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Press release from CNW Group

Sure Energy announces second quarter 2011 financial and operating results

Wednesday, August 10, 2011

Sure Energy announces second quarter 2011 financial and operating results09:00 EDT Wednesday, August 10, 2011CALGARY, Aug. 10, 2011 /CNW/ - Sure Energy Inc. ("Sure Energy" or the "Company") today announced its financial and operating results for the quarter ended June 30, 2011.The Company's MD&A, Financial Statements and AIF can be viewed or downloaded at www.sureenergyinc.com or www.sedar.com.During the second quarter of 2011, Sure Energy accomplished the following:In April 2011 closed the acquisition of Virginia Hills, a new oil project area that includes 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 formationsThe Company has also added 11 3/4 sections, (7,520 acres) of 100 percent working interest land in the Virginia Hills area, substantially all of which has all PNG rightsDrilled two 40 percent working interest wells in South Redwater that are cased, completed and being tied in as pumping oil wellsProduction for the second quarter of 2011 was 1,060 BOE/d down approximately 200 BOE/d due to extremely wet weather and extended road bansCash flow despite lower production was $2.58 million ($0.05 per share) for the quarterEarnings for the second quarter of 2011 were $435,000 ($0.01 per share) Three Months EndedJune 30,Six Months Ended June 30,HIGHLIGHTS2011201020112010($000 except share and per share amounts)    Financial    Petroleum and Natural Gas Revenues5,2172,16511,4855,238Funds Flow from Operations (1)2,5819365,9502,156      Per Share, Basic  and Diluted0.050.020.120.05Income (loss)435(228)980(114)      Per Share, Basic and Diluted0.01(0.00)0.02(0.00)Capital Expenditures10,2222,04220,1754,282Total Assets  68,96940,064Net Debt(1)  28,8486,797Shareholders' Equity  34,54929,752Common Shares Outstanding          Basic  48,548,63046,849,464      Diluted  52,323,46351,154,464      Fully Diluted with Performance Rights and Warrants  57,653,46354,659,464Weighted Average Common Shares Outstanding          Basic and Diluted48,545,77346,849,46448,527,87046,849,329     Share Trading          High1.991.201.991.20      Low1.580.801.500.57      Close1.630.801.630.80Trading Volume2,623,2783,925,2397,484,7166,741,362           Three Months Ended June 30Six Months Ended June 30,HIGHLIGHTS2011201020112010     Operations      Production          Natural Gas (Mcf/d)3,8233,9823,8084,478      Oil (bbls/d)3786848070      NGLs (bbls/d)45394741      BOE/d1,0607711,162858     Average Selling Price          Natural Gas ($/Mcf)4.114.114.154.70      Oil ($/bbl)101.4974.4792.3076.24      NGLs ($/bbl)73.3160.6769.9762.36      BOE ($/BOE)54.1030.8854.5933.75     Operating Netback ($/BOE) (1)32.6418.1735.6318.44Funds Flow Netback ($/BOE) (1)26.7813.3228.2813.90(1)     Please refer to Management's Discussion and Analysis for a definition of Non-GAAP measures.OPERATIONAL REVIEWDrillingCapital expenditures for the period were as follows: Three Months EndedJune 30,Six Months EndedJune 30,Capital Program Summary2011201020112010($000s)    Land7481331,103702Geological and geophysical5610391209Drilling5005182,1481,704Completions1273051,176583Recompletions and workovers104626310794Production equipment and facilities5933412,836451Capitalized exploration G&A18446371109Drilling credits(122)-175(450) 2,1902,0728,2104,102     Asset acquisition (disposition)7,617(30)11,352141Decommissioning obligations401-59939Other assets14-14- 10,2222,04220,1754,282Drilling activity for the three and six months is summarized as follows:Three Months Ended June 30, 2011 Gas Oil Dry and Abandoned Total GrossNet GrossNet GrossNet GrossNetExploration-- -- -- --Development-- 20.8 -- 20.8Total-- 20.8 -- 20.8Six Months Ended June 30, 2011 Gas Oil Dry andAbandoned Total GrossNet GrossNet GrossNet GrossNetExploration-- -- -- --Development-- 42.8 -- 42.8Total-- 42.8 -- 42.8Areas of ActivityPlains (Redwater)The Company owns 9,535 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 3,615 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 has six producing dual lateral openhole horizontal wells (required no frac), all of which were drilled between October 2010 and January 2011 on a contiguous 2.75 section land block.  Initial (30 day) production rates of these wells varied from 35 to 305 barrels of oil per day.  