The Globe and Mail

Go to the Globe and Mail homepage

Jump to main navigationJump to main content

Press release from CNW Group

Sure Energy Announces First Quarter 2012 Financial and Operating Results

Wednesday, May 09, 2012

Sure Energy Announces First Quarter 2012 Financial and Operating Results18:52 EDT Wednesday, May 09, 2012CALGARY, May 9, 2012 /CNW/ - Sure Energy Inc. ("Sure Energy" or the "Company") today announced its financial and operating results for the quarter ended March 31, 2012.The Company's MD&A, Financial Statements and AIF can be viewed or downloaded at www.sureenergyinc.com or www.sedar.com.During the first quarter of 2012, Sure Energy accomplished the following:Production for the first quarter of 2012 averaged 1,298 BOE/d of which 61 percent was oil and liquidsFunds flow from operations was $3.2 million ($0.05/share) in the first quarter of 2012In the first quarter the Company had its busiest drilling activity ever, drilling a total of 12 gross (9 net) oil wellsThe bank credit facility was increased to $40.0 million, consisting of a $33.0 million revolving operating demand loan and a $7.0 million non-revolving acquisition/development demand loan.      Three Months Ended March 31,HIGHLIGHTS     20122011($000 except share and per share amounts)       Financial       Petroleum and Natural Gas Revenues     6,8616,268Funds Flow from Operations (1)     3,2253,369      Per Share, Basic  and Diluted     0.050.07Income (loss)     (706)545      Per Share, Basic and Diluted     (0.01)0.01Capital Expenditures     12,1989,953Total Assets     89,42161,499Net Debt(1)     32,07821,214Shareholders' Equity     49,83234,075Common Shares Outstanding             Basic     60,580,63048,528,630      Diluted     66,372,46452,259,464      Fully Diluted with Performance Rights and Warrants     71,702,46457,609,464Weighted Average Common Shares Outstanding             Basic and Diluted     60,575,47248,509,769        Share Trading             High     1.501.88      Low     0.951.50      Close     1.041.80Trading Volume     3,157,9574,861,438                        Three Months Ended March 31,HIGHLIGHTS               20122011                  Operations                   Production                       Natural Gas (Mcf/d)               3,0593,794      Oil (bbls/d)               685584      Heavy Oil (bbls/d)               59-      NGLs (bbls/d)               4450      BOE/d               1,2981,266      % Oil and NGL's               6150Average Selling Price                       Natural Gas ($/Mcf)               2.194.19      Oil ($/bbl)               89.6286.30      Heavy Oil ($/bbl)               75.00-      NGLs ($/bbl)               68.4466.93      BOE ($/BOE)               58.1055.00                  Operating Netback ($/BOE) (1)               32.5938.15Funds Flow Netback ($/BOE) (1)               27.3129.55(1) Please refer to Management's Discussion and Analysis for a definition of Non-GAAP measures.OPERATIONAL REVIEWDrillingCash expenditures for the period were as follows:                Three Months Ended March 31,Capital Program Summary               20122011($000s)                 Land               85355Geological and geophysical               2135Drilling               6,3971,648Completions               2,7691,049Recompletions and workovers               702207Production equipment and facilities               1,7062,243Capitalized salaries               400187Drilling credits               -296Asset acquisition (disposition)               (38)3,735Other assets               4-                12,0469,755Non-cash items                 Decommissioning obligation               152198                12,1989,953                  Drilling activity for the three months is summarized as follows:Three Months Ended March 31, 2012    Gas  Oil  Dry and Abandoned  Total    Gross   Net  Gross   Net  GrossNet  Gross   NetExploration   -   -  -   -  --  -   -Development   -   -  12   9.0  --  12   9.0Total   -   -  12   9.0  --  12   9.0                           Areas of ActivityPlains (Redwater)Sure Energy produced 435 BOE/d from its main core area at Redwater in the first quarter of 2012, 389 BOE/d of which was oil (89 percent oil).  The Company has been actively drilling horizontal wells in the Viking formation in the area since the third quarter of 2010 and has grown its base production in the area from approximately 50 BOE/d to 435 BOE/d in that 18 month period by drilling 8.6 net wells.  The Company drilled 9 gross (6 net) horizontal wells at Redwater in the first quarter. However, most of the impact of this capital outlay will be seen in the second and third quarters of 2012 as these wells are completed and brought on stream.  Two (1.8 net) of the wells came on production in the quarter. Although they came on at a combined net 30 day initial production rate of 135 BOE/d this had little impact on first quarter production as they came on late in the period.  Two more 80 percent working interest wells are currently being completed and will come on stream in early May and four 40 percent working interest non-operated wells are waiting on completion and are scheduled to be on production in early August.  The ninth well of the program was a step-out well on 100 percent owned lands which is testing the productive potential to the northwest of the trend.  