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Press release from Marketwire

Eagle Energy Trust Releases December 31, 2011 Financial Information

Friday, March 23, 2012

Eagle Energy Trust Releases December 31, 2011 Financial Information09:00 EDT Friday, March 23, 2012CALGARY, ALBERTA--(Marketwire - March 23, 2012) -Eagle Energy Trust (the "Trust") (TSX:EGL.UN) is pleased to report its financial and operating results for the three month period and year ended December 31, 2011. In addition, the Trust reports that it has filed its Annual Information Form ("AIF"), which includes the Trust's reserves data and other oil and gas information for the period ended December 31, 2011. The audited consolidated financial statements, management's discussion and analysis and AIF have been filed with the securities regulators and are available on the Trust's website at www.EagleEnergyTrust.com and will be available under the Trust's issuer profile on the SEDAR website at www.sedar.com. This press release contains statements that are forward looking. Investors should read the Note Regarding Forward Looking Statements at the end of this press release.Highlights for the three months and year ended December 31, 2011Assumed operatorship of the Salt Flat Field in Texas on August 18, 2011 and opened a field office in Luling, Texas.Added engineering, field and accounting staff throughout the year to assist with full cycle development of the Salt Flat Field, acceleration of the strategic focus on potential new acquisitions and management of planned activities.21 (16.8 net) horizontal oil wells drilled during the year and 26 (20.8 net) horizontal oil wells tied in and brought on stream during the year.Total proved and probable reserves of approximately 7,674 Mbbls of oil, 48% of which are categorized as proved. Total reserve additions of 1,101 Mbbls since December 31, 2010, resulting in a reserves replacement ratio of 220% of Eagle's volumes produced from January 1, 2011 to December 31, 2011.Fourth quarter average working interest sales volumes of 2,023 (2011 average - 1,376) barrels of oil per day, up from third quarter volumes of 995 barrels of oil per day.Fourth quarter funds flow from operations of $7.2 million ($38.69 per barrel or $0.39 per unit), up approximately 300% from $2.4 million in the third quarter ($26.55 per barrel or $0.14 per unit). 2011 funds flow from operations of $19.9 million ($39.52 per barrel or $1.11 per unit).Fourth quarter field netbacks of $47.82 (2011 average - $50.06) per barrel. No bank debt, an expanded $US 31.0 million credit facility (based on the 2011 independent reserves evaluation). 2011 unitholder distributions of $1.05 per unit ($0.0875 per unit per month). Selected annual information The following table shows selected information for the Trust's fiscal year ended December 31, 2011 and the initial fiscal year ended December 31, 2010.Year ended December 3120112010(1)($ except per unit amounts and production)Sales volumes - bbls per day (100% light oil)1,376726Revenue, net of royalties31,771,4861,366,494Funds flow from operations19,852,742(288,076)per unit - basic & diluted1.11(0.07)Loss(1,213,585)(3,213,531)per unit - basic & diluted(0.07)(0.81)Current assets13,385,84833,102,821Current liabilities (including non-cash unit-based compensation)16,557,2509,061,984Total assets158,885,807159,868,227Total non-current liabilities502,431724,833Unitholders' equity141,826,126150,081,410Cash distributions declared19,287,1631,916,432per issued unit1.050.1064Units outstanding for accounting purposes18,543,599(2)17,624,081(2)Units issued18,931,09918,011,581Notes: (1) The Trust commenced operations on November 24, 2010 after it closed its initial public offering and acquired its interest in the Salt Flat Field. (2) Units outstanding for accounting purposes excludes 387,500 units issued due to the performance conditions that have to be met to enable such units to be released from escrow.Summary of quarterly resultsQ4/2011Q3/2011Q2/2011Q1/2011Q4/2010($ except for bbls per day amount)Sales volumes - bbls per day (100% light oil)2,0239951,2141,269726Revenue, net of royalties11,798,0645,533,4257,304,5807,135,4171,366,494per bbl63.4060.4266.1062.4960.72Funds flow from operations7,199,4782,431,5855,029,3485,192,332(288,076)per bbl38.6926.5545.5245.47(2.80)per unit - basic & diluted0.390.140.280.29(0.07)Income (loss)(1,426,402)420,6941,703,134(1,911,011)(3,213,531)per unit - basic & diluted(0.08)0.020.10(0.11)(0.81)Cash distributions declared4,936,3564,847,5824,775,1854,728,0401,916,432per issued unit0.26250.26250.26250.26250,1064Current assets13,385,84814,121,03720,067,29527,919,73633,102,821Current liabilities16,557,25012,022,9747,298,95811,712,2779,061,984Total assets158,885,807164,479,546150,350,547154,137,632159,868,227Total non-current liabilities502,4312,670,9104,495,6642,893,127724,833Unitholders' equity141,826,126149,785,662138,555,925139,532,228150,081,410Units outstanding for accounting purposes18,543,599(1)18,174,580(1)17,894,470(1)17,624,081(1)17,624,081(1)Units issued18,931,09918,562,08018,281,97018,011,58118,011,581Note: (1) Units outstanding for accounting purposes exclude 387,500 units issued due to the performance conditions that have to be met to enable such units to be released from escrow. With the exception of the third quarter of 2011, which had approximately 328 barrels per day of oil temporarily shut in due to delays in obtaining Texas Commission on Environmental Quality