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Press release from CNW Group

Hawk Announces Second Quarter 2011 Results and Provides Operational Update

Monday, August 29, 2011

Hawk Announces Second Quarter 2011 Results and Provides Operational Update19:57 EDT Monday, August 29, 2011CALGARY, Aug. 29, 2011 /CNW/ - Hawk Exploration Ltd. ("Hawk" or the "Corporation") announces its results for the three and six months ended June 30, 2011. Selected financial information for the three and six months ended June 30, 2011 is provided as follows:    Three months Six months  ended June 30,  ended June 30,    %  % 20112010 Change2011 2010 ChangeFinancial ($000's except per share amounts)      Petroleum and natural gas sales $ 2,519 $ 1,84537%$ 4,760$ 3,74227%Funds flow from operations (1)  1,18074558%2,0441,62226% Per share  0.050.0367% 0.090.07 29%Comprehensive income (loss)  160 (1,627)110%27(2,260)101% Per share   0.01(0.07)114% (0.00)(0.10)100%Capital expenditures  4,7532,54687%5,3967,026(23%)Working capital surplus (deficit) - excluding bank debt and commoditycontracts, end of period       $ (2,277)$ 2,761(182%)Bank debt, end of period         5,850--Total assets, end of period        $ 32,62525,37929%Common Shares outstanding, end of period:       Class A Shares         21,98121,9810% Class B Shares        1,0801,0800% Subscription receipts, convertible to Class A Shares       12,500 -- Options to acquire Class A Shares         2,1102,077(2%)Operations      Production       Crude oil and natural gas liquids (bbl/d)  33630510% 34228719% Natural gas (mcf/d)  227250(9%)307320(4%) Total (boe/d)  3743468%39334115%Average Selling Price       Crude oil and ngls (per bbl) $ 79.63 $ 63.4426% $ 73.32$ 67.00 9% Natural gas (per mcf)  3.903.822%3.944.49(12%) Total (per boe)  73.9458.5726%66.8560.7210%Operating netback (per boe at 6:1) (2)        Price $ 73.94$ 58.5726% $ 66.85$ 60.7210% Royalties  (13.42)(11.75)14% (12.10)(12.43)(2%) Production expense  (16.68)(15.04)11%(17.67)(14.66)21% Transportation expense  (1.96)(1.64)20% (1.81)(1.66)9%Operating netback ($/boe) $ 41.88$ 30.1439% $ 35.27 $ 31.9710%(1) Management uses funds flow from operations and funds flow from operations per share to analyze operating performance, leverage and liquidity. Funds flow from operations and funds flow from operations per share as presented do not have any standardized meaning prescribed by International Financial Reporting Standards ("IFRS") and therefore may not be comparable with the calculation of similar measures by other entities.(2) Management considers operating netbacks as an important measure as it demonstrates profitability relative to current commodity prices. Operating netbacks do not have a standardized meaning prescribed by IFRS and therefore may not be comparable with the calculation of similar measures by other entities.HIGHLIGHTSHighlights for the three months ended June 30, 2011 were as follows:Increased petroleum and natural gas revenue by 37% in the second quarter of 2011 compared to 2010,Generated record funds flow from operations of $1.2 million in the quarter, an increase of 58% over the $0.7 million for the comparable quarter of 2010,Recorded net income of $0.2 million in the quarter compared to a net loss of $1.6 million for the second quarter of 2010,Improved the Corporation's operating netback to $41.88 per boe in the quarter compared to $29.27 per boe for the first quarter of 2011,Drilled seven (4.2 net) wells in west central Saskatchewan in the quarter as discussed in further detail below,Closed a bought deal private placement of subscription receipts for gross proceeds of $10 million, andIncreased the Corporation credit facility from $7.5 million to $11 million, comprised of an $8.5 million revolving line of credit and a $2.5 million dollar development line.OPERATION UPDATEHawk had an active second quarter of 2011, drilling seven (4.2 net) wells in western Saskatchewan including three (2.2 - net) vertical oil wells at Edam, Silverdale and Hoosier as well as four (2.0 - net) dual-leg horizontal wells at Seagram Lake.At Edam, Hawk drilled the 06-34-48-20W3well which encountered 4.5 meters of oil pay in the Waseca formation. This well has been completed and equipped and is on production at 25 (25 - net) barrels of oil per day ("bbl/d"). At Silverdale, Hawk drilled the 05-23-48-28W3well and encountered 7.0 meters of oil pay in the Sparky formation. This well was completed and equipped and is currently producing at 50 (11.9 - net) bbl/d. At Hoosier, the Corporation drilled a well at 04-26-32-27W3 which encountered 4.0 meters of oil pay in the Basal Mannville formation. The well is currently being completed.In Seagram Lake, the Corporation experienced mixed results. A total of four (2.0 - net) dual-leg horizontal wells were drilled testing different sections of land in the Leduc pool. The 05-32-42-24W3 well was drilled adjacent to Hawk's existing