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Press release from Marketwire

Spartan Oil Corp. Announces Record First Quarter Results and Provides Operations Update

Tuesday, May 15, 2012

Spartan Oil Corp. Announces Record First Quarter Results and Provides Operations Update07:30 EDT Tuesday, May 15, 2012CALGARY, ALBERTA--(Marketwire - May 15, 2012) -Spartan Oil Corp. ("Spartan" or the "Company") (TSX:STO), is pleased to report it's financial and operating results for the three months ended March 31, 2012. Selected financial and operational information is outlined below and should be read in conjunction with Spartan's interim financial statements and the related management discussion and analysis which are available for review at www.sedar.com or on the Company's website at www.spartanoil.ca.OVERVIEW:During the first quarter of 2012, Spartan concentrated its efforts on the Company's light oil resource play in the Keystone area of Pembina. Spartan drilled or participated in a total of 10 (9.3) net wells in Pembina with a 100% success rate. As a result of this drilling success, Spartan achieved record production levels during the quarter. Average production for the quarter increased to over 1,900 boe/d and cash flow grew to $10.3 million. Spartan expects significant production and cash flow growth to continue throughout the remainder of 2012, as our activity levels in Pembina increase.HIGHLIGHTS:Achieved a 100% success rate, drilling 10 (9.3 net) wells in our Keystone core area. Since Spartan commenced operations in June, 2011, the Company has drilled 28 (24.7 net) horizontal wells and participated in an additional 4 (1.0 net) horizontal wells targeting Cardium light oil at Spartan's Keystone property with a 100% success rate. Increased production by 26% to 1,903 boe per day (83% oil and liquids) in the first quarter of 2012 from an average of 1,512 boe per day in the fourth quarter of 2011. Current production is approximately 2,600 boe/d (83% oil and liquids) based on field estimates. Increased cash flow from operations by 27% to $10.3 million in the first quarter of 2012 from $8.2 million in the fourth quarter of 2011. Increased net earnings to $4.8 million in the first quarter 2012 from $0.2 million in the fourth quarter of 2011. Reduced operating costs (including transportation) by 18% to $9.83 per boe in the first quarter 2012, as compared to $12.04 per boe in the fourth quarter of 2011. Reduced royalties by 35% to $6.02 per boe in the first quarter of 2012, as compared to $9.22 per boe in the fourth quarter of 2011. Achieved an operating netback in the first quarter of 2012 of $60.05 and a corporate netback of $59.61. Increased our bank line from $25 million to $50 million in the first quarter of 2012. At the end of the first quarter, the bank line was undrawn. Raised gross proceeds of $57.5 million through the issuance of 13,068,600 special warrants at a price of $4.40 per warrant. Subsequent to the end of the quarter, the warrants were converted into common shares of the Company on a 1:1 basis. Finished the first quarter of 2012 with an extremely strong balance sheet. As at March 31, 2012, the Company's working capital surplus was $60.6 million.FINANCIAL AND OPERATING SUMMARY:Three Months Ended December 31, 2011Three Months EndedMarch 31, 2012FinancialTotal revenue$11,197,598$13,151,031Net earnings$155,465$4,764,722per share - basic$0.00$0.06per share - diluted$0.00$0.06Cash flow from operations (1)$8,157,403$10,326,237per share - basic$0.13$0.14per share - diluted$0.13$0.13Capital expenditures$15,953,675$30,765,466Working capital surplus (deficit)$27,023,986$60,602,672Weighted average shares outstandingBasic61,991,43373,605,193Diluted63,610,94479,415,975OperatingOil equivalent (6:1)Barrels of oil equivalent (000's)139.2173.3Barrels of oil equivalent per day1,5121,903Average selling price ($CDN per boe)$81.74$75.03Interest income ($CDN per boe)$0.24$0.87Royalties$9.22$6.02Transportation costs (per boe)$0.44$0.23Operating costs (per boe)$11.60$9.60G&A (cash - per boe)$1.99$0.43Interest expense ($ - per boe)$0.87$0.01Oil productionBarrels (000's)102.8134.7Barrels per day1,1171,480Average selling price ($CDN per barrel)$96.21$87.88Gas productionThousand cubic feet (000's)154,205175,386Thousand cubic feet per day (mcf/d)1,6761,927Average selling price ($CDN per mcf)$4.19$2.48NGL productionBarrels (000's)10.79.3Barrels per day116102Average selling price ($CDN per barrel)$78.72$77.90(1) Cash flow from operations is a non-GAAP measurement. See MD&A.