This well is scheduled to be completed after break-up and if successful will not only prove up numerous immediate offset horizontals but will give the Company the confidence to evaluate the trend even further to the northwest where it owns 100 percent working interest in 8½ additional sections of undeveloped land.Approximately 65 percent of Sure Energy's reserves value is in the Redwater property.  Sproule Associates Limited, the Company's reserves engineers, recognized 42 gross (28.85 net) low risk development locations on Sure Energy's land base as at December 31, 2011.  Wells in the area cost $1.5 million to $1.8 million to put on stream.  The Company believes that in areas of thicker, more porous reservoirs on its lands wells can be economically down spaced to 150 metre interwell spacing which would significantly increase the low risk development inventory.Redwater represents the cornerstone of the Company,  its low risk inventory of development locations will allow the Company to steadily grow its production base for the next 4 - 5 years.  The development wells are predictable, repeatable, affordable and highly economic.  On top of this low risk development the Company owns 10.5 sections of undeveloped land on the northwest of the trend that have no reserves assigned.  The Company currently has reserves assigned to just under 6 net developed sections, so the Company believes that success on its undeveloped land has the potential to significantly increase the Company's reserves base in the area.SE SaskatchewanIn the Queensdale area in southeast Saskatchewan Sure Energy produced 151 barrels of oil per day (100% oil).  This was down from the total capacity of 165 barrels of oil per day because the wells were shut-in for the last week of March due to break-up.  The property remains shut-in with the earliest removal of road bans estimated to be May 15th.A characteristic of production in the area is high watercuts and management of the water is critical to the economics of the play.  In the first quarter of 2012 the Company drilled a salt water disposal well at its battery site.  This well is anticipated to be operational in early to mid June and will save approximately $80,000 per month of fees related to trucking water and emulsion.  Wells here are conventional, open hole horizontal wells that cost approximately $1.3 million to put on stream.  The first well drilled into the property, which is 100 percent owned and operated by Sure Energy, was drilled in the fall of 2010, paid out in 3 months and had produced approximated 51,000 barrels of oil, generating $3.2 million of net operating income up to March 31, 2012.  The Company has since drilled three development wells based on its proprietary 3D seismic data.  One of these wells came on stream towards the end of September 2011 and had generated $1.2 million net operating income by March 31, 2012.  The other two wells are waiting on the completion of the salt water disposal facilities before being placed on stream.The Company has one 100 percent owned additional horizontal well to drill plus one exploration well to evaluate a separate seismic feature identified on the 3D seismic.  Should this exploration well be successful it will prove up an area of similar size to the original project to be horizontally developed.Virginia HillsSure Energy produced 233 BOE/d from its Virginia Hills property in the first quarter of 2012, 141 BOE/d of which was oil and liquids.  The Company owns 25,055 acres of land at Virginia Hills, which is a property it acquired in early 2011, targeting light oil resource potential in the Viking formation analogous to the Company's project at Redwater.  The Viking section at Virginia Hills is approximately twice as thick as that at Redwater and has never been drilled horizontally.  Oil produces from vertical wells in the area, mostly from a coarse grained or conglomeratic facies that lies in the middle of the sand reservoir package.  Sure Energy believes that the tighter rock both above and below the producing facies is also oil saturated and when drilled horizontally and frac'd will produce at economic rates.  Two vertical wells adjacent to and on Sure Energy's land have been completed in this "resource" facies and both produce oil, albeit at marginally economic rates.  They do, however, produce at rates 2 - 3 times higher than the similarly mature vertical wells at Redwater, which inspired the horizontal development in that area.  The Company is planning to drill a horizontal well in July to evaluate if horizontal drilling and frac'ing will increase productive rates as it did at Redwater.  The Company owns 9.5 sections of approximately 50 percent working interest land and 3 sections of 100 percent working interest land in the core area of the play.The Company also owns 10,240 gross (9,865 net) acres of land on the prolific Beaverhill Lake light oil resource play.  The Company currently produces about 60 barrels of oil per day from two horizontal Beaverhill Lake wells (one frac'd, one unstimulated) and there is potential for 7 - 10 additional development horizontal wells to be drilled on its land adjacent to production.  Wells in the area can produce at prolific (greater than 1,000 barrels of oil per day) initial rates when drilled horizontally and frac'd with acid multiple times.  Wells of this type in the area cost $5 - $6 million to put on stream.  2.5 sections of Sure Energy's lands currently have wells drilling immediately adjacent to them.  At a land sale on May 2, 2012 one half section of land adjacent to a section and a half owned 100 percent by Sure Energy sold for $2.9 million ($9,263 per acre).Hatton (SW Saskatchewan)The Company produced 59 barrels of oil per day from its heavy oil well at Hatton in the period.  