Press release from Marketwire
Arcan Announces Year End Results and Filing of Its Annual Financial Statements, MD&A and Annual Information Form
Thursday, April 26, 2012
Arcan Announces Year End Results and Filing of Its Annual Financial Statements, MD&A and Annual Information Form21:08 EDT Thursday, April 26, 2012CALGARY, ALBERTA--(Marketwire - April 26, 2012) -NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES. Arcan Resources Ltd. (TSX VENTURE:ARN) ("Arcan" or the "Corporation") has filed its annual information form for the year ended December 31, 2011 ("AIF"). The AIF contains Arcan's Statement of Reserves Data and Other Oil and Gas Information, Report on Reserves Data by Independent Qualified Reserves Evaluator and Report of Management and Directors on Oil and Gas Disclosure prepared in accordance with National Instrument 51-101 - Standards of Disclosure for Oil and Gas Activities and the Canadian Oil and Gas Evaluation Handbook. In addition to its AIF, Arcan has publicly filed its annual financial statements and management's discussion and analysis for the year ended December 31, 2011. These documents can be retrieved electronically from the SEDAR system under Arcan's profile at www.sedar.com.Commenting on Arcan's 2011 results, Chief Executive Officer Ed Gilmet said, "We achieved our key strategic, operational and financial objectives in 2011, as we continued to demonstrate the strong potential of our waterflood activities in the Swan Hills Beaverhill Lake Play. Our short-term production growth has been uneven, given the need to shut-in wells after their initial test period to equip them with pump jacks. We have already implemented measures to reduce our downtime, and further downtime reduction will continue to be an area of focus for our company. Arcan's future opportunities are evident in our significantly increased production volumes, reserves and net asset value, with reasonable finding and development costs. For the balance of 2012, we will be taking a prudent approach to further development activities in light of weakened market conditions, to ensure long-term sustainability and growth within our cash flow." 2011 HighlightsProved plus probable ("P+P") reserves doubled, reaching 41 million barrels of oil equivalent ("BOE"), up six million BOE at September 30, 2011 and up from 21 million BOE at the end of 2010. Record production of 3,276 BOE per day, up 46 percent from 2,243 BOE per day in 2010. Record operating revenue of $105.0 million and record cash flow of $44.5 million, up 89 percent and 95 percent, respectively, from 2010. Established significant development in the Ethel area, comprised of drilling 26 successful delineation wells, installing pipelines, waterflood facilities and access roads and planning 176 drilling locations on two townships of previously undeveloped land. Completed 30 wells in 2011, doubling the 2010 total of 15 wells, with 12 more wells completed in the first quarter of 2012. Net asset value ("NAV") per share increased to $7.28 from $5.56 in 2010. Acquired StimSol Canada Inc. ("StimSol") for approximately $24.0 million (the "StimSol Acquisition") and constructed an acid blending facility in order to ensure execution of our ongoing development program. Raised $171.0 million through the issuance of two series of convertible unsecured subordinated debentures and $51.0 million through the issuance of common shares. Hedged 2,500 barrels ("bbls") per day in 2012 and 2,000 bbls per day in 2013 to stabilize cash flows. Increased injection in the Deer Mountain Unit #2 (the "Unit") with six new injectors added by the end of the first quarter of 2012. Subsequent Events In the first quarter of 2012, Arcan has had continued drilling success, with 12 additional wells drilled in the first quarter at a 100 percent success rate. As previously disclosed, the first well drilled in the Virginia Hills area exceeded expectations, flowing over 1,200 BOE per day for a 20-day period in March and April. Overall corporate production is estimated at approximately 5,000 BOE per day in the first quarter of 2012, and average production for the first 20 days of April, 2012 is estimated to be in excess of 6,100 BOE per day.Statistics20112010% ChangeNAV per diluted share ($) (P+P, PV 10)7.285.5631NAV ($ millions) (P+P, PV 10)763.8534.243Reserves volumes (MMBOE) (P+P)41.0 (94% light oil)21.1 (94% light oil)94FD&A (as defined herein) (per BOE) (P+P)25.7125.053Production (BOE per day)3,2762,24346Swan Hills land (acres)108,16096,00013Swan Hills horizontal wells3015100Swan Hills horizontal locations400400-Funds flow ($ millions)44.522.895Shares outstanding (million)97.887.712 Corporate Strategy Arcan's strategy in 2011 was to solidify our identity as a leading junior oil-weighted resource player on the Swan Hills Beaverhill Lake ("Swan Hills") trend through development and expansion in the Ethel area. As outlined below, we believe we have realized upon this strategy. In 2012, we seek to build investors' confidence in our further growth potential through continued operational success in this highly regarded light oil play. Production increases: Production increased 46 percent to 3,276 BOE per day in 2011 from 2,243 BOE per