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Press release from Marketwire

Fairborne Announces First Quarter 2012 Results

Tuesday, May 08, 2012

Fairborne Announces First Quarter 2012 Results16:36 EDT Tuesday, May 08, 2012CALGARY, ALBERTA--(Marketwire - May 8, 2012) - Fairborne (TSX:FEL) is pleased to provide this summary of its financial and operating results for the first quarter of 2012. A complete copy of the Company's consolidated interim financial statements for the three months ended March 31, 2012, along with management's discussion and analysis in respect thereof will be filed on SEDAR and is available on the Company's website at MONTHS ENDED MARCH 31,20122011changeFinancial ($thousands, except per share amounts)Petroleum and natural gas revenue38,46548,531(21%)Funds generated from operations (1)18,06229,833(39%)Per share - basic$0.18$0.29(38%)Per share - diluted$0.18$0.29(38%)Cash flow from operations (including changes in working capital) (1)18,45625,096(26%)Per share - basic$0.18$0.24(25%)Per share - diluted$0.18$0.24(25%)Profit (loss)(7,240)32,650(122%)Per share - basic($0.07)$0.32(122%)Per share - diluted($0.07)$0.31(123%)Exploration and development expenditures41,57757,353(28%)Marlboro gas plant expenditures-14,303-Total capital expenditures41,57771,656(42%)Proceeds from the sale of petroleum and natural gas properties(1,000)(123,460)(99%)Working capital deficit (excluding convertible debentures)32,90247,175(30%)Convertible debentures-98,135-Bank indebtedness253,541101,774158%Total debt, including working capital286,443247,084 16%OperationsAverage productionNatural gas (Mcf per day)76,82163,55021%Crude oil (bbls per day)1,8602,710(31%)Natural gas liquids (bbls per day)8861,020(13%)Sulphur (tonnes per day) (2)4667(31%)Total (BOE per day)15,59614,3888%Average sales price (3)Natural gas ($ per Mcf)2.304.35(47%)Crude oil ($ per bbl)91.7381.7812%Natural gas liquids ($ per bbl)72.6254.6833%Sulphur ($ per tonne)116.2898.2618%Netback per BOE ($ per BOE)Petroleum and natural gas sales (3)26.8039.14(32%)Royalties(2.72)(2.99)(9%)Operating expenses(8.19)(9.39)(13%)Transportation(0.95)(1.04)(9%)Operating netback14.9425.72(42%)Wells drilled (gross)1122(50%)Undeveloped land (net acres)212,297227,513(7%)(1)The calculation of funds generated from operations and cash flow from operations for the three months ended March 31, 2012 excludes $2.7 million (2011 - $4.2 million) of interest expense which is classified as finance expense.(2) A BOE conversion ratio has been calculated using a conversion rate of one tonne of sulphur to one barrel.(3) Excludes the change in fair value of derivatives.First Quarter HighlightsAverage quarterly production of 15,596 BOE per day was 8% higher than the first quarter of 2011, despite production interruptions and a decision to shut in gas due to low natural gas prices, which reduced average first quarter production by approximately 300 BOE per day; Current production of 15,000 BOE per day includes production from first quarter drilling activities, while approximately 1,000 BOE per day remains shut in due to low natural gas prices; Successful first quarter drilling program resulted in seven (5.3 net) natural gas wells and four (1.6 net) oil wells, including three (2.7 net) horizontal Wilrich wells at Marlboro, one (0.75 net) horizontal Cardium well at Harlech and one (1.0 net) vertical well at Harlech; The Company's second horizontal Cardium well at Harlech has produced at an average rate of 830 BOE per day since coming on production, including approximately 160 barrels per day of condensate and 100 barrels per day of natural gas liquids; Operating costs of $8.19 per BOE were down 13% from the first quarter of 2011; Operating netback of $14.94 per BOE reflected low natural gas prices, partially offset by operating cost reductions; Funds generated from operations of $18.1 million ($15.4 million after deducting interest expense) reflected the 42% decrease in the AECO Daily Index compared to the first quarter of 2011; Two separate property dispositions were entered into for producing assets with combined production of approximately 1,000 BOE per day with combined gross proceeds of $127.5 million. Both transactions are scheduled to close in the second quarter of 2012; The Company received confirmation from its banking syndicate that, after giving effect to the decline in natural gas prices and the two pending property dispositions, its borrowing base will be $220 million. Fairborne expects its bank indebtedness, pro forma the two property dispositions to be between $140 and $150 million upon effect of the borrowing base revision; Natural gas hedges on an average of 31,000 Mcf per day have been executed for the period of April to October at an average floor price of $2.06 per Mcf; The Company, with its financial advisors, is finalizing preparation of a data room as part of its strategic review process. OperationsFirst quarter production of 15,596 BOE per day in 2012 was 8% higher than the first quarter of 2011, with new production primarily attributed to successful exploration and development programs on Fairborne's core properties at Marlboro and Harlech. Production increases were achieved despite factors which reduced the Company's average first quarter production by approximately 300 BOE per day. As natural gas prices declined the Company made the economic decision to first restrict, then completely shut-in, production at Wild River. In addition, a significant mechanical failure at the third party operated Kaybob KA gas plant forced Fairborne to shut in sour gas production which was processed through the Kaybob plant. Although production remains shut in on the Wild River property, current production is approximately 15,000 BOE per day, reflecting results of the Company's successful first quarter drilling program.Throughout the first quarter, Fairborne continued to focus on areas that generate the most economic returns in this low natural gas environment, including wells drilled at Marlboro as well as the Cardium horizontal well at Harlech. In the current commodity price and cost environment, the liquids rich Cardium well has a netback of approximately $25.00 per BOE.OutlookIn light of an uncertain natural gas environment, Fairborne has entered into a number of natural gas hedges in order to provide stability for a base level of cash flow to fund the Company's remaining 2012 capital expenditure program. Natural gas hedges on 31,000 Mcf per day of production with a floor price of $2.06 per Mcf from April to October 2012 will support a cash flow based capital expenditure program through the second half of 2012. At this time, capital expenditures of $20 million are budgeted for the last six months of the year, concentrated on the Company's Harlech and Marlboro properties.Fairborne is a crude oil and natural gas exploration, development and production company headquartered in Calgary, Alberta, Canada. Fairborne's shares trade on the Toronto Stock Exchange under the symbol "FEL".Forward Looking Statements:Certain information set forth in this press release, contain forward-looking statements including management's assessment of future plans and operations, timing of the closing of dispositions, expected authorized amount under credit facilities and the amount outstanding thereunder after dispositions and 2012 capital expenditure budget, the nature of expenditures and method of funding thereof. By their nature, forward-looking statements are subject to numerous risks and uncertainties, some of which are beyond Fairborne's control, including the impact of general economic conditions, industry conditions, volatility of commodity prices, risks associated with oil and gas exploration, development, exploitation, production, marketing and transportation, loss of markets, delays resulting from or the inability to obtain required regulatory approvals, inability to retain and delays in retaining drilling rigs and other services, currency fluctuations, imprecision of reserve estimates, environmental risks, competition from other industry participants, the lack of availability of qualified personnel or management, stock market volatility, incorrect assessment of the value of acquisitions, failure to realize the anticipated benefits of acquisitions, ability to access sufficient capital from internal and external sources and risks related to satisfying the conditions to closing of the Clive and/or Sinclair dispositions. The foregoing list is not exhaustive. Additional information on these and other risks that could affect Fairborne's operations and financial results are included in reports on file with Canadian securities regulatory authorities and may be accessed through the SEDAR website (, or at Fairborne's website ( Readers are cautioned that the assumptions used in the preparation of such information, although considered reasonable at the time of preparation, may prove to be imprecise and, as such, undue reliance should not be placed on forward-looking statements. The actual results, performance or achievement of Fairborne could differ materially from those expressed in, or implied by, these forward-looking statements and, accordingly, no assurance can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do so, what benefits that Fairborne will derive therefrom. Fairborne disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable securities laws.Non-GAAP and Additional GAAP Measures:This document contains funds generated from operations which is an additional GAAP measure presented in the consolidated financial statements. The Company uses funds generated from operations as a key measure to demonstrate the Company's ability to generate funds to repay debt and fund future capital investment. This document contains the terms "funds generated from operations per share", "cash flow from operations per share", "net debt" and "netbacks" which are non-GAAP financial measures. The Company uses these measures to help evaluate its performance. These non-GAAP financial measures do not have any standardized meaning prescribed by GAAP and are therefore unlikely to be comparable to similar measures presented by other issuers. The Company uses net debt (bank indebtedness plus negative working capital or less positive working capital, excluding convertible debentures) as an alternative measure of outstanding debt. The Company considers corporate netbacks a key measure as it demonstrates its profitability relative to current commodity prices. Netbacks which have no GAAP equivalent are calculated on a BOE basis by deducting royalties, operating costs, and transportation from petroleum and natural gas sales. Fairborne also presents funds generated from operations per share and cash flow from operations per share and such per share amounts are calculated using weighted average shares outstanding consistent with the calculation of profit (loss) per share.BOE Conversions:Barrel of oil equivalent ("BOE") amounts may be misleading, particularly if used in isolation. A BOE conversion ratio has been calculated using a conversion rate of one tonne of sulphur to one barrel and six thousand cubic feet of natural gas to one barrel. This conversion ratio of six thousand cubic feet of natural gas to one barrel is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Given that the value ratio based on the current price of crude oil as compared to natural gas is significantly different from energy equivalency of 6:1; utilizing a conversion on a 6:1 basis may be misleading as an indication of value.FOR FURTHER INFORMATION PLEASE CONTACT: Steven R. VanSickleFairborne Energy Ltd.President and Chief Executive Officer(403) 290-7759(403) 290-7724 (FAX)svansickle@fairborne-energy.comORAaron G. GrandbergFairborne Energy Ltd.Chief Financial Officer(403) 290-3217(403) 290-7724 (FAX)