This well drilled in September 2011 is the discovery well of a potential new pool.  Although the oil from the well is 12° API, and greater than normal differentials between Canadian crude blends and WTI were experienced in the first quarter of 2012, an operating netback of $44.62 was realized for the well.  Based on its proprietary 2D seismic data the Company sees the potential for 23 drilling locations based on one well per legal sub-division on its four sections of 100 percent owned land.  Two development wells costing $0.8 million to put on production have been budgeted for the second half of the year.Other PropertiesThe Company produced 420 BOE/d from its properties in the Peace River Arch, Southern Plains (Chinook), Tweedie and West Central Alberta.  Most of this production is gas.  The Company has no plans to spend any capital on these properties in 2012 so therefore expects these properties to be subject to natural declines during the year.  The Company has about 90 BOE/d of higher cost gas currently shut-in.ProductionProduction for the period by major property is as follows:      Three Months Ended March 31, 2012      Gas   Oil   Heavy Oil   NGLs   Total       Mcf/d   Bbls/d   Bbls/d   Bbls/d   BOE/d Hatton     -   -   59   -   59Peace River      677   9   -   10   132Plains     272   389   -   -   435Saskatchewan     -   151   -   -   151Southern Plains     507   -   -   5   89Tweedie     650   -   -   -   108West Central     401   6   -   18   91Virginia Hills     552   130   -   11   233Total     3,059   685   59   44   1,298                       OUTLOOKSure Energy has successfully converted in the last 18 months from a gas company to an oil company.  Oil and liquids production grew by 159 percent in 2011 and the Company is aiming to grow its oil and liquids production again in 2012, by approximately 50 percent.  The Company's growth on a BOE basis is impacted by its gas production which continues to decline as the Company allocates no capital to it.  Currently the Company is producing 61 percent oil and liquids which is producing approximately 90 percent of the Company's revenue.Sure Energy has two very profitable light oil producing areas at Queensdale and Redwater.  At Redwater the Company's reserves engineers recognize significant low risk upside.  The Company recognizes even more upside on its developed lands plus has just drilled a step-out well which could add significant reserves on undeveloped lands.  The oil and gas shows while drilling that well were very encouraging.  The full cycle economics of the area are becoming even better as the Company continues to improve its drilling and completing efficiencies and the project moves into a development stage.  At Queensdale very little upside has been booked but while drilling the water disposal well the Company discovered that the structure it was exploiting was more extensive than first mapped.  This presents an opportunity for at least one more horizontal well.For additional exploration upside the Company has its heavy oil project at Hatton which has minimal reserves assigned because it was drilled late in 2011 and didn't have much of a production history.  The Company has identified up to 23 more locations on its 100 percent owned lands based on its proprietary seismic data.  Again for further unrecognized upside the Company has the horizontal Viking play at Virginia Hills, which if successful would add value similar to that at Redwater.  Finally the Company has its Beaverhill Lake lands.  The Company has eliminated the Beaverhill Lake exploitation capital from its budget, thereby reducing the 2012 Capital budget from $38 - $31 million.  At the same time it is evaluating the potential of crystallizing the value of this asset which isn't currently being recognized in the market.The Company had its busiest ever quarter by drilling 12 gross (9 net) oil wells.  These wells which are currently in various stages of completion and equipping were not on stream in the first quarter so did not impact production.  Production in the second quarter of 2012 will remain relatively flat to the first quarter due to the volumes in Queensdale being shut in due to road bans for at least half the period.  However, production is expected to grow steadily through the second half of the year as the wells drilled in the first quarter come on stream, additional volumes are added at Queensdale through optimization associated with the water disposal well and new wells are drilled at Queensdale and Hatton.Forward-looking InformationCertain statements contained in this management's discussion and analysis 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 expectations with respect to its Redwater property for two wells to come on stream in early May and four more wells in early August; the Company's belief that wells on its Redwater property can be economically down spaced to 150 metre interwell spacing, which would significantly increase the low risk development inventory; the Company's belief that drilling success on its undeveloped land at Redwater has the potential to significantly increase the Company's reserves base in the area; expected timing for its salt water disposal well on the Company's Queensdale property to be operational and the amount of trucking and emulsion fees that will be saved once operational;  the Company's belief that horizontally drilled and frac'd wells at its Virginia Hills property will produce at economic rates; plans and expected timing for drilling a horizontal well at Virginia Hills; planned drilling of two development wells at the Company's Hatton property; expectation of natural declines during the year of natural gas reserves from its gas producing properties and statements in the section "Outlook" related to growing the Company's oil and liquids production; adding reserves on undeveloped lands and expectation that production will grow steadily through the second half of the year.  