day in 2010 and is estimated at 5,000 BOE per day in the first quarter of 2012. Natural gas production declined 31 percent but was offset by an increase of 56 percent in light oil production, leaving Arcan with a 95 percent light oil weighting at the end of 2011. Arcan has shut-in gas producing wells amounting to approximately 100 BOE per day due to depressed gas prices. Exploit and develop the Swan Hills play which is predictable, scalable, and repeatable: Arcan experienced 100 percent drilling success in the year ended December 31, 2011 and owns 172 net square miles of land drillable to four wells per section with a three-year drilling inventory already surveyed within current cash flow projections and existing debt capacity. Over 70 vertical pre-existing wells and a new 3D seismic program delineate the resource play over Arcan's land base. Increase land values: Arcan increased its landholdings modestly in 2011. Arcan currently has approximately 109,400 net acres (44,200 hectares or 172 net sections) of land with Swan Hills reservoir potential. Arcan has recently received positive news from Alberta Energy regarding a pre-determination ruling for Arcan's land continuation. Arcan's 2011 drilling and land maintenance efforts were successful and Arcan expects that one rig will be sufficient to maintain Arcan's prospective acreage going forward. Operations Strategy In 2011, Arcan implemented an operational strategy of drilling wells, increasing production and proving up reserves on its land base. Arcan utilized its infrastructure and balanced drilling locations to capture reserves and maximize land continuations, production and waterflood patterns for enhanced recovery. Completed and tested thirty (28.5 net) horizontal multi-stage fracture wells: These wells cover a 30 kilometre segment in Arcan's Swan Hills light 40° API sweet oil play. Subsequent to the end of the year, Arcan drilled 12 (12.0 net) successful horizontal oil wells and is currently drilling well number 66 in Swan Hills, including the three re-completions. Of the 66 wells, three are awaiting completion. We anticipate utilizing one drilling rig during the break-up period and will consider adding additional rigs later in the third or fourth quarter of 2012. Continued success in the Unit horizontal well program and waterflood effect : While the Corporation has started to see positive results of increased volumes of injection water in certain Unit wells, Arcan's management ("Management") expects further increases in oil production from the Unit wells during the second half of 2012. The Unit comprises approximately 21 percent of Arcan's value but only comprises five percent of our 172 section land base. This highlights the value that may be achieved through the application of a waterflood over the remainder of our land base. Capturing upside potential at Swan Hills : In addition to the wells already drilled, Arcan estimates over 400 additional drilling locations in Swan Hills. As at December 31, 2011, Arcan's reserves bookings, as evaluated by GLJ Petroleum Consultants Ltd., Arcan's independent, qualified reserves evaluator ("GLJ"), cover approximately 53 net sections. Thirty-two of these 53 sections reflect primary recovery only and no waterflood recovery. At the end of 2011, 41.0 million BOE ("MMBOE") of recoverable reserves were recognized by GLJ. Reserves with a 28 year reserve life index weighted 94 percent to light oil: Reserve additions created a 1.9 times recycle ratio on operating netbacks of $49.13 per BOE and $25.71 per BOE finding, development and acquisition ("FD&A") costs (P+P including future development capital). Focus on reducing drilling and completion costs : Through a very busy few quarters Arcan has implemented strategies to reduce drilling days and improve completion costs. A significant part of this strategy includes accessing a cheaper acid supply commencing in 2013 but also includes ongoing efforts in reviewing all costs and implementing strategies to modify operations to be more cost effective. Reduction in operating costs in 2012: During 2011, Arcan constructed infrastructure, including pipelines and roads, in the Ethel area which will significantly reduce operating costs in the second half of 2012. In 2011, operating costs increased over 2010, partially due to the requirement to truck significant portions of volume to market. With the new pipelines in place and the resumption of service on third party pipelines, Management believes operating costs on a per BOE basis will be reduced in 2012 from 2011 levels. In addition, Arcan has also implemented measures such as real time pump monitoring to maximize pump run times. Financial Strategy Arcan's strategy of maintaining financial stability has not changed. Increased NAV 31 percent to $7.28 per diluted share: NAV per share increased to $7.28 per diluted share as at December 31, 2011 from $5.56 per diluted share as at December 31, 2010 (P+P discounted at ten percent (PV10)). Funds from operations increased 95 percent to $44.5 million in 2011: Funds from operations increased from $22.8 million in 2010, to $44.5 million in 2011, translating into 53 percent per share growth from $0.32 to $0.49 per