Arcan Resources Ltd. (TSX VENTURE:ARN) ("Arcan" or the "Company"), is pleased to
announce June 30, 2007 financial and operating information.
SECOND QUARTER 2007 HIGHLIGHTS
- The Company's year over year same quarter production for the three months
ended June 30, increased by 120% to 1,289 boe per day;
- Operating netbacks of $39.86 per boe (revenue of $61.94 per boe and operating
expenses of $7.44 per boe);
- Purchased an additional 1.5% interest in the Deer Mountain Unit #2;
- Commenced progress on Hamburg water injection; and
- Raised $15.2 million by means of an equity financing and increased bank
facility to $25.0 million.
FINANCIAL AND OPERATING SUMMARY
Three Months Ended Six Month Ended
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June 30, June 30, June 30, June 30,
2007 2006 2007 2006
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Financials ($000s except per
share amounts)
Oil and NGL sales 5,072 1,871 8,861 2,592
Natural gas sales 2,193 1,170 3,610 2,924
Total petroleum and natural
gas revenue 7,265 3,041 12,471 5,516
Funds from operations 3,021 1,364 4,779 2,689
Per share basic 0.10 0.07 0.16 0.16
Per share diluted 0.10 0.07 0.16 0.16
Net loss (356) (756) (932) (1,275)
Per share basic (0.01) (0.04) (0.03) (0.08)
Per share diluted (1) (0.01) (0.04) (0.03) (0.08)
Capital expenditures (2) 6,120 8,939 29,710 21,445
Net debt (16,964) (10,328) (16,964) (10,328)
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Operating, General and
Administrative (G&A)
Production:
Crude oil (bbls per day) 792 268 734 200
Natural gas (mcf per day) 2,980 1,908 2,454 2,154
Total (boe per day) (6:1) 1,289 586 1,143 559
Average realized price:
Crude oil ($ per bbl) 70.35 76.64 66.73 71.60
Natural gas ($ per mcf) 8.09 6.74 8.13 7.50
Combined average (incl. processing
revenue) ($ per boe) 61.94 57.00 60.30 54.51
Netback ($ per boe)
Petroleum and natural gas sales 61.94 57.00 60.30 54.51
Royalties 14.64 13.89 15.32 14.05
Operating and expenses 7.44 5.17 8.83 5.86
Operating netback 39.86 37.94 36.15 34.60
G&A expenses 12.64 13.67 11.43 8.83
Interest expense 1.51 - 1.65 -
Corporate netback 25.71 24.27 23.07 25.77
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Common Shares (000s)
Shares outstanding, end of period 33,635 24,542 33,635 24,542
Weighted average basic and diluted
shares outstanding 31,721 19,789 30,318 16,582
(1) In computing the net loss per diluted share, nil shares were added to
the weighted average number of shares outstanding because they were
anti-dilutive.
(2) Capital expenditures for 2007 includes cash additions of $6.1 million
for the quarter and $21.1 for the six month period, as well as asset
retirement obligations, and acquisition additions.
Overview
Since the first quarter of 2007, Arcan has completed drilling one well in Deer
Mountain, acquired additional interests in Deer Mountain, and accumulated the
required facilities for water injection in Hamburg. Arcan also purchased land in
all core areas and purchased seismic for winter exploration projects. Arcan
invested $6.1 million of capital in the second quarter of 2007.
Arcan achieved production growth of 120% to an average of 1,289 boe per day in
the second quarter of 2007 from an average of