News Release This MorningNews from Canada NewsWire
Cork Exploration Inc. announces first quarter 2007 results and filing of first quarter 2007 report
07:00 EDT Monday, May 14, 2007
CALGARY, May 14 /CNW/ - Cork Exploration Inc. (the "Corporation" or "Cork") (TSX: CRK) today announced its financial and operational results for the first quarter of 2007.
Cork has filed with Canadian securities regulatory authorities its unaudited financial statements and related Management's Discussion and Analysis for the three months ended March 31, 2007. These filings are available for review on the Corporation's SEDAR profile at www.sedar.com.
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Highlights
Three months ended March 31,
($ except unit amounts) 2007 2006
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Daily production (boe/d) 1,959 364
Total revenues 8,796,434 1,757,515
Net earnings (loss) (972,629) 287,994
Net earnings (loss) per share - basic (0.02) 0.01
Net earnings (loss) per share - diluted (0.02) 0.01
Funds from operations 3,857,598 1,066,425
Funds from operations per share - basic(1) 0.08 0.03
Funds from operations per share - diluted(1) 0.07 0.03
Total assets 155,534,139 58,362,268
Net debt(1) (39,855,152) (6,150,381)
Capital additions 18,438,979 24,154,887
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(1) Non-GAAP measures
Key highlights for the quarter include:
- Carrot Creek de-bottlenecked - On March 30, 2007, Cork completed its
de-bottlenecking program at Carrot Creek, allowing for the
unrestricted flow of the Corporation's production from this area. The
de-bottlenecking program included the laying of 5.3 km of 8 inch
pipe, 2.2 km of 6 inch pipe and the installation of 1,895 horsepower
of compression, tying into an existing underutilized plant. Total
cost of the program in 2007 was approximately $2.4 million.
- First production from Cochrane - On March 21, 2007, the Corporation
commenced production in Cochrane from 2 gross (1.2 net) wells,
following completion of Cork's Cochrane pipelining project. The
Corporation laid 9.8 km of 6 inch pipe, 3.0 km of 4 inch pipe and
installed 810 horsepower of compression in the first quarter of 2007
at total cost of approximately $2.2 million.
- Eight gross wells drilled - During the first quarter of 2007, Cork
completed the drilling of 2 gross (0.7 net) wells that Cork was in
the process of drilling at December 31, 2006 and drilled an
additional 6 gross (3.8 net) wells on a straight-up basis at an
overall casing success rate of 89%. Of these 8 gross (4.5 net) wells,
3 gross (1.7 net) wells were in Carrot Creek, 2 gross (1.6 net) wells
were in Pembina, 1 gross (0.6 net) well was in Cochrane and 2 gross
(0.6 net) wells were in Edson. In the first quarter of 2006, Cork
drilled 13 gross (6.9 net) wells.
- Strategic acquisition of Carrot Creek land and production - On
April 2, 2007 and effective April 1, 2007, Cork completed the
acquisition of 14 gross (7.7 net) additional sections of land in the
Carrot Creek area at an average working interest of 55% and
approximately 135 boe/d production of natural gas and associated
natural gas liquids from 7 gross (2.9 net) wells. Of the lands
acquired, 5 gross (3.3 net) sections are undeveloped. Cork has
identified up to 14 potential drilling locations on these lands,
including 5 potential horizontal wells. The total cost of the
acquisition was $9.3 million, subject to post-closing adjustments,
and was funded from the Corporation's credit facility and operating
cash flow.
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Production
During the first quarter of 2007, Cork's average production was 1,959 boe/d, an increase of 438% from the 364 boe/d average production in the first quarter of 2006. Cork's first quarter 2007 production was negatively impacted by infrastructure capacity constraints at Carrot Creek which were alleviated at the end of the first quarter on March 30, 2007 following completion of the Corporation's Carrot Creek de-bottlenecking program.
On April 5, 2007, Cork announced that its production was 3,500 boe/d with an additional 500 boe/d temporarily constrained due to third party plant issues, including flush production. On April 6, 2007, upon resolution of the third party plant issues, the Corporation's production exceeded 4,000 boe/d.
April 2007 production averaged approximately 3,100 boe/d and was negatively impacted by bottom hole pump failures at one well in Brazeau and one well in Pembina, where access to repair the equipment has been restricted by spring break-up. Cork estimates that these wells in aggregate contribute, on average, approximately 350 boe/d to 450 boe/d of production and the net aggregate impact of these failures was approximately 200 boe/d to 300 boe/d in April 2007. As soon as weather permits, the Corporation expects to remedy these pump issues and return the wells to production. In addition, during the workover of an estimated 150 boe/d well in Carrot Creek, tubing was dropped due to mechanical rig failure, thereby delaying the well's return to service. Repairs on the well are ongoing. Cork also experienced higher than anticipated production declines as estimated from original flow tests on its second horizontal well at Carrot Creek. Initial flow testing had indicated the well's initial capability to be approximately 800 boe/d. Upon removal of break-up related road bans, Cork plans to re-enter the well to clear out any blockage that may have occurred in the horizontal section. The net impact of this higher than expected decline from this well on April production was approximately 500 boe/d. The well has since stabilized and continues to produce at a rate of approximately 300 boe/d.
As a result of the above production issues, Cork expects its average production for the second quarter of 2007 will be approximately 2,850 boe/d, 750 boe/d lower than previous guidance of between 3,600 boe/d and 4,000 boe/d for such period. Accordingly, Cork has reduced its 2007 average production guidance to between approximately 3,000 boe/d and 3,200 boe/d from its previously announced guidance of between 3,500 boe/d and 4,000 boe/d and its 2007 year end exit production guidance to between 4,000 boe/d and 4,500 boe/d from its previously announced guidance of between 5,000 boe/d and 5,500 boe/d.
Cork utilizes horizontal wells to better access the gas matrix and increase recovery of gas in place, employing proprietary orientation and completion techniques. To date, Cork has drilled two horizontal wells in Carrot Creek, both of which have stabilized at rates of approximately 300 boe/d, more than three times the rate of the offsetting vertical well at less than two times the cost of a vertical well to drill and complete. As a result, in the remainder of 2007 Cork plans to shift its focus primarily to the drilling of horizontal wells.
Net Earnings (Loss)
For the three months ended March 31, 2007, Cork incurred a net loss of $1.0 million ($0.02 loss per share - basic and fully diluted) compared to net earnings of $0.3 million ($0.01 per share - basic and fully diluted) for the same period in 2006. Included in the net loss in 2007 was an unrealized loss of $0.8 million resulting from the change in the fair value of commodity derivative instruments used to hedge against natural gas price volatility. Contributing to the first quarter loss in 2007 were reduced netbacks due to lower realized prices, higher royalty rates and increased operating costs per boe, as well as increased depletion, depreciation and amortization (DD&A) charges per boe.
The following is a summary of the operating netbacks for the periods set forth below:
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Three months ended March 31,
$/boe 2007 2006
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Revenues 49.89 53.88
Royalties (13.11) (11.76)
Operating expenses (9.37) (5.46)
Transportation expenses (1.30) (1.62)
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Operating netback 26.11 35.04
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Revenue per boe declined to $49.89 per boe in the first quarter of 2007 compared to $53.88 per boe in the first quarter of 2006, primarily as a result of lower realized prices from natural gas and natural gas liquids sales. Royalty rates of 26% in the first quarter of 2007 were higher than the 22% incurred in the first quarter of 2006, but are expected to decrease in the remainder of 2007 upon receipt of approval of the Corporation's gas cost allowance application anticipated in mid-2007. Operating costs of $9.37 per boe in the first quarter of 2007 compared to $5.46 per boe in the first quarter of 2006. These costs trended towards the industry average in the first quarter of 2007 and resulted primarily from the negative impacts of constrained production, new rental compression charges associated with the Carrot Creek de-bottlenecking project, start-up costs of new wells and increased chemical costs and repairs and maintenance costs due to winter operations.
A significant portion of the Corporation's production is from the Carrot Creek area. Capacity and production constraints in this area during the first quarter of 2007 resulted in high operating costs per boe. With the completion of the de-bottlenecking program in March 2007, production from this area has increased and as a result, operating costs per boe are expected to decrease for the remainder of 2007.
Funds from Operations
Funds from operations increased to $3.9 million ($0.08 per share - basic and $0.07 per share fully diluted) in the first quarter of 2007 compared to $1.1 million ($0.03 per share - basic and fully diluted) in the first quarter of 2006, an increase of 254%. The increase reflects the significantly higher production in the first quarter of 2007 offset by the lower realized netbacks as described above.