share as well as growth on a BOE basis from $27.82 to $37.20 on a year over year basis. Oil prices increased 25 percent and natural gas prices decreased 18 percent over the same period. Increased credit facility and completed two debenture offerings: In 2011, Arcan increased its existing syndicated two year banking facility (the "Credit Facility") from $100.0 million to $120.0 million. Arcan is currently working with its lenders to seek an increase to the Credit Facility. Arcan believes it will likely be successful in obtaining such increase based on its reserves and production successes since December 31, 2010. In the first quarter of 2011, Arcan raised $86.25 million through an offering of 6.25 percent convertible unsecured subordinated debentures due February 28, 2016. In the fourth quarter of 2011, Arcan raised $85.0 million through an offering of 6.50 percent convertible unsecured subordinated debentures due October 31, 2018. Raised equity: Raised $51.0 million through an offering of common shares which closed on October 16, 2011. Insurance on cash flow: Hedged Canadian dollar West Texas Intermediate ("WTI") 2,500 bbls per day for all of 2012 as well as 2,000 bbls for all of 2013. 2011 Year in Review In 2011, Arcan's asset development was focused on the delineation of its Ethel property, an area of approximately two townships or 100 square kilometres ("Ethel"). This asset is the southern continuation of Arcan's Swan Hills work in 2010, which was concentrated primarily in the Unit. In Ethel, what was essentially undeveloped land at the start of 2011, 26 horizontal wells were drilled, 80 kilometres of pipelines built, waterflood initiated and all-season access roads completed by the end of the first quarter of 2012. Arcan's development and expanded drilling into Ethel has already added tremendous value. Arcan anticipates that its activities in Ethel will continue to add value as Arcan optimizes these lands with additional drilling, pipeline tie-ins and waterflood enhancement. Arcan's 2011 investments in drilling provided 46 percent organic growth in production over 2010 to average 3,276 BOE per day in 2011, with the fourth quarter averaging 3,976 BOE per day. Arcan estimates that its first quarter of 2012 production has grown a further 26 percent to 5,000 BOE per day and that during the first 20 days of April, production has averaged over 6,100 BOE per day. Arcan's capital program was $250.0 million in 2011, consisting of $30.0 million for the acquisition and further development of StimSol and $220.0 million for light oil development. The StimSol Acquisition enabled Arcan to secure the blended acid supplies needed for completing its horizontal multi-stage fractured wells. Also in 2011, Arcan initiated the tie-in of Ethel wells to its owned and operated battery at the Unit. Management anticipates having these wells on-stream into the pipeline by the end of the second quarter of 2012, which is expected to save approximately $8.00 to $10.00 per BOE in oil trucking costs alone. Also in 2011, a high grade road system was completed which allowed all weather access to the Swan Hills area. Arcan is seeking facility independence in order to address the third-party facility outages and emulsion trucking costs that created higher than normal operating costs in 2011. Arcan has drilled a total of 62 horizontal wells plus three re-entries in the Swan Hills area of which 32 were drilled and 30 were completed plus one re-entry in 2011 after a record 15 were completed in 2010. As a result of increased development activity, Arcan completed three financings in 2011 raising a total of $222.0 million dollars. As of December 31, 2011, Arcan had approximately $210.0 million in debt and working capital, including an aggregate of $85.0 million in 6.50 percent convertible unsecured subordinated debentures maturing on October 31, 2018 and an aggregate of $86.25 million in 6.25 percent convertible unsecured subordinated debentures maturing on February 28, 2016 outstanding. Outlook We anticipate continued growth for Arcan in 2012, with a front-end-loaded drilling timeline on our Swan Hills asset base. Arcan is now at an inflection point in its corporate evolution. Having succeeded in assembling an excellent land position and drilling up a strong play to exceed the 6,000 BOE per day level of production, we face important strategic decisions. We are therefore taking a prudent approach for the remainder of 2012. Rather than continuing to drill aggressively, we are shifting to a more measured pace, using existing cash flow to fund our expansion. We invested substantially in infrastructure in 2011, including pipelines, roads and waterflood facilities, so we are well positioned to strengthen our capital efficiency in 2012. We plan to drill up to 30 wells in 2012, contingent on maintaining a healthy balance sheet. Twelve wells were drilled in the first quarter of 2012. We have dropped to one drilling rig during spring break-up in order to allow completion and equipping operations to catch up with recently drilled wells. We will moderate the pace of drilling for the remainder of the year to keep capital spending within available cash flow. After the 2012 drilling