producing single leg horizontal well at 12-32-42-24W3. The 05-32 well encountered good reservoir with excellent oil staining along both horizontal legs with a total open-hole length of 2,256 meters. The well was completed with a selective foam acid stimulation, placed on production in late July and has been producing at an average rate of 170 (85 - net) bbl/d with a water cut of 38 percent.Hawk also drilled two (1.0 - net) dual-leg horizontal wells at 08-33-42-24W3, testing the section immediately to the east of the original 12-32 producing well and at 16-28-42-24W3, testing the section immediately to the south of the original producing well. Both wells encountered good reservoir with excellent oil staining along both horizontal legs with open-hole lengths of 2,140 meters for the 08-33 well and 2,256 meters for the 16-28 well. Both wells were completed with a similar foam acid stimulation and were placed on production in late July. However, unlike the successful 05-32 well, these wells have thus far produced mainly water with small amounts of oil. A service rig is currently on the 08-33 well with downhole packers to attempt to isolate the water source and allow the oil to be produced.Hawk also drilled a fourth dual-leg horizontal well at a 50% working interest at 05-33-42-23W3, testing the far eastern edge of the Leduc formation approximately six miles to the east of the original 12-32 producing well. The drilling of this farm-in well also earned the Corporation significant additional lands of eleven (5.5 net) sections. This well encountered moderate reservoir with intermittent oil staining along both horizontal legs with a total open-hole length of 1,002 meters. This well was also completed with a selective foam acid stimulation but has thus far only produced water with a trace amount of oil. This well is currently shut-in awaiting results from the water shut off operations being conducted at the 08-33 horizontal well.In summary, the drilling this past quarter at Seagram Lake proved up a significant amount of discovered petroleum initially-in-place. Hawk estimates that on its controlled lands there is 185 (92.5 net) million barrels of discovered petroleum initially-in-place. The challenge going forward is to determine why some wells have proved to be successful while other wells have encountered water sources. Hawk will continue to experiment with different drilling and completion techniques to optimize the profitability of this project.FinancialHawk achieved record funds flow from operations in the second quarter of 2011 of approximately $1.2 million and generated strong operating netbacks of $41.88 per boe. The Corporation's operating netback of $41.88 increased 39 percent compared to the second quarter of 2010 due to higher realized commodity prices.Hawk had bank debt of $5.85 million at June 30, 2011 on an existing revolving line of credit of $8.5 million and had a working capital deficit of $2.3 million. On May 18, 2011, the Corporation closed a bought deal private placement of 12.5 million subscription receipts at a price of $0.80 per subscription receipt for gross proceeds of $10 million. On July 7, 2011, the subscription receipts were deemed to be exercised for 12.5 million Class A Shares and the Corporation received the net proceeds of the offering. In May 2011, Hawk expanded its credit facility to $11 million, comprised of an $8.5 million revolving line of credit and a $2.5 million acquisition and development line of credit, with the next review date to occur on or before September 30, 2011.The Corporation continues to maintain a solid balance sheet. The pro forma net debt and working capital at June 30, 2011 including the proceeds of its equity offering received on July 7, 2011 would be a positive working capital of approximately $1.8 Million.OutlookHawk plans to continue to monitor the production from the recently drilled wells at Seagram Lake and plans to drill an additional one to two (0.5 to 1.0 - net) single leg horizontal wells at Seagram Lake in the second half of 2011. Hawk also plans to drill an additional four (3.2 - net) vertical wells targeting heavy oil in the Lloydminster area of western Saskatchewan during the balance of 2011. Hawk's current production is approximately 500 boe/d comprised of over 90 percent crude oil.The unaudited financial statements and management's discussion and analysis for the interim period ended June 30, 2011 have been filed on SEDAR and are available for viewing at www.sedar.com or on the Corporation's website at www.hawkexploration.ca.Hawk is an emerging exploration company engaged in the exploration, development and production of conventional crude oil and natural gas in western Canada and is based in Calgary, Alberta. The Class A Shares and Class B Shares of Hawk trade on the TSX Venture Exchange under the trading symbols of HWK.A and HWK.B, respectively.Neither the TSX Venture