Capital Expenditures
The following is a summary of capital expenditures for the periods set forth below:
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Three months ended March 31,
($) 2007 2006
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Drilling and completions 9,013,148 18,010,804
Equipment and facilities 8,528,219 3,883,633
Land and maintenance 462,256 1,234,483
Capitalized G&A 386,771 320,910
Seismic 48,585 705,057
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Total net capital investment 18,438,979 24,154,887
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Total capital investment for the three months ended March 31, 2007 was $18,438,979 compared to $24,154,887 for the same period in 2006. The decreased expenditures on drilling and completions activity reflects a lower number of wells drilled in the first quarter of 2007 compared to the same period in 2006. For the three months ended March 31, 2007, the Corporation drilled 8 gross (4.5 net) wells compared to 13 gross (6.9 net) wells in the first quarter of 2006. The increased expenditures on equipment and facilities in the first quarter of 2007 compared to the first quarter of 2006 were a result of expenditures on the Carrot Creek de-bottlenecking project and the tie-in of the wells in Cochrane.
Outlook
In the remainder of 2007, Cork plans to focus on drilling high profit-to-investment straight-up development and exploration wells in Carrot Creek and Cochrane. The Corporation has reduced its 2007 capital budget to $50 million from its previously announced $63 million budget to enable it to continue to operate within its existing credit lines and anticipated operating cashflow.
Non-GAAP Measures
This press release contains the terms "funds from operations" and "netbacks" which are not defined under GAAP. The Corporation uses these measures to help evaluate its performance. Management considers netbacks an important measure as it demonstrates Cork's profitability relative to current commodity prices. Management uses funds from operations to analyze operating performance and leverage and considers funds from operations to be a key measure as it demonstrates the Corporation's ability to generate the cash necessary to fund future capital investments and to repay debt. Funds from operations should not be considered an alternative to, or more meaningful than, cash flow from operating activities as determined in accordance with GAAP as an indicator of the Corporation's performance. Therefore, references to funds from operations or funds from operations per share (basic and diluted) may not be comparable with the calculation of similar measures for other entities. The reconciliation between funds from operations and cash flow from operations can be found in the statements of cash flow in the audited financial statements. Funds from operations per share is calculated using the basic and diluted weighted average number of shares for the period. Net debt is calculated as the total current assets less the total current liabilities of the Corporation.
Boe Presentation
Certain disclosure may be presented on a per barrel of oil equivalent (boe) basis. Boe's may be misleading, particularly if used in isolation. A boe conversion ratio of 6 thousand cubic feet (mcf) to 1 barrel (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.
Cork Exploration Inc. is a Canadian junior oil and gas company engaged in the exploration, development and production of natural gas in the Western Canadian Sedimentary Basin. The Corporation currently has 51.1 million common shares outstanding and 9.7 million stock options and performance warrants outstanding.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
Certain statements in this news release may constitute "forward-looking information" or "forward-looking statements" which involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Corporation, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking information. When used in this news release, such information uses such words as "estimates", "expects", "plans", "anticipates" and other similar terminology. This information reflects the Corporation's current expectations regarding future events and operating performance and speaks only as of the date of this news release. Forward-looking information involves significant risks and uncertainties, should not be read as a guarantee of future performance or results, and will not necessarily be an accurate indication of whether or not such results will be achieved. A number of factors could cause actual results to differ materially from the results discussed in the forward-looking information, including, but not limited to, the factors discussed below. Although the forward-looking information contained in this news release is based upon what management of the Corporation believes are reasonable assumptions, the Corporation cannot assure investors that actual results will be consistent with this forward-looking information. This forward-looking information is provided as of the date of this news release, and, subject to applicable securities laws, the Corporation assumes no obligation to update or revise such information to reflect new events or circumstances.
In particular, this news release contains forward-looking information pertaining to the following: production rates, netbacks, royalty rates and operating costs, drilling plans, capital spending and capital efficiency.
The Corporation's actual results could differ materially from those anticipated in the forward-looking information as a result of several factors, including the following: general economic conditions in Canada and internationally; volatility in market prices for oil and natural gas; competition; liabilities and risks, including environmental liabilities and risks, inherent in oil and natural gas operations; sourcing, pricing and availability of materials, equipment, suppliers, drilling services, facilities, and skilled management, technical and field personnel; ability to integrate technological advances and match advances of competition; availability of capital; uncertainties in weather and temperature affecting the duration of the oil and gas operations, drilling and the activities that can be completed; changes in legislation and the regulatory environment, including uncertainties with respect to implementing the Kyoto Protocol; and the other factors considered under "Risk Factors" in the Corporation's Annual Information Form dated March 28, 2007.
%SEDAR: 00023712E
For further information: Cork Exploration Inc., 380, 435 - 4th Avenue S.W., Calgary, Alberta, T2P 3A8, Philip E. Collins, President and Chief Executive Officer; or Geoffrey D. Krause, Vice-President, Finance, and Chief Financial Officer, Telephone: (403) 531-1695, Fax: (403) 531-1696, Website: www.corkexploration.com