program is complete, Arcan estimates it will have 70 horizontal multi-stage horizontal wells on-stream. Based on current plans, we believe that 2012 production will average approximately 6,000 to 6,500 BOE per day. Financially, Arcan is in a strong position for 2012. As noted above, we have commenced renewal discussions on our Credit Facility and anticipate an increase based on our December 31, 2011 reserves evaluation. We will continue to manage corporate growth against dilution and debt. We anticipate that we will fund the growth of our production base in 2012 through a prudent level of investment based on cash flow and our Credit Facility, with further support provided through hedging activities. Summary of Oil and Gas Reserves - Forecast Prices and Costs The table below provides a summary of the oil, NGLs and natural gas reserves attributable to Arcan, as evaluated by our independent qualified reserves evaluator, GLJ, effective December 31, 2011 based on forecast price and cost assumptions. The tables summarize the data contained in the report prepared by GLJ (the "GLJ Report"), and as a result, may contain slightly different numbers than those contained in the original report due to rounding. Also due to rounding, certain columns may not add exactly. Readers should review the definitions and information contained in "Presentation of Arcan's Oil and Gas Reserves" and "Abbreviations" in Arcan's AIF in conjunction with the following table and notes. All of Arcan's reserves are on-shore in Canada.Light & Medium OilNatural Gas LiquidsNatural Gas (1)TotalReserves CategoryGross (2) (Mbbls)Net (3) (Mbbls)Gross (2) (Mbbls)Net (3) (Mbbls)Gross (2) (MMcf)Net (3) (MMcf)Gross (2) (Mbbls)Net (3) (Mbbls)ProvedDeveloped Producing9,4796,8804342624,0593,30610,5907,694Developed Non-Producing1381162015144131183153Undeveloped9,7817,9394263223,6133,20510,8098,796Total Proved19,39914,9358806007,8166,64321,58216,642Total Probable17,69913,0696964926,1535,40019,42114,461Total Proved + Probable37,09928,0041,5761,09213,96912,04341,00331,103Notes: (1)Estimates of reserves of natural gas include associated and non-associated gas.(2)"Gross Reserves" are Arcan's working interest share of remaining reserves before the deduction of royalties.(3)"Net Reserves" are Arcan's working interest share of remaining reserves less all Crown, freehold, and overriding royalties and interests owned by others.GLJ employed the following pricing, exchange rate and inflation rate assumptions as of December 31, 2011, in the GLJ Report in estimating reserves data using forecast prices and costs (1):Medium and Light Crude OilNatural GasYearInflationWTICushing Oklahoma 40°API(US$/bbl)EdmontonPar Price 40°API($/bbl)CromerMedium 29.3°API($/bbl)Alberta Gas Reference Price Plant Gate ($/MMBTU)AECO - C Spot($/MMBTU)ExchangeRate (US$/$Cdn)2011 (actual)3.094.8395.1587.573.473.681.01220122.097.0097.9690.123.293.490.98020132.0100.00101.0292.943.934.130.98020142.0100.00101.0291.934.394.590.98020152.0100.00101.0291.934.845.050.98020162.0100.00101.0291.935.305.510.98020172.0100.00101.0291.935.755.970.98020182.0101.35102.4093.185.996.210.98020192.0103.38104.4795.076.116.330.98020202.0105.45106.5896.996.236.460.98020212.0107.56108.7398.956.366.580.980Note: (1)All pricing in the above table, excluding inflation and the exchange rate, is escalated at 2.0 percent per year thereafter. Thereafter, inflation is assumed to be constant at 2.0 percent and the exchange rate is assumed to be constant at 0.980. Net Asset ValueAs detailed in the table below, the NAV of $7.28 per diluted share at December 31, 2011 (on the basis of P+P reserves discounted at ten percent) has increased by 31 percent over December 31, 2010. The increase in net asset value is primarily attributable to the impact of the new horizontal multi-stage fracture wells in the Swan Hills reef play. In 2011, Arcan invested $250.3 million and grew the present value of the Corporation's reserves by $420.1 million (P+P PV 10) ($829.2 million closing reserves plus $58.8 million in operating netbacks less $467.9 million opening reserves). Approximately $30.0 million of that investment was in StimSol, Arcan's acid blending service company. Arcan expects that its investment in horizontal multi-stage acid fracture wells and waterflooding and acid blending will continue to add value going forward. The following NAV calculation is presented for December 31, 2011 and December 31, 2010 and incorporates estimates that may not be comparable year-over-year and are only at one point in time. GLJ performed an independent evaluation on Arcan's reserves; however, the land values and seismic values used are based on Management estimates. The working capital deficit (including bank debt and face value of the debentures) from the December 31, 2011 financial statements and the dilution proceeds are computed by taking the outstanding stock options at December 31, 2011 multiplied by their exercise prices (all options were dilutive as they were exercisable under $4.98 per share, which was the December 31, 2011 closing share price of Arcan). Reserve estimates are derived from the GLJ Report, which has an effective date of December 31, 2011. The reader is