(2) All barrels of oil equivalent conversions use 6 mcf to 1 barrel of oil.OPERATIONS UPDATE:Spartan drilled or participated in 10 (9.3) net wells in Pembina during the first quarter of 2012. In addition, the Company drilled 3 (1.5 net) wells in southeast Saskatchewan. Since commencing operations on June 1, 2011, Spartan has drilled a total of 28 (24.7 net) horizontal wells and participated in an additional 4 (1.0 net) horizontal wells targeting Cardium light oil at Spartan's Keystone property.Continued drilling success in the Keystone area of Pembina has propelled Spartan to record production levels. As compared to the quarter ended December 31, 2011, production in the first quarter of 2012 was up 26% to 1,903 boe/d (83% oil and liquids). Current production is approximately 2,600 boe/d (83 % oil and liquids) based on field estimates, with 6 (5.8 net) horizontal wells drilled and awaiting completion and/or tie-in. Spartan is very encouraged by the results it has seen at Keystone, having achieved a 100% success rate on its drilling program to date.Initial rates continue to meet or exceed Spartan's internal type curve. Spartan currently has a total of 27 horizontal wells at Keystone that have at least 30 days of production. The average IP30 oil rate for these wells is 172 bbl/d. Included in this number are 12 wells that the Company drilled in the interior of Unit 2. These latter wells have achieved an average IP30 oil rate of 124 bbl/d. A summary of results for the Cardium horizontal wells that Spartan has drilled or has otherwise participated in is as follows:Days on ProductionSpartan Internal Unrisked Type CurveAverage Rate of STO Interest WellsNumber of Wells(bbl/d)(bbl/d)1 - 301201722731 - 60991382361 - 90841231891 - 1207212215121 - 1506411212151 - 1805711011The Company's large contiguous land base at Keystone and its use of pad drilling, enabled Spartan to drill continuously throughout breakup. Net capital expenditures (excluding non cash items and capitalized G&A) during the first quarter of 2012 were $30.8 million. Of this amount, the Company spent approximately $16.8 million on drilling and completions, $12.0 million on tie-ins, pipelines and facilities and $2.0 million on land and seismic.Growth is expected to accelerate starting in the second quarter, when the Company will begin drilling with a second rig at Keystone. Spartan will keep two rigs drilling continuously at Keystone throughout most of 2012 and is budgeting to drill an additional 39 (36.8 net) horizontal wells at Keystone from the start of the second quarter until the end of the year.Spartan drilled 3 (1.5 net) wells in southeast Saskatchewan during the first quarter. Two (1.0 net) of these wells were at the Company's Torquay property and were targeting Midale light oil. The 3-22 (0.5 net) horizontal well is completed and is awaiting facilities construction. The 3-16 (0.5 net) horizontal well was drilled and abandoned. The 3-16 well was funded 90% by Spartan's partner. Spartan also drilled a vertical well (0.5 net) at its Ceylon property targeting Bakken light oil. The well was not completed as a result of the onset of spring break up. It will be completed in the second quarter. Spartan will be drilling two (0.5 net) additional vertical wells at Ceylon and two (1.0 net) wells at Torquay during the second quarter.Pricing for Canadian crude has experienced significant volatility in recent months. Edmonton light has gone from trading at a premium to WTI in the fourth quarter of 2011 to a steep discount in the first quarter of 2012. The volatility can be partially explained by seasonal refinery turnarounds, however, pipeline takeaway capacity and turnaround schedules from the PADD II refining market have also impacted short term pricing on Canadian crude. During the first quarter of 2012, WTI pricing averaged $102.93 per barrel and differentials on Edmonton light crude averaged $10.49 per barrel. Although differentials have recently narrowed, Spartan expects to see continued volatility in Edmonton light crude pricing over the next 12 to 18 months. As some of the larger structural issues are addressed and various bottlenecks in the PADD II refining market are removed, we expect the differential on Edmonton light pricing to return to more historic levels.Widening differentials during the first quarter of 2012 resulted in a 9% decrease in realized pricing for the Company's crude oil to $87.88 per barrel, as compared to the fourth quarter of 2011 when the Company had a realized price of $96.21. This was still well above the pricing assumption utilized in Spartan's 2012 capital budget of $81.00 (realized pricing), however. Lower realized pricing was offset by improvements in per unit operating costs and royalties during the first quarter of 2012. As a result, Spartan was able to achieve an average operating netback of $60.05 for the first quarter of 2012. Cash flow from operations reached a record $10.3 million in the first quarter and the Company had positive earnings of $4.8 million.The Company is well on its way to achieving its stated production and cash flow targets for 2012. As previously announced, Spartan's 2012 budget is expected to yield average production in the range of 