbonate members that subcrop in Southeast Saskatchewan and which have been intensively drilled since the 1950's. In September of 2010 the Company drilled a single leg (839 metre) open hole horizontal well into the pool extension. The well came on stream in October 2010 at a restricted rate of 190 barrels of oil per day and had made close to 30,000 barrels of oil by the end of March. The well cost approximately $1.33 million to drill and, as the operating netbacks in the area are close to $70 per boe, has generated in excess of $2 million operating cashflow to date.The Company has identified four additional locations on the pool extension and has secured a rig to commence drilling three of the remaining locations immediately after break-up. These wells will all be drilled from one lease. All the Mississippian pools in southeast Saskatchewan exhibit a strong waterdrive and the wells produce for most of their lives at in excess of 80 percent watercut. Sure Energy's producing well currently produces at a relatively stable 80 percent watercut and 80 barrels of oil per day. The Company intends to build a small battery and dispose of water into a nearby suspended wellbore after the three wells are drilled.Virginia HillsIn April of 2011 the Company completed the second of two asset acquisitions that created a new core area at Virginia Hills. Virginia Hills had been identified as an area with Viking light oil resource potential from regional geological mapping and the Company was able to secure a substantial land position on the play through these acquisitions. In total the Company acquired 160 BOE/d, of which 72 barrels a day was light oil, and 44,320 gross acres of land for $11.25 million. The Viking formation produces light oil vertically in the area and the Company believes that horizontal drilling will both improve production rates and significantly increase oil recovery especially in the finer grained, less permeable portion of the reservoir. No horizontal wells have been drilled in the Viking in the area to date.As well as the Viking potential the Company also acquired three sections of 100 percent working interest rights on the fast emerging, prolific Beaverhill Lake light oil resource play. Using multi-stage fracturing techniques operators in the area have been reporting extraordinary initial production rates, some wells exhibiting 30 day initial production rates in excess of 1,000 barrels of oil per day. Recently two horizontal multi frac wells, one a mile to the northeast of a 100 percent working interest Sure Energy section and another a mile to the south of the same section, have reported initial production rates in excess of 1,200 barrels of oil per day. The Company's land is situated in the same position on the Beaverhill Lake productive fairway as these two wells and vertical wells on the land exhibit porous intervals in the Beaverhill Lake member similar to vertical wells adjacent to the horizontal production. The land surrounding the Company's two other 100 percent sections was recently purchased at Crown land sales by unnamed competitors in the area, at prices ranging from $1.5 million to $3.4 million per section.The acquisition also includes a 63.6 percent working interest in a producing Gething oil unit and exposes the Company to at least three natural gas plays; the Viking, Belly River and Second White Specks.Other PropertiesThe Company produced 658 BOE/d (86% gas) from four other producing areas; Peace River Arch, Southern Plains (Chinook), Tweedie and West Central. The Company has an inventory of gas wells to drill in these areas but has no plans to drill for gas in 2011.ProductionProduction for the period by major property is as follows: << Three Months Ended March 31, 2011 --------------------------------------------- Gas Oil NGLs Total Mcf/d Bbls/d Bbls/d BOE/d ------------------------------------------------------------------------- Peace River 1,043 10 22 206 Plains 398 427 - 494 Saskatchewan - 114 - 114 Southern Plains 1,115 - 9 195 Tweedie 751 - - 125 West Central 487 33 19 132 ------------------------------------------------------------------------- Total 3,794 584 50 1,266 ------------------------------------------------------------------------- ------------------------------------------------------------------------- >>OUTLOOKSure Energy has an inventory of 50 gross (38.5 net) low risk drilling locations in Redwater and Queensdale combined. If horizontal drilling works as expected in the Viking in the new Virginia Hills project area this inventory would expand significantly. The Company intends to evaluate this potential with two horizontal wells and one vertical well in the third and fourth quarters of 2011 with the aim of initiating an active drilling program in the area in 2012. The presence of the Beaverhill Lake potential in the area exposes the Company to high impact potential which could considerably boost the Company's oil production. Sure Energy will evaluate the drilling and completion techniques of competitor's wells with the view to evaluating its Beaverhill Lake lands in early 2012. Starting after break-up Sure Energy intends to commence an active period of drilling both Queensdale and Redwater aiming at low risk oil prospects. The Company has the drilling rigs and in the case of Redwater, the frac services secured to complete these programs.Production growth in the first and second quarters of 2011 has been low due to the Company being relatively inactive drilling wells, but the drilling programs discussed above will supply good continuous growth in the second half of the year and the Company is well set to continue this growth by the drill bit in 2012. Because of the opportuity base and to accomodate the Virginia Hills acquisition, the Company has expanded its budget to $35 million for 2011.