cautioned that the presentation does not reflect all aspects of the Corporation and that estimates of future net revenue do not represent fair market value.Net Asset ValueDecember 31, 2011December 31, 2010($000s except number of shares and per share)(P+P discounted at 5%)(P+P discounted at 10%)(P+P discounted at 5%)(P+P discounted at 10%)Present value of reserves1,198,169829,242629,623467,917Undeveloped acreage87,00087,00081,60081,600StimSol30,00030,000--Working capital deficit (including bank debt)(209,966)(209,966)(48,592)(48,592)Dilution proceeds(1)27,50927,50932,05232,052Estimated value1,132,711763,786695,883534,177Shares (thousands) (1)104,906104,90696,06196,061Estimated NAV per share (1)10.807.287.245.56Note:(1)Share figures for 2011 include all dilutive securities namely: 97,760,846 common shares and 7,144,833 stock options that are in the money at their average exercise price of $3.85 (these were all dilutive securities exercisable below the $4.98 December 31, 2011 share trading price). Share figures for 2010 include all dilutive securities namely: 87,670,446 common shares and 8,390,500 stock options that are in the money at their average exercise price of $3.82 (these were all dilutive securities exercisable below the $5.68 December 31, 2010 share trading price). FD&A Costs For the year ended December 31, 2011, Arcan added 21.1 MMBOE of P+P reserves (41.0 MMBOE closing reserves plus 1.2 MMBOE production less 21.1 MMBOE opening reserves) to its $542.7 million capital program ($250.3 million of capital per the December 31, 2011 financial statements plus $492.1 million of closing future development capital in the GLJ Report (P+P) less $199.7 million closing future development capital in Arcan's December 31, 2010 reserve report (P+P) to calculate a $24.58 FD&A cost per P+P BOE (excludes the effect of the StimSol Acquisition). The aggregate of the exploration and development costs incurred in the most recent fiscal year and the change during that year in estimated future development costs generally will not reflect total FD&A costs related to reserves additions for that year. The FD&A costs are depicted below. Arcan anticipates that the full impact of its horizontal development in Swan Hills and the related shift in reserves will be realized over the next few years.P+P FD&A Costs (excl. Acq.)201120103 yearLife To DateTotal capital ($ millions)542.7313.1857.01,075.0Acquisition capital ($millions)24.052.876.876.8Total capital ($ millions)518.7260.4780.2998.2Reserve additions (MMBOE)21.110.832.043.0P+P FD&A ($ per BOE)$24.58$24.08$24.37$23.20Proved FD&A Costs (excl. Acq.)201120103 yearLife To DateTotal capital ($ millions)380.7261.9643.6854.6Acquisition capital ($ millions)24.052.876.876.8Total capital ($ millions)356.7209.1566.8777.8Reserve additions (MMBOE)9.06.115.123.9Proven FD&A ($ per BOE)$39.84$34.36$37.44$32.58P+P FD&A Costs (Incl. Acq.)201120103 yearLife To DateTotal capital ($ millions)542.7313.1857.01,070.2Reserve additions (MMBOE)21.110.833.743.0P+P FD&A ($ per BOE)$25.71$25.05$25.43$23.93Proved FD&A Costs (Incl. Acq.)201120103 yearLife To DateTotal capital ($ millions)380.7261.9643.6849.8Reserve additions (MMBOE)9.06.116.623.9Proven FD&A ($ per BOE)$42.52$34.89$38.86$33.60Arcan has invested substantially in its infrastructure in prior years through facilities, drilling water source wells, and converting producing vertical wells into injector wells. In waterflood projects, the majority of the capital expended has historically been invested at the front end to produce results over the long-term. The StimSol Acquisition was focused on capturing blended acid for fracturing as well as decreasing our completion costs over the long-term. In 2012 Arcan expects an upward transition in revenues and netbacks as commodity prices related to oil rise and Arcan invests in horizontal multi-stage fracture oil wells in Swan Hills. Recycle Ratio Recycle ratio is a measure for evaluating the effectiveness of a company's reinvestment program. The ratio measures how well a company replaced every BOE of production. The table below depicts that Arcan received a net $49.13 per BOE sold and it cost $25.71 in 2011 to find a replacement BOE. Arcan strives for a recycle ratio of 2.0 or higher. In 2011, Arcan achieved a recycle ratio of 1.9 times, including the StimSol Acquisition. Arcan determined it was important to demonstrate the effectiveness of the combination of the horizontal multi-stage fracture wells across the Ethel land base, where waterflood has been started and will be expanded in 2012, as well as drilling in new areas across the expanded land base. For the year ended December 31, 2011, Arcan estimated that it had a 1.9 times recycle ratio on 21.1 MMBOE P+P reserve additions and a $25.71 FD&A cost (including changes to future development capital) with a 28 year reserve life index. Life to date, Arcan estimates it has a recycle ratio of 1.7 times based on a $24.04 P+P FD&A (including changes to future development capital) and a $41.66 operating netback.Recycle Ratio (Including Acquisitions)201120103 yearLife to DateOperating netback ($/BOE)49.1336.3639.9841.66Proven finding and development costs ($/BOE)42.5234.8938.8633.79Proven reinvestment efficiency ratio1.11.01.01.2Proven plus probable finding and development costs ($/BOE)25.7125.0525.4324.04Proven plus probable reinvestment efficiency ratio184.108.40.206.7Recycle Ratio (Excluding Acquisitions)201120103 yearLife to DateOperating netback ($/BOE)49.1336.3639.9841.66Proven finding and development costs ($/BOE)39.8434.3637.4432.58Proven reinvestment efficiency ratio220.127.116.11.3Proven plus probable finding and development costs ($/BOE)24.5824.0824.3723.20Proven plus probable reinvestment efficiency ratio2.01.51.61.8 Reserve Life Index Using the fourth quarter ended December 31, 2011 average production of 3,976 BOE per day and December 31, 2011 year-end proved plus probable reserves, Arcan has a reserve life index of 28 years. Arcan anticipates the reserve life index to decline as production rates are anticipated to elevate.Production (fourth quarter ended December 31, 2011 average BOE per day)3,976Proved reserves (MBOE)21,582Proved reserve life index (years)14.9Proved plus probable reserves (MBOE)41,003Proved plus probable reserve life index (years)28.3 Annual and Special General Meeting Arcan has amended the date of its annual and special meeting from the previously announced June 14, 2012 to June 21, 2012. About Arcan Resources Ltd. Arcan Resources Ltd. is an Alberta, Canada corporation that is principally engaged in the exploration, development and acquisition of petroleum and natural gas located in Canada's Western Sedimentary Basin. For further information, please contact either:Legal AdvisoriesAll information contained in the press release relating to reserves comes from the GLJ Report, which has an effective date of December 31, 2011 and was prepared by GLJ, a qualified reserves evaluator, in accordance with the COGE Handbook. The disclosure was made assuming that development of each property in respect of which the estimate is made will occur, without regard to the likely availability of funding required for that development. Readers are also cautioned that the estimated future net revenue values do not represent fair market value. BOEs may be misleading, particularly if used in isolation. The calculation of BOEs is based on a conversion ratio of six Mcf of natural gas to one bbl of oil based on an energy equivalency conversion primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. In addition, a BOE conversion using a six Mcf of natural gas to one bbl of oil is misleading as an indication of value. Estimates of reserves and future net revenue for individual properties may not reflect the same confidence level as estimates of reserves and future net revenue for all properties, due to the effects of aggregation. Additional information about the Corporation, including the Corporation's annual information form for the year ended December 31, 2011, is available under Arcan's profile on SEDAR at www.sedar.com.Non-GAAP MeasurementsReaders are cautioned that this press release contains the term "funds from operations", which should not be considered an alternative to, or more meaningful than, cash provided by operating activities or net earnings, as determined in accordance with GAAP, which is within the framework of International Financial Reporting Standards ("IFRS"), as an indicator of Arcan's performance. Arcan also presents "funds from operations per share", whereby funds from operations is divided by the basic weighted average number of common shares of Arcan outstanding to determine per share amounts. Operating and corporate netbacks are also presented. Operating netbacks represent Arcan's revenue, less royalties and operating expenses, and corporate netbacks represent Arcan's operating netback, less realized economic hedging losses, general and administrative ("G&A") and interest expense, in order to determine the amount of funds generated by production. Operating and corporate netbacks have been presented on a per BOE basis, as well. These measures do not have any standardized meaning prescribed by GAAP and therefore are unlikely to be comparable to similar measures presented by other companies. Management believes that funds from operations and operating and corporate netbacks are useful supplemental measures as they provide an indication of the ability of Arcan to fund future growth through capital investment and/or repay debt. These measures have been described and presented in this press release in order to provide shareholders and potential investors with additional information regarding Arcan's liquidity and its ability to generate funds to finance its operations. Arcan's method of calculating funds from operations may differ from that of other companies, and, accordingly, may not be comparable. Please see the section "Annual and Fourth Quarter Results of Operations - Netbacks" in Arcan's management's discussion and analysis for the year ended December 31, 2011 for a reconciliation between both operating netbacks and corporate netbacks to revenue.Arcan determines funds from operations as cash flow from operating activities before changes in non-cash working capital as follows:Three Months EndedYear Ended($000's)December 31, 2011December 31, 2010December 31, 2011December 31, 