The Company has identified 16 additional dual lateral horizontal locations on this contiguous land block.  In July Sure Energy drilled a single legged monobore horizontal well in 02/11-2 adjacent to one of the original dual lateral producers (11-2).  This well will be frac'd in September when frac crews become available.  If the results of this well are comparable to the openhole dual leg wells, Sure Energy will convert to this style of drilling and completion on this block as monobores are cheaper to drill and allow more workover flexibility throughout the productive life of the well.  Should the Company move forward with a monobore frac program, and single leg ultimate recoveries warrant this approach, Sure Energy would have 31 more locations on the 2 ¾ section contiguous block.  The Company was recently given downspacing approval to allow the drilling of eight legs (four dual lateral horizontals or eight single leg horizontals) per quarter section, which would allow for a further increase of drillable locations.  Sure Energy also has an additional 6½ sections of 100 percent working interest land to evaluate in North Redwater.On the southern land block the Company has six producing single leg horizontal oil wells.  These wells are all cased and fracture stimulated using the "Packers Plus" completion style.  In June the Company drilled two 40 percent working interest horizontal wells in the area.  These wells have since been completed and are awaiting tie-in.  In July the Company drilled an 80 percent working interest monobore horizontal well and will drill a second 80 percent well in early September.  Both wells are scheduled to be fracture stimulated in September.  After the drilling of these wells the Company has an inventory of 27 gross (16.9 net) wells in South Redwater based on three single leg wells per ¼ section.  Sure Energy also has 2 sections of land to evaluate in the area.In summary the Company has two 40 percent oil wells, one 100 percent oil well and one 80 percent oil well either waiting on completion or waiting on tie-in, with a further 80 percent well to be drilled in September.  It is anticipated that each of these wells will produce at an initial gross rate of 60 to 100 barrels of oil per day and all five wells should be on production early in the fourth quarter of 2011.Production from the Redwater area averaged 335 BOE/d in the second quarter of 2011, down from its total capability of approximately 380 BOE/d because of two wells being shut-in for much of the period because of trucking difficulties on wet roads.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 has 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 produced close to 30,000 barrels of oil by the end of March.  The well which cost $1.33 million to drill had paid out by the end of December 2010.The Company is currently drilling the second of four potential follow-up wells into the pool extension.  All four wells will be drilled from the same pad so none of the wells will come on production before the four well program is finished.  However, these horizontal wells are simple open hole producers, require no fracturing or other form of stimulation so they should come on production in early September.Because of road bans in the second quarter of 2011, production from the Queensdale well averaged 15 BOE/d for the period, down approximately 65 BOE/d from its capability prior to being shut-in.  The well was shut in on March 30th and came back on production June 16th.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 this area to date.The Company plans to drill two horizontal wells and one vertical well in the area in 2011 to evaluate the Viking potential.  The horizontal wells will be single legged multi-frac wells, with approximately 900 meter legs and are expected to cost around $2 million.  The vertical well which will cost around $1.2 million on stream, offsets a potential missed pay well, which looks very similar to offset vertical wells which have produced 130,000 barrels of oil and came on stream at 70 barrels of oil per day.As well as the Viking potential the Company also acquired three sections of 100 percent working interest rights on the 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 new horizontal producers.  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.Sure Energy acquired two horizontal Beaverhill Lake wells as part of the Virginia Hills purchase.  Both wells were drilled prior to the improved completion techniques used in the successful wells discussed above so they were not frac'd.  Both wells produce clean oil at very low decline rates and are openhole (not cased).  Sure Energy is currently evaluating whether these wells can be re-entered and frac'd.  This operation is estimated to cost approximately $2 million per well as compared to $5 - $6 million to drill a totally new wellbore and could be performed immediately, avoiding the three to four month approval process required to drill a new well.The acquisition also included 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 West Central production area, which includes the Virginia Hills area, produced 244 BOE/d for the period, 46 BOE/d down from its capability due partially to some shut-in oil volumes in May and June due to wet road conditions and partially to the fact that the second property acquisition at Virginia Hills did not close until April 15th so only 2 ½ months of production was booked to that property.The Peace River Arch area produced 208 BOE/d for the period.  This is down 12 BOE/d from total capability due mainly to production at Valhalla being down for most of June for a plant turnaround.The Southern Plains (Chinook) natural gas producing area produced 131 BOE/d for the period.  This was 30 BOE/d below total capability due to dew point problems at the third party facility into which it produces which caused the plant to operate at reduced capacity in June.ProductionProduction for the period by major property is as follows: Three Months Ended June 30, 2011  GasMcf/dOilBbls/dNGLsBbls/dTotalBOE/dPeace River 1,1181111208Plains259291-335Saskatchewan-15-15Southern Plains770-2131Tweedie761--127West Central9156132244Total3,823378451,060 Six Months Ended June 30, 2011  GasMcf/dOilBbls/dNGLsBbls/dTotalBOE/dPeace River 1,0801117207Plains328359-414Saskatchewan-64-64Southern Plains942-6163Tweedie756--126West Central7024624188Total3,808480471,162OUTLOOKAfter a prolonged, very wet, break-up, which not only caused approximately 200 BOE/d to be shut-in but also delayed the summer drilling program, Sure Energy is finally active once again with the drill bit.  The Company has drilled five gross (3.6 net) wells since break-up, is currently drilling one more and plans to drill four more (3.8 net) before mid-September.The Company will still have an extensive inventory of low risk light oil drilling locations after these wells are drilled, mostly at Redwater and will have at least eight sections of high working interest acreage in the oil fairway at Redwater still to evaluate.The Virginia Hills acquisition gives the Company an exciting upside to its growth.  If horizontal drilling and multi-frac technology can access oil reserves in the lower permeability facies of the Viking formation in the area the Company will have a large package of high working interest land to exploit on the play.  The Beaverhill Lake offers step growth potential both in production and reserves and the Company may have a low cost entry to the play through ownership of two producing horizontal Beaverhill Lake oil wells which could be re-entered and frac'd for a fraction of the cost of a new well.To date in 2011 Sure Energy has been relatively inactive drilling but has been very active adding value through the accumulation of land and creation of a new project area.  The Company has now commenced a phase of drilling and completion activity that will set it up for an active 2012 with associated growth and value creation.Forward-looking InformationCertain statements contained in this second quarter report 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 intentions and expectations for drilling, fracture stimulation, development and production on its Redwater, Queensdale and Virginia Hills properties, statements in the management's discussion and analysis related to expectations with respect to general and administrative costs, expectations for the payment of current income tax and in the section "Outlook", are 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.For further information, please visit our website at www.sureenergyinc.com or contact:SURE ENERGY INC.Condensed Statement of Financial Position(in thousands of Canadian dollars)(unaudited)June 30,2011December 