Exchange nor its Regulation Services Provider (as the term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.Certain statements contained in this press release constitute forward-looking statements. All forward-looking statements are based on the Corporation's beliefs and assumptions based on information available at the time the assumption was made. The use of any of the words "anticipate", "continue", "estimate", "expect", "may", "will", "project", "should", "believe" and similar expressions are intended to identify forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. Hawk believes the expectations reflected in those forward-looking statements are reasonable, but no assurance can be given that these expectations will prove to be correct. Such forward-looking statements included in this press release should not be unduly relied upon. These statements speak only as of the date of this press releaseIn particular, but without limiting the forgoing, this press release contains forward-looking statements pertaining to the following: the performance characteristics of Hawk's oil and natural gas properties; business strategies and plans; projections of market prices and cost; supply and demand for oil and natural gas; planned development of the Corporation's oil and natural gas properties; capital expenditure programs for the remainder of 2011; and the expected sources of funding for the capital expenditure program.The material factors and assumptions used to develop these forward looking statements include, but are not limited to: the ability of the Corporation to engage drilling contractors, to obtain and transport equipment, services, supplies and personnel in a timely manner and at an acceptable cost to carry out its activities and plans; the ability of the Corporation to market its oil and natural gas and to transport its oil and natural gas to market; the timely receipt of regulatory approvals and the terms and conditions of such approval; the ability of the Corporation to obtain drilling success consistent with expectations; and the ability of the Corporation to obtain capital to finance its exploration, development and operations.Actual results could differ materially from those anticipated in these forward-looking statements as a result of the risk factors including, without limitation: volatility in market prices for oil and natural gas; liabilities inherent in oil and natural gas operations; uncertainties associated with estimating oil and natural gas reserves; competition for, among other things, capital, acquisitions of reserves, undeveloped lands and skilled personnel; incorrect assessments of the value of acquisitions and exploration and development programs; geological, technical, drilling and processing problems; changes in tax laws and incentive programs relating to the oil and natural gas industry; failure to realize the anticipated benefits of acquisitions; general business and market conditions; and certain other risks detailed from time to time in Hawk's public disclosure documents (including, without limitation, the other factors discussed under "Risk Factors" in the Corporation's most recently filed Annual Information Form).Statements relating to "reserves" or "resources" are deemed to be forward-looking statements, as they involve the implied assessment, based on certain estimates and assumptions that the resources and reserves described can be profitably produced in the future. Discovered petroleum initially-in-place ("DPIP") is also a forward-looking statement, and there are numerous uncertainties inherent in estimating DPIP and no assurance can be given that the indicated level of DPIP or its recovery will be realized. Readers are cautioned that the foregoing lists of factors are not exhaustive. The forward-looking statements contained in this press release are expressly qualified by this cautionary statement. Except as required under applicable securities laws, Hawk does not undertake any obligation to publicly update or revise any forward-looking statements.Barrels of oil equivalent (boe) may be misleading, particularly if used in isolation. A boe conversion ratio of six thousand cubic feet (mcf) of natural gas to one barrel (bbl) of oil is based on an energy conversion method primarily applicable at the burner tip and is not intended to represent a value equivalency at the wellhead. All boe conversions in this press release are derived by converting natural gas to oil in the ratio of six thousand cubic feet of natural gas to one barrel of oil. Certain financial amounts are presented on a per boe basis, such measurements may not be consistent with those used by other companies.   For further information: Steve Fitzmaurice  President, CEO and Chairman  Tel: (403) 264-0191 Ext 225  Email: steve@hawkexploration.ca  Dennis Jamieson Chief Financial Officer Tel: (403) 264-0191 Ext 234 Email: dennis@hawkexploration.ca