2010Cash flow from operating activities (per IFRS)15,3518,04144,88919,630Change in non-cash working capital(363)(247)(417)3,145Funds from operations14,9887,79444,47222,775Readers are cautioned that this press release contains the term "net asset value" (NAV), which Management of Arcan believes is a useful supplemental measure as it provides a measure of the potential value of the Corporation. Arcan's method for calculating NAV is detailed in this press release in the section "Net Asset Value" and may differ from that of other companies, and, accordingly, may not be comparable. This measure does not have any standardized meaning prescribed by GAAP and therefore is unlikely to be comparable to similar measures presented by other companies. Arcan's Management believes there is no GAAP measure that is directly comparable to the NAV calculation, although there are GAAP financial statement amounts used in the calculation that have been articulated in that section of the press release, and readers are cautioned in their use of the measure.Readers are cautioned that this press release contains the term "finding, development, and acquisition" ("FD&A") costs which Management believes is a useful supplemental measure as it provides a measure of the capital costs to add proved and probable reserves. Arcan's method for calculating FD&A costs is detailed in this press release in the section "FD&A Costs" and may differ from that of other companies, and, accordingly, may not be comparable. This measure does not have any standardized meaning prescribed by GAAP and therefore is unlikely to be comparable to similar measures presented by other companies. Arcan's Management believes there is no GAAP measure that is comparable to the FD&A calculation, although there are GAAP financial statement amounts used in the calculation that have been articulated in that section of the press release, and readers are cautioned in their use of the measure. Readers are cautioned that this press release contains the term "recycle ratio" which Management believes is a useful supplemental measure as it provides a measure for evaluating the effectiveness of a Corporation's reinvestment program. Arcan's method for calculating the recycle ratio is detailed in this press release in the section "Recycle Ratio" and may differ from that of other companies, and, accordingly, may not be comparable. This measure does not have any standardized meaning prescribed by GAAP and therefore is unlikely to be comparable to similar measures presented by other companies. Arcan's Management believes there is no GAAP measure that is comparable to the recycle ratio calculation, although there are GAAP financial statement amounts used in the calculation that have been articulated in that section of the press release, and readers are cautioned in their use of the measure. Readers are cautioned that this press release contains the term "reserve life index" which Management believes is a useful supplemental measure as it provides a measure for estimating the number of years it will take to produce the Corporation's reserves at current production levels. Arcan's method for calculating the reserve life index is detailed in this press release in the section "Reserve Life Index" and may differ from that of other companies, and, accordingly, may not be comparable. This measure does not have any standardized meaning prescribed by GAAP and therefore is unlikely to be comparable to similar measures presented by other companies. Arcan's Management believes there is no GAAP measure that is comparable to the reserve life index calculation and readers are cautioned in their use of the measure.Forward-Looking Information and StatementsThis press release contains certain forward-looking information and statements within the meaning of applicable securities laws. The use of any of the words ''expect'', ''anticipate'', ''continue'', ''estimate'', ''guidance'', ''objective'', ''ongoing'', ''may'', ''will'', ''project'', ''should'', ''believe'', ''plans'', ''intends'', "possible" and similar expressions are intended to identify forward-looking information or statements. In particular, but without limiting the foregoing, this press release contains forward-looking information and statements pertaining to, among other things, the following: current and year-to-date anticipated production and production to be brought on stream; year end production exit rates; the application and modification of horizontal, multi-stage fracture technologies including expectations respecting the application of additional fracture stimulation stages; Arcan's expectations respecting the benefits of the StimSol acquisition and its fracture acid needs; Arcan's expectations respecting the effect of shipping its oil volumes from the Ethel field by pipeline; the success of the 2012 drilling program; Arcan's expectations respecting its growth and activities throughout the remainder of 2012; Arcan's ability to execute on the remainder of its 2012 business plans; future growth including development, exploration, acquisition, construction and operational activities and related expenditures the timing, method and results of drilling and waterflood