31,2010January 1,2010Assets           Trade and other receivables$2,027$3,110$1,829      Deposits and prepaid expenses 1,115 853 457Total current assets 3,142 3,963 2,286       Property, plant and equipment 58,920 46,062 33,723Exploration and evaluation assets 5,026 1,481 1,899Deferred financing costs 1,881 2,179 -Total assets$68,969$53,685$37,908       Liabilities            Bank debt$17,100$440$3,046      Trade and other payables 4,890 8,223 3,777Total current liabilities 21,990 8,663 6,823       Note facility 10,000 10,000 -Decommissioning obligations 2,430 1,792 1,450Total liabilities 34,420 20,455 8,273       Equity            Share capital 37,463 37,282 35,399      Warrants 2,065 2,065 -      Contributed surplus 3,489 3,331 3,152      Deficit (8,468) (9,448) (8,916)Total equity 34,549 33,230 29,635       Total equity and liabilities$68,969$53,685$37,908SURE ENERGY INC.Condensed Statements of Income and Comprehensive Income(in thousands of Canadian dollars, except per share amounts)(unaudited) Three months endedJune 30, Six months endedJune 30,  2011 2010 2011 2010Petroleum and natural gas revenues$5,217$2,165$11,485$5,238Royalties (678) (86) (1,200) (583)  4,539 2,079 10,285 4,655         Production and operating 1,124 673 2,247 1,523Transportation 269 132 543 271Exploration and evaluation 43 49 83 95General and administrative 565 338 1,545 705Interest and financing charges 512 53 912 103Depletion, depreciation and amortization 1,573 890 3,772 1,845Stock based compensation 18 172 203 227  4,104 2,307 9,305 4,769         Net income (loss) and comprehensive income(loss) for the period$435$(228)$980$(114)         Earnings per share:              Basic and diluted$0.01$(0.00)$0.02$(0.00)SURE ENERGY INC.Condensed Statements of Changes in Equity(in thousands of Canadian dollars)(unaudited) Six months endedYear endedSix months ended June 30, 2011December 31, 2010June 30, 2010 Number$Number$Number$Share capital      Balance, beginning of period48,431,13037,28246,873,96235,39946,873,96235,399Exercise of stock options117,5001811,588,6661,9127,0003Cancelled--(31,498)(29)(31,498)(29)Share capital, end of period48,548,63037,46348,431,13037,28246,849,46435,373       Warrants      Balance, beginning of period2,800,0002,065----Issued for Note Facility--2,800,0002,065--Warrants, end of period2,800,0002,0652,800,0002,065--       Contributed surplus      Balance, beginning of period 3,331 3,152 3,152Cancellation of common shares - 29 29Exercise of stock options (46) (560) -Stock-based compensation expense 204 710 56Contributed surplus, end of period 3,489 3,331 3,237       Deficit      Balance, beginning of period (9,448) (8,916) (8,916)Net income (loss) for the period 980 (532) (114)Deficit, end of period (8,468) (9,448) (9,030)SURE ENERGY INC.Condensed Statements of Cash Flows(in thousands of Canadian dollars)(unaudited) Three months endedJune 30 Six months endedJune 30  2011 2010 2011 2010         Cash flows from operating activities:                 Net income (loss) and comprehensive income (loss) for the period$435$(228)$980$(114)Adjustments for:              Exploration and evaluation 43 49 83 95      Interest and financing charges 512 53 912 103      Depletion, depreciation and amortization 1,573 890 3,772 1,845      Stock based compensation 18 172 203 227Change in non-cash working capital 721 (1,173) (485) (673)Net cash from (used in) operating activities 3,302 (237) 5,465 1,483         Cash flows from investing activities:        Exploration and evaluation (43) (49) (83) (95)Property, plant and equipment expenditures (2,204) (2,072) (8,224) (4,102)Acquisition of property, plant and equipment (7,617) 30 (11,352) (141)Change in non-cash working capital (2,140) 1,054 (2,026) (269)Net cash from (used in) investing activities (12,004) (1,037) (21,685) (4,607)         Cash flows from financing activities:              Proceeds from issue of share capital - - - 3      Proceeds from loans and borrowings 9,054 1,320 16,660 3,203      Proceeds from exercise of share options 20 - 135 -      Interest paid (372) (46) (575) (82)Net cash from financing activities 8,702 1,274 16,220 3,124         Change in cash and cash equivalents - - - -         Cash and cash equivalents beginning of period - - - -         Cash and cash equivalents end of period$-$-$-$-      For further information: 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