permits, production has grown commensurate with well tie-ins. All shut-in production was reinstated in October 2011. A total of 26 (20.8 net) wells were tied in and brought on stream during 2011. Of that total, 22 (17.6 net) wells were tied in from late September 2011 onward, thus contributing to the growth in volumes from the third quarter to fourth quarter 2011. Funds flow from operations grows as sales volumes increase, and on a per-barrel basis, will decline when volumes decline, as they did in the third quarter of 2011. This is because certain expenses tend to be more fixed in nature, such as general and administrative expenses, and do not decrease as sales volumes decrease. Income (loss) on a quarterly basis often does not move directionally nor by the same amount as movements in funds flow from operations. This is primarily due to items of a non-cash nature that factor into the calculation of income (loss), which are required to be fair valued at each quarter end, such as unit-based compensation or the mark-to-market value of existing commodity pricing contracts.Capital expenditures Capital spending during the fourth quarter of 2011 and for the year ended December 31, 2011 was as follows: Three Months EndedDecember 31, 2011Year EndedDecember 31, 2011Year Ended December 31, 2010$$$Exploration and evaluation-119,300(1)-Acquisition of the Salt Flat Field interest (adjustment)10,325(153,734)127,139,361Intangible drilling and completions2,085,17119,938,3151,844,558Well equipment and facilities878,5097,311,5811,199,775Other16,568133,679125,249$ 2,990,573$ 27,349,141$ 130,308,943Note: (1) Exploration and evaluation expenditures relate to amounts spent on land to which no proven reserves are yet assigned. During early 2011, the final statement of adjustments pursuant to the November 24, 2010 acquisition of the Salt Flat Field interest was prepared and resulted in an approximate $154,000 credit to Eagle. A total of 21 (16.8 net) horizontal oil wells were drilled in the Salt Flat Field during 2011, with a 100% success rate; and 6 (4.8 net) salt water disposal wells were also drilled. In addition, 26 (20.8 net) wells were tied in and brought on stream and four recompletions were performed during the year. During the fourth quarter, one (0.8 net) horizontal oil well was drilled in the Salt Flat Field, with a 100% success rate; and one (0.8 net) salt water disposal well was also drilled. In addition, ten (8.0 net) wells were tied in during the quarter and brought on stream. Related infrastructure investment, including oil batteries and construction of a power trunk line continued throughout the fourth quarter. Phases 1 and 2 of the power trunk line project were tied in and on line mid-November 2011. As a result four generators were redeployed to wells at the north end of the Salt Flat Field. The remaining objective is to remove all generators currently in use as soon as possible to reduce operating costs. Phase 3 construction of the power trunk line project is underway with a new primary meter planned to allow tie in of the wells to the south. Discussions are underway to install a new meter to service the north half of the field. Year end reserves information On February 10, 2012, the Trust announced the results of the December 31, 2011 independent reserves evaluation that was conducted by GLJ Petroleum Consultants Ltd. ("GLJ") and prepared in accordance with National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities. The following tables summarize the independent reserves estimates and values as at December 31, 2011 that were previously announced: Summary of oil reserves Company Gross(1)Reserves Category(Mbbls)ProvedDeveloped Producing2,200Developed Non-Producing45Undeveloped1,440Total Proved3,685Probable3,989Total Proved Plus Probable7,674Note: (1) Gross reserves are Eagle's total working interest share before the deduction of any royalties. Eagle owns no overriding royalty interests.Summary of net present value of future net revenue of oil reservesNet Present Value of Future Net RevenueBefore Income Taxes Discounted at (%/year) (1)Reserves Category0%5%10%15%20%(US$000)(US$000)(US$000)(US$000)(US$000)ProvedDeveloped Producing87,76576,89468,91662,79257,924Developed Non-Producing1,5191,3521,2181,1091,019Undeveloped43,24635,03829,09924,64921,219Total Proved132,531113,28499,23388,55080,162Probable145,454106,67981,98265,28653,444Total Proved Plus Probable277,985219,963181,215153,836133,605Notes: (1) Estimates of after-tax future net revenue are not presented because neither Eagle nor the Trust will be subject to taxes in Canada. (2) It should not be assumed that the present values of estimated future net revenue shown above are representative of the fair market value of the reserves. There is no assurance that such price and costs assumptions will be attained and variances could be material. The recovery and reserves estimates of crude oil reserves provided in this press release are estimates only and there is no guarantee that the estimated reserves will be recovered. Actual crude oil reserves may be greater than or less than the estimates provided in this MD&A. (3) Present values of estimated future net revenue shown above are based on GLJ's escalated price forecast as of December 31, 2011, which assumes a base 2012 oil price of US$97.00/bbl. (4) Totals may not add due to rounding. Capital program efficiency During 2011, Eagle's capital expenditures resulted in proved plus probable reserve additions of 