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.SURE ENERGY INC.Condensed Statements of Financial Position(in thousands of Canadian dollars)(unaudited)                                 March 31,    December 31,              2012    2011Assets                         Trade and other receivables          $  2,939   $3,080      Deposits and prepaid expenses             966    1,399Total current assets             3,905    4,479                    Property, plant and equipment             82,876    69,502Exploration and evaluation assets             1,356    5,604Deferred financing costs             1,284    1,463Total assets          $  89,421   $81,048                    Liabilities                         Bank debt          $  13,827   $7,981      Trade and other payables             12,156    9,166Total current liabilities             25,983    17,147                    Note facility             10,000    10,000Decommissioning obligations             3,606    3,736Total liabilities             39,589    30,883                    Equity                         Share capital             54,416    54,404      Warrants             2,065    2,065      Contributed surplus             4,199    3,838      Deficit             (10,848)    (10,142)Total equity             49,832    50,165                    Total equity and liabilities          $  89,421   $81,048                                        SURE ENERGY INC.Condensed Statements of Income (Loss) and Comprehensive Income (Loss)For the three months ended March 31(in thousands of Canadian dollars, except per share amounts)(unaudited)                  2012       2011              Petroleum and natural gas revenues$   6,861   $   6,268Royalties    (937)       (522)     5,924       5,746              Production and operating    1,703       1,123Transportation    372       274Exploration and evaluation    28       40General and administrative    624       980Interest and financing charges    470       400Depletion, depreciation and amortization    3,072       2,199Stock based compensation    361       185     6,630       5,201              Income (loss) and comprehensive income (loss) for the period$   (706)   $   545              Earnings per share:                   Basic and diluted$   (0.01)   $   0.01                           SURE ENERGY INC.Condensed Statements of Changes in EquityFor the three months ended March 31,(in thousands of Canadian dollars)(unaudited)   ShareCapital  Warrants  ContributedSurplus  Deficit  TotalEquityJanuary 1, 2011  $37,282  $2,065  $3,331  $(9,448)  $33,230Exercise of stock options   161   -   (46)   -   115Stock based compensation expense   -   -   185   -   185Comprehensive income   -   -   -   545   545March 31, 2011  $37,443  $2,065  $3,470  $(8,903)  $34,075                     December 31, 2011  $54,404  $2,065  $3,838  $(10,142)  $50,165Exercise of stock options   12   -   -   -   12Stock based compensation expense   -   -   361   -   361Comprehensive loss   -   -   -   (706)   (706)March 31, 2012  $54,416  $2,065  $4,199  $(10,848)  $49,832                                         SURE ENERGY INC.Condensed Statements of Cash FlowsFor the three months ended March 31(in thousands of Canadian dollars)(unaudited)                    2012       2011               Cash flows from operating activities:                             Income (loss)   $ (706)   $   545Adjustments for:                    Exploration and evaluation     28       40      Interest and financing charges     470       400      Depletion, depreciation and amortization     3,072       2,199      Stock based compensation     361       185Decommissioning expenditures     (310)       -Change in non-cash working capital     340       (1,206)Net cash from operating activities     3,255       2,163               Cash flows from investing activities:              Exploration and evaluation     (28)       (40)Property, plant and equipment and exploration and evaluation assets     (12,084)       (6,020)Disposition (acquisition) of property, plant and equipment     38       (3,735)Change in non-cash working capital     3,224       114Net cash used in investing activities     (8,850)       (9,681)               Cash flows from financing activities:              Proceeds from issue of common shares     12       115Proceeds from loans and borrowings     5,846       7,606Interest paid     (263)       (203)Net cash from financing activities     5,595       7,518               Change in cash and cash equivalents     -       -               Cash and cash equivalents beginning of period     -       -               Cash and cash equivalents end of period   $ -   $   -               Sure Energy Inc. is a publicly traded oil and gas exploration and development company listed on the Toronto Stock Exchange under the symbol "SHR".   For further information: please visit our website at www.sureenergyinc.com or contact: 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