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 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. Condensed Statement of Financial Position (in thousands of Canadian dollars) (unaudited) March 31, December 31, January 1, 2011 2010 2010 ------------------------------------------------------------------------- Assets Trade and other receivables $ 2,643 $ 3,110 $ 1,829 Deposits and prepaid expenses 1,559 853 457 ------------------------------------------------------------------------- Total current assets 4,202 3,963 2,286 Property, plant and equipment 52,999 46,062 33,723 Exploration and evaluation assets 2,298 1,481 1,899 Deferred financing costs 2,000 2,179 - ------------------------------------------------------------------------- Total assets $ 61,499 $ 53,685 $ 37,908 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Liabilities Bank debt $ 8,046 $ 440 $ 3,777 Trade and other payables 7,370 8,223 3,046 ------------------------------------------------------------------------- Total current liabilities 15,416 8,663 6,823 Note facility 10,000 10,000 - Decommissioning obligations 2,008 1,792 1,450 ------------------------------------------------------------------------- Total liabilities 27,424 20,455 8,273 Equity Share capital 37,443 37,282 35,399 Warrants 2,065 2,065 - Contributed surplus 3,470 3,331 3,152 Deficit (8,903) (9,448) (8,916) ------------------------------------------------------------------------- Total equity 34,075 33,230 29,635 ------------------------------------------------------------------------- Total equity and liabilities $ 61,499 $ 53,685 $ 37,908 ------------------------------------------------------------------------- ------------------------------------------------------------------------- SURE ENERGY INC. Condensed Income Statements For the three months ended March 31, 2011 and 2010 (in thousands of Canadian dollars, except per share amounts) (unaudited) 2011 2010 ------------------------------------------------------------------------- Petroleum and natural gas revenues $ 6,268 $ 3,073 Royalties (522) (497) ------------------------------------------------------------------------- 5,746 2,576 Production and operating 1,123 850 Transportation 274 139 Exploration and evaluation 40 46 General and administrative 980 367 Interest and financing charges 400 50 Depletion, depreciation and amortization 2,199 955 Stock based compensation 185 55 ------------------------------------------------------------------------- 5,201 2,462 ------------------------------------------------------------------------- Net income and comprehensive income for the period $ 545 $ 114 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Earnings per share: Basic and diluted $ 0.01 $ 0.00 ------------------------------------------------------------------------- ------------------------------------------------------------------------- SURE ENERGY INC. Condensed Statements of Changes in Equity (in thousands of Canadian dollars) (unaudited) March 31, 2011 December 31, 2010 March 31, 2010 Number $ Number $ Number $ ------------------------------------------------------------------------- Share capital Balance, beginning of period 48,431,130 37,282 46,873,962 35,399 46,973,962 35,399 Exercise of stock options 97,500 161 1,588,666 1,912 7,000 3 Cancelled - - (31,498) (29) (31,498) (29) ------------------------------------------------------------------------- Share capital, end of period 48,528,630 37,443 48,431,130 37,282 46,849,464 35,373 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Warrants Balance, beginning of period 2,800,000 2,065 - - - - Issued for Note Facility - - 2,800,000 2,065 - - ------------------------------------------------------------------------- Warrants, end of period 2,800,000 2,065 2,800,000 2,065 - - ------------------------------------------------------------------------- ------------------------------------------------------------------------- Contributed surplus Balance, beginning of period - 3,331 - 3,152 - 3,152 Cancellation of common shares - - - 29 - 29 Exercise of stock options - (46) - (560) - - Stock-based compensation expense - 185 - 710 - 56 ------------------------------------------------------------------------- Contributed surplus, end of period - 3,470 - 3,331 - 3,237 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Deficit Balance, beginning of period - (9,448) - (8,916) - (8,916) Net income (loss) for the period - 545 - (532) - 114 ------------------------------------------------------------------------- Deficit, end of period - (8,903) - (9,448) - (8,802) ------------------------------------------------------------------------- ------------------------------------------------------------------------- SURE ENERGY INC. Condensed Statements of Cash Flows For the three months ended March 31, 2011 and 2010 (in thousands of Canadian dollars) (unaudited) 2011 2010 ------------------------------------------------------------------------- Cash flows from operating activities: Net income and comprehensive income for the period $ 545 $ 114 Adjustments for: Exploration and evaluation 40 46 Depletion, depreciation and amortization 2,199 955 Interest and financing charges 400 50 Stock based compensation 185 55 Change in non-cash working capital (1,206) 500 ------------------------------------------------------------------------- Net cash from (used in) operating activities 2,163 1,720 Cash flows from investing activities: Exploration and evaluation (40) (46) Property, plant and equipment expenditures (6,020) (2,028) Acquisition of property, plant and equipment (3,735) (171) Change in non-cash working capital 114 (1,325) ------------------------------------------------------------------------- Net cash from (used in) investing activities (9,681) (3,570) Cash flows from financing activities: Proceeds from issue of share capital - 3 Proceeds from loans and borrowings 7,606 1,883 Proceeds from exercise of share options 115 - Interest paid (203) (36) ------------------------------------------------------------------------- Net cash from financing activities 7,518 1,850 Change in cash and cash equivalents - - Cash and cash equivalents beginning of period - - ------------------------------------------------------------------------- Cash and cash equivalents end of period $ - $ - ------------------------------------------------------------------------- ------------------------------------------------------------------------- >>For further information: please visit our website at 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: