Defiance Silver Corp V.DEF

90% gas & should flow .75 cents cash flow 03

[hawkowl]

Defiant Energy Corp - News Release Defiant Energy earns $9,395 in third quarter of 2002 Defiant Energy Corp DEF Shares issued 20,718,269 Nov 20 2002 close $ 1.40 Thursday November 21 2002 News Release Mr. David Evans reports DEFIANT ENERGY ANNOUNCES NINE MONTH 2002 FINANCIAL AND OPERA ... Defiant Energy has released its operating and financial results for the nine months ended Sept. 30, 2002, together with comparative data for the nine months ended Sept. 30, 2001. Highlights Defiant's drilling success rate is 94 per cent (97 per cent net), with 17 wells drilled to date. Additional production coming on stream will boost Defiant's year-end exit rate to 2,200 barrels of oil equivalent per day, compared with a rate of 1,100 barrels of oil equivalent per day one year ago. Defiant received net proceeds of $5.1-million from the sale of a portion of the plant facilities at Sunset. Third quarter average daily production, at 1,250 barrels of oil equivalent per day, was up 11 per cent over the second quarter of 1,129 barrels of oil equivalent per day. OPERATING AND FINANCIAL HIGHLIGHTS Three months ended Sept. 30 2002 2001 Daily production Natural gas (mcf/d) 6,240 6,454 Natural gas liquids (bbl/d) 70 83 Light oil (bbl/d) 139 136 Barrels of oil equivalent (boe/d @ 6:1) 1,250 1,295 Average prices (before hedging) Natural gas ($/mcf) 3.11 3.34 Natural gas liquids ($/bbl) 30.57 29.05 Light oil ($/bbl) 40.80 37.62 Oil and natural gas sales 2,505 2,675 OPERATING AND FINANCIAL HIGHLIGHTS Nine months ended Sept. 30 2002 2001 Daily production Natural gas (mcf/d) 5,956 4,476 Natural gas liquids (bbl/d) 62 57 Light oil (bbl/d) 129 103 Barrels of oil equivalent (boe/d @ 6:1) 1,184 906 Average prices (before hedging) Natural gas ($/mcf) 3.49 5.31 Natural gas liquids ($/bbl) 26.91 33.62 Light oil ($/bbl) 35.04 39.46 Oil and natural gas sales 7,361 8,158 Operations review In 2002, Defiant embarked on the largest drilling program since the company's inception three years ago. This year's 20-well drilling program contrasts with 13 (11.1 net) wells drilled in 2001 and only three (three net) in 2000. By mid-November, 2002, Defiant had drilled 17 wells (14.5 net). With only one dry hole, the company's overall drilling success rate reached 94 per cent (97 per cent net). With these drilling results, the company is on track to achieve Defiant's reserves, production and cash flow targets by year-end. Currently, Defiant's sales are 1,550 barrels of oil equivalent per day. During December, 2002, the company expects to bring on stream approximately 650 barrels of oil equivalent per day, resulting in an estimated exit rate of 2,200 barrels of oil equivalent per day. This will be achieved with the completion of a nine-kilometre pipeline and the installation of sweetening facilities intended to ramp up natural gas production from the company's discovery wells in the Calais region by approximately 300 barrels of oil equivalent per day. In addition, four completion operations from newly drilled wells should add 250 barrels of oil equivalent per day, while the wells remaining to be drilled in this year's program are budgeted to add another 100 barrels of oil equivalent per day. Proceeds of $5.1-million from the sale of the Sunset gas plant, completed at the end of September, 2002, have provided the additional capital necessary to accomplish Defiant's 2002 program. Year-end debt is projected to be approximately 1.8 times annualized fourth quarter cash flow and under 1.5 times forward cash flow. Sunset area Most of this year's drilling (11 of 17 currently drilled wells) has been at Sunset. This core area currently comprises over 80 per cent of Defiant's production and reserves base, and includes operations at the Sunset A and B pools, Valleyview, Corbett Creek and the Calais area near Sturgeon Lake. This year's program has targeted natural gas and light oil objectives in the Montney formation at depths of between 1,400 metres and 1,700 metres, with shallower objectives in the Dunvegan, Bluesky and Gething formations. Of the 11 wells drilled to date in this area, six were exploratory tests and five were classified as development. All five development wells were cased, and only one (0.5 net) of the six exploratory wells was abandoned. Three more wells, two at Calais and one at Valleyview, are planned before year-end. Defiant is the operator of all wells drilled in the Sunset area. At Calais, the company's initial Calais 5-4 discovery well began production at the end of May, 2002, and has maintained a production rate of 1.2 million cubic feet per day. Since then, the company has drilled and cased four further wells, on trend, south of the initial discovery well. An extended production test has been flaring sour gas prior to construction of the new pipeline. Approximately 40 barrels per day of associated oil is being produced from two wells. The company expects to undertake the completion of the other two wells shortly. At Sunset, Defiant drilled four development wells in the Sunset B pool between June, 2002, and August, 2002, maintaining the company's share of average sales through Defiant's Sunset gas plant at a level of 1,100 barrels of oil equivalent per day. Over all, decline rates in the Sunset Montney B pool have fallen to a 10-per-cent annual average once they finish the flush production stage. This low decline rate is in keeping with the lengthy production profiles of the nearby Montney pools. Higher than predicted pressure data derived from Defiant's drilling over the last two years continue to indicate larger reserves of both natural gas and light oil in the Sunset B pool. Completion of on-site saltwater disposal facilities at the Sunset gas plant during November, 2002, will reduce trucking and disposal fees by approximately $20,000 per month. The company's plans to tie in and conserve currently flared gas at the adjacent Sunset A Montney pool, as well as a three-well drilling program and the tie-in of clean oil to an oil pipeline system, have been deferred to 2003. The company has redirected the capital allocated to this project toward development of the new discoveries at Calais. West Pembina area This year, Defiant has started its most active drilling program yet in the West Pembina core area. This year's seven-well program is concentrated on the Rock Creek formation in the Cynthia and Chip Lake areas. Six wells were successfully drilled and cased by mid-November, 2002. One more well is planned before year-end and a well is drilling during mid-November, 2002, at Chip Lake. The overall program is expected to increase net sales from the project to over 500 barrels of oil equivalent per day by December, 2002. Defiant is operator for four wells of the seven-well program. In September, 2002, production commenced at 2.5 million cubic feet per day (one million cubic feet per day net to Defiant) from a 40-per-cent-working-interest Rock Creek discovery well drilled in August, 2002. During September, 2002, and October, 2002, the company successfully drilled four more 100-per-cent-working-interest Rock Creek gas and oil wells. The company expects all five wells will be on production before year-end. Two small acquisitions of producing interests at Chip Lake that closed in July, 2002, and September, 2002, contributed 35 barrels of oil equivalent per day to production. Drilling Defiant has achieved production growth from drilling. Acquisitions, at under $1-million of complementary properties, have been minor. In 2002, the company discontinued reviewing property sales packages after several aggressive bids for W5 natural gas properties were unsuccessful. The cash values ultimately paid by industry were well in excess of the cost of reserves additions Defiant could achieve through drilling. In 2002, the company expects the results of its largest drilling program to date will add production and reserves at competitive levels. The completion of a new independent reserves report over the next three months will be required to verify that this has been a superior strategy for accomplishing Defiant's growth. During 2002, Defiant has budgeted to drill 21 wells, compared with last year's 13 (11.1 net) wells. Due to the timing of land issues, completion of facilities and surface conditions, most of the drilling is taking place in the second half of the year. Of the 17 (14.5 per cent net) wells drilled to mid-November, 2002, only four (3.5 net) wells were drilled in the first half of 2002. The final drilling phase is under way in the last two months of 2002. DRILLING SUMMARY Through Nov. 20, 2002 Gas Oil Gross Net Gross Net Sunset Sunset A 1 1.0 Sunset B Calais 2 1.6 West Pembina Corbett Creek 1 0.5 Chip Lake 3 2.5 Cynthia 3 2.4 - --- - --- Total 6 4.5 4 3.5 Gas & Oil Abandoned Gross Net Gross Net Sunset Sunset A Sunset B 4 4.0 Calais 2 2.0 West Pembina Corbett Creek 1 0.5 Chip Lake Cynthia - --- - --- Total 6 6 1 0.5 Total Gross Net Sunset Sunset A 1 1.0 Sunset B 4 4.0 Calais 4 3.6 West Pembina Corbett Creek 2 1.0 Chip Lake 3 2.5 Cynthia 3 2.4 -- ---- Total 17 14.5 Success rate 94% 97% Outlook The exploration and development momentum achieved by this year's record high level of field activities gives the company confidence that Defiant can not only demonstrate strong growth in 2002, but also maintain growth into 2003. The company's technical team is developing a substantial body of knowledge about the drilling, completions and production characteristics of the company's major targets, the Montney and Rock Creek reservoirs. Defiant's drilling program targets long-life and lower-decline natural gas and light-oil assets. In 2002, the company continued to see evidence of encouraging new reservoir pressure data in support of the company's long-life reserves objective. Defiant will maintain a primary emphasis on natural gas to continue to build asset value. The company is committed to developing more long-life natural gas opportunities. The impetus for continuing growth in 2003 is approximately 30 development drilling locations, on current company-controlled lands in Defiant's two existing core areas. As well, during 2002, the company has developed two new grassroots regional natural gas projects and anticipates that these prospects will mature to the drilling stage in 2003 to further accelerate growth. Over the next two or three months, Defiant will discuss operational and financial progress in cross-Canada investor meetings. On Oct. 11, 2002, all the common shares purchased prior to Defiant's initial public offering became fully tradeable. On that date, the number of tradeable shares increased from 7.7 million to the fully outstanding 20.7 million shares. Investment dealer analysts have begun research coverage of Defiant. The company believes that its achievements this year have significantly enhanced shareholder value. At the same time, natural gas markets have begun to show strong gains, confirming the company's choice of preferred commodity. The company will continue to work hard to increase shareholder value and liquidity. STATEMENT OF EARNINGS (LOSS) AND RETAINED EARNINGS Three months ended Sept. 30 2002 2001 Revenue Oil and natural gas sales $2,505,354 $2,675,112 Hedging gain (loss) 45,531 - Crown royalties (397,733) (475,260) Freehold royalties (9,644) (23,269) Other income 3,749 7,577 ---------- ---------- 2,147,257 2,184,160 Expenses Operating 608,750 545,322 General and administrative 202,611 99,558 Interest 137,204 136,934 Depletion and depreciation 963,696 940,812 ---------- ---------- 1,912,261 1,722,626 ---------- ---------- Earnings before taxes 234,996 461,534 Taxes Capital taxes 5,101 13,008 Current taxes - 31,420 Future income taxes 220,500 251,001 ---------- ---------- 225,601 295,429 Earnings for the period 9,395 166,105 Retained earnings, beginning of period 2,031,251 1,169,171 ---------- ---------- Retained earnings, end of period 2,040,646 1,335,276 ========== ========== Earnings per share Basic 0.00 0.01 Diluted 0.00 0.01 STATEMENT OF EARNINGS (LOSS) AND RETAINED EARNINGS Nine months ended Sept. 30 2002 2001 Revenue Oil and natural gas sales $7,361,257 $8,158,114 Hedging gain (loss) (209,150) - Crown royalties (1,087,056) (1,519,297) Freehold royalties (38,163) (132,893) Other income 19,321 53,587 ---------- ---------- 6,046,209 6,559,511 Expenses Operating 1,503,748 1,561,410 General and administrative 616,096 331,310 Interest 418,649 310,002 Depletion and depreciation 2,731,154 1,893,285 ---------- ---------- 5,269,647 4,096,007 ---------- ---------- Earnings before taxes 776,562 2,463,504 Taxes Capital taxes 36,000 27,008 Current taxes - 46,420 Future income taxes 531,200 1,160,000 ---------- ---------- 567,200 1,233,428 Earnings for the period 209,362 1,230,076 Retained earnings, beginning of period 1,831,284 105,200 ---------- ---------- Retained earnings, end of period 2,040,646 1,335,276 ========== ========== Earnings per share Basic 0.01 0.09 Diluted 0.01 0.08 WARNING: The company relies upon litigation protection for "forward-looking" statements. 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