2,600 - 2,800 boe/d (83% oil and liquids) and exit production of 4,300 - 4,500 boe/d (84% oil and liquids). Cash flow, based upon a budgeted realized oil price of $81.00 is expected to be $47 - $50 million in 2012. Annualized full year cash flow based upon the Company's forecast exit production guidance and the financial assumptions used in Spartan's 2012 budget is approximately $78 - $83 million. Total budgeted capital expenditures for 2012 are $127 million. Spartan will finance its 2012 budget entirely from existing cash on hand and internal cash flow. Under the budget, Spartan will exit 2012 debt free and with positive working capital.2012 OUTLOOKSpartan's Keystone property is a high netback, light oil asset characterized by large original oil in place and a low recovery factor. The Company is well positioned to exploit this resource, with a strong balance sheet and no debt. Spartan's financial position will enable the Company to aggressively exploit its defined, low risk oil resource which, in turn, will drive significant growth in production and cash flow per share.READER ADVISORYThis press release contains certain forward-looking statements (forecasts) under applicable securities laws relating to future events or future performance. Forward-looking statements are necessarily based upon assumptions and judgements with respect to the future including, but not limited to, the outlook for commodity markets and capital markets, the performance of producing wells and reservoirs, well development and operating performance, general economic and business conditions, weather, the regulatory and legal environment and other risks associated with oil and gas operations. In some cases, forward-looking statements can be identified by terminology such as "may", "will", "should", "expect", "projects", "plans", "anticipates" and similar expressions. These statements represent management's expectations or beliefs concerning, among other things, future operating results and various components thereof affecting the economic performance of Spartan. Undue reliance should not be placed on these forward-looking statements which are based upon management's assumptions and are subject to known and unknown risks and uncertainties, including the business risks discussed above, which may cause actual performance and financial results in future periods to differ materially from any projections of future performance or results expressed or implied by such forward-looking statements. Accordingly, readers are cautioned that events or circumstances could cause results to differ materially from those predicted.In the interest of providing Spartan shareholders and potential investors with information regarding the Company, including management's assessment of Spartan's future plans and operation, certain statements throughout this press release constitute forward looking statements. All forward-looking statements are based on the Company's beliefs and assumptions based on information available at the time the assumption was made. The use of any of the words "anticipate", "continue", "estimate", "expect", "may", "will", "project", "should", "believe" and similar expressions are intended to identify forward looking statements. By its nature, such forward-looking information involves known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward looking statements. Spartan believes the expectations reflected in those forward looking statements are reasonable but no assurance can be given that these expectations will prove to be correct and such forward looking statements contained throughout this press release should not be unduly relied upon. These statements speak only as of the date specified in the statements.The Company's actual results could differ materially from those anticipated in the forward looking statements contained throughout this press release.Except as required by law, Spartan does not undertake any obligation to publicly update or revise any forward looking statements, whether as a result of new information, future events or otherwise.Barrels of oil equivalent (boe) may be misleading, particularly if used in isolation. A boe conversion ratio of six thousand cubic feet (mcf) of natural gas to one barrel (bbl) of oil is based on an energy conversion method primarily applicable at the burner tip and is not intended to represent a value equivalency at the wellhead. All boe conversions in this press release are derived by converting natural gas to oil in the ratio of six thousand cubic feet of natural gas to one barrel of oil.FOR FURTHER INFORMATION PLEASE CONTACT: Richard F. McHardySpartan Oil Corp.President & CEO(403) 457-4006(403) 457-4028 (FAX)ORMichelle WigginsSpartan Oil Corp.Vice President Finance & CFO(403) 457-4006(403) 457-4028 (FAX)OR1400, 606 - 4th Street SWSpartan Oil Corp.Calgary, Albertawww.spartanoil.ca