1,101 Mbbls at a finding and development cost (including changes in future development costs) of $25.35 per bbl. Proved reserve additions in 2011 were 1,137 Mbbls which were added at a finding and development cost (including changes in future development costs) of $23.93 per bbl. Eagle's 2011 exploration and development expenditures were $27.2 million. The efficiency of Eagle's capital program for the year ended December 31, 2011, and the method of calculating finding and development costs, is shown in the following table.20112010ProvedProved plus ProbableProvedProved plus ProbableExploration and Development expenditures ($000) (1)27,21527,2152,9952,995Acquisitions ($000) (2)--127,279127,279Change in future development capital ($000)Exploration and Development(18)741--Acquisitions--24,21354,649Reserves Additions (Mbbls)Exploration and Development1,1371,101240312Acquisitions--2,8336,7841,1371,1013,0737,096Finding and Development Costs ($/bbl) (1)(8)Including change in FDC(3)23.9325.3512.489.60Excluding change in FDC23.9424.6812.489.60Finding, Development & Acquisitions Costs ($/bbl) (1)(4)Including change in FDC (3)23.9325.3550.2726.06Excluding change in FDC23.9424.6842.3918.36Recycle Ratio (5)2.1x2.0x1.0x1.9xReserves Replacement (6)226%220%13,600%31,399%Reserve Life Index (yrs) (7)3.98.16.314.6Notes:(1) The aggregate of the exploration and development costs incurred in the most recent financial year and the change during that year in estimated future development costs generally will not reflect total finding and development costs related to reserve additions for that year. (2) Acquisition costs related to the 2010 asset acquisition of the Salt Flat Field. (3) Calculation includes changes in future development costs ("FDC"). (4) Eagle calculates finding, development and acquisition ("FD&A") costs which incorporate both the costs and associated reserve additions related to acquisitions during the year. Since acquisitions have a significant impact on Eagle's annual reserve replacement costs, Eagle believes that FD&A costs provide a meaningful portrayal of Eagle's cost structure. (5) The 2011 recycle ratio is calculated using Eagle's 2011 operating netback of $50.06 per bbl (2010 - $48.47 per bbl), see the Field Netback section of this MD&A. (6) The reserves replacement ratios in 2010 are significantly higher than in 2011 because production was disproportionately lower due to a short period of initial operations in 2010 and reserves additions were disproportionately higher due to a significant acquisition in 2010. (7) The 2011 reserve life index calculation is based on Eagle's 2012 average working interest production guidance of 2,600 bbls/d. The 2010 reserve life index calculation was based on Eagle's 2010 exit rate production of 1,327 bbls/d. (8) The Finding and Development Costs increased in 2011 from 2010 due to the substantially higher investment in facilities and infrastructure in 2011. Outlook On December 5, 2011, the Trust announced its 2012 capital program, production guidance, operating budget and a discussion regarding the sustainability of its distributions. Highlights Distributions sustainable for over 3 years. 2012 capital budget of US$14 million, consisting of: 10 (8.0 net) horizontal oil wells 2 (1.6 net) side track re-entry wells 1 (0.8 net) salt water disposal well 1 new battery and adding to an existing battery completing the electrification of the balance of the Salt Flat Field. Guidance 2012: average working interest production of 2,600 barrels of oil per day funds flow from operations of $40 million at $88 WTI pricing payout ratio of 50% at $88 WTI pricing operating costs ranging from $11.25 to $11.75 per barrel Eagle's strategy to accelerate capital spending and production in 2010 and 2011 and then move to a more sustainable level of development is being realized on the Salt Flat Field. A sufficient level of investment has now been made in the field to achieve the Trust's targeted 50% payout ratio for 2012, while fully funding distributions and growing production by about 10%. To accomplish this, Eagle's required annual capital investment in this field over the next three years is approximately 50% of what was invested in 2011. At current guidance levels of production, revenue and costs, Eagle anticipates drilling at least 12 wells per year, paying expenses and maintaining distributions in cash at the current rate of $1.05 per unit per year. Based on the December 31, 2011 independent reserves evaluation, 36 wells remain in Eagle's currently booked inventory. Over 60% of the Trust's unitholders elect to receive their monthly distributions within the Trust's distribution reinvestment and Premium Drip™ programs. At this level of participation, approximately $12 million per year of Eagle's total distribution payments are reinvested by participants in units of the Trust. It is anticipated that this capital will be used to fund development and future growth opportunities. At US$88 per barrel WTI and operating costs of between $11.25 and $11.75 per barrel, Eagle will have sufficient funds flow from operations and sufficient drilling inventory to replace declines, grow its production levels by 7 to 10% annually and sustain the cash payment of its distributions.Non-IFRS financial measures Statements throughout this press release make reference to the terms "funds flow from operations", "distributions" and "payout ratio" which are non-IFRS financial measures that do not have any standardized meaning prescribed by IFRS and therefore may not be comparable to similar measures presented by other issuers. Investors should be cautioned that these measures should not be construed as an alternative to net income calculated in accordance with IFRS. Management believes that "funds flow from operations" and "payout ratio provide useful information to investors and management since these terms reflect the quality of production, the level of profitability, the ability to drive growth through the funding of future capital expenditures and the sustainability of distributions to unitholders. Funds flow from operations is calculated before changes in non-cash working capital. References to "distributions" are to cash distributions to Unitholders in accordance with the distribution policies of the Trust. Distributable cash is a measure generally used by Canadian open-ended trusts as an indicator of financial performance and management believes that prospective investors may consider the cash distributed by the Trust relative to the price of the Units when assessing an investment in Units.Note regarding forward-looking statements Certain of the statements made and information contained in this press release are forward-looking statements and forward looking information (collectively referred to as "forward-looking statements") within the meaning of Canadian securities laws. All statements other than statements of historic fact are forward-looking statements. Forward‐looking statements include those pertaining to Eagle's 2012 capital budget amount and specific uses, average working interest production for 2012, drilling inventory and drilling program for 2012 and beyond, 2012 operating costs, commodity prices, funds flow from operations, cash available from the distribution reinvestment and Premium Drip™ programs, payout ratio, sustainability of production, and amount of and sustainability of distributions on the Trust's units. In determining its drilling program, timing for bringing wells onto production, the production rates from the wells and operating costs, management has made assumptions relating to, among other things, anticipated future production from wells in the Salt Flat field, regulatory approvals, future commodity prices and US/Canadian dollar exchange rates, the regulatory framework governing taxes and environmental matters in the U.S. and Texas, the ability to market future production from the Salt Flat Field, future capital expenditures and the geological and engineering reserves estimates in respect of the Salt Flat Field. These assumptions necessarily involve known and unknown risks and uncertainties inherent in the oil and gas industry such as geological, environmental, technical, drilling and processing problems, the volatility of oil and gas prices, commodity supply and demand, fluctuations in currency and interest rates, obtaining regulatory approvals, competition for services and supplies as well as other business risks that are set out in the Trust's AIF under the heading "Risk Factors". As a result of these risks, actual performance and financial results in 2012 may differ materially from any projections of future performance or results expressed or implied by these forward‐looking statements. Eagle's production rates, operating costs and 2012 capital budget, and the Trust's distributions, are subject to change in light of ongoing results, prevailing economic circumstances, obtaining regulatory approvals, commodity prices and industry conditions and regulations. Accordingly, readers are cautioned that events or circumstances could cause results to differ materially from those set out in this press release. New factors emerge from time to time, and it is not possible for management to predict all of these factors or to assess in advance the impact of each such factor on the operations of Eagle, or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statement. Undue reliance should not be placed on forward-looking statements, which are inherently uncertain, are based on estimates and assumptions, and are subject to known and unknown risks and uncertainties (both general and specific) that contribute to the possibility that the future events or circumstances contemplated by the forward looking statements will not occur. Although management believes that the expectations conveyed by the forward-looking statements are reasonable based on information available to it on the date the forward-looking statements were made, there can be no assurance that the plans, intentions or expectations upon which forward-looking statements are based will in fact be realized. Actual results will differ, and the difference may be material and adverse to the Trust and its unitholders.About the Trust Eagle Energy Trust is a new energy trust created to provide investors with a publicly traded, oil and natural gas focused, distribution producing investment with favourable tax treatment relative to taxable Canadian corporations. Richard W. Clark, President and Chief Executive Officer All material information pertaining to Eagle Energy Trust may be found under the Trust's issuer profile at www.sedar.com and on the Trust's website at www.EagleEnergyTrust.com. The Trust's units are traded on the Toronto Stock Exchange under the symbol EGL.UN.FOR FURTHER INFORMATION PLEASE CONTACT: Richard W. ClarkEagle Energy TrustPresident and Chief Executive Officer403.531.1575info@EagleEnergyTrust.comwww.EagleEnergyTrust.com