operations; the timing and resolution of mechanical/operational issues faced by Arcan; waterflood and CO2recoveries; future liquidity and financial capacity and resources; the potential inherent in Arcan's Swan Hills land base; reserve life index; estimated additional drilling locations; expectations relating to increased shareholder value; results from operations and financial ratios; the volume and product mix of Arcan's oil and gas production; cost and expense estimates and expectations; Arcan's income taxes, tax liabilities and tax pools; oil and natural gas prices and Arcan's risk management programs; recovery; the amount of asset retirement obligations; cash flow ratios and sensitivities; royalty rates and their impact on Arcan's operations and results; capital expenditures; Arcan's review of its Credit Facility; and the reassessment of Arcan's 2012 budget.The forward-looking information and statements contained in this press release reflect several material factors and expectations and assumptions of Arcan including, without limitation: that Arcan will continue to conduct its operations in a manner consistent with past operations; the accuracy of current horizontal production data, historical well production and waterflood results; the general continuance of current or, where applicable, assumed industry conditions; continuity of reservoir conditions across Arcan's Swan Hills land base; availability of debt and/or equity sources to fund Arcan's capital and operating requirements as needed; the continuance of existing and, in certain circumstances, proposed tax and royalty regimes; the accuracy of the estimates of Arcan's reserve volumes; the accuracy of current horizontal production data; and certain commodity price and other cost assumptions. Arcan believes the material factors, expectations and assumptions reflected in the forward-looking information and statements are reasonable at this time but no assurance can be given that these factors, expectations and assumptions will prove to be correct. The forward-looking information and statements included in this press release are not guarantees of future performance and should not be unduly relied upon. Such information and 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 information or statements including, without limitation: for reasons currently unanticipated, Arcan's production rates may not increase in the manner currently expected; the application and modification of horizontal, multi-stage fracture technologies including the application of additional fracture stimulation stages may not have the impact currently anticipated by Arcan; Arcan's capital spending and operational plans for 2012 may not be completed in the timelines anticipated, in the manner anticipated or at all and the execution of such plans may not have the results currently anticipated by Arcan; water injection at additional sites in the Deer Mountain Unit #2 or in the Ethel field may not have the impact on production currently anticipated by Arcan; currently unforeseen issues may arise in the integration of the business and operations of Arcan and StimSol and acquisition may not positively impact Arcan's business and operations in the manner currently anticipated or at all; changes in commodity prices; unanticipated operating results or production declines; waterflood and CO2impacts; Arcan may be unable to solve its mechanical/operational issues in the timelines anticipated, in the manner anticipated or at all; shareholder value may not be maximized in the manner suggested by Arcan or at all; changes in tax or environmental laws or royalty rates; increased debt levels or debt service requirements; inaccurate estimation of Arcan's oil and gas reserves volumes; limited, unfavourable or no access to debt or equity capital markets; inaccuracies in Arcan's calculation of reserve life index; for reasons currently unforeseen, the current drilling locations identified by Arcan may prove to be unsuitable or unavailable and drilling on the locations identified may not occur; increased costs and expenses; the impact of competitors; reliance on industry partners; reviews of Arcan's Credit Facility and/or budget may not occur on the timelines anticipated or at all; and certain other risks detailed from time to time in Arcan's public disclosure documents including, without limitation, those risks identified in this press release, and in Arcan's annual information form, copies of which are available on Arcan's SEDAR profile at www.sedar.com.The forward-looking information and statements contained in this press release speak only as of the date of this press release, and Arcan does not assume any obligation to publicly update or revise them to reflect new events or circumstances, except as may be required pursuant to applicable laws.FOR FURTHER INFORMATION PLEASE CONTACT: Ed GilmetArcan Resources Ltd.Chief Executive Officer and Presidentegilmet@arcanres.comORDouglas PennerArcan Resources Ltd.Executive Vice President and Chief Financial Officerdpenner@arcanres.comORSuite 2500, 308 - 4th Avenue S.W.Arcan Resources Ltd.Calgary, AB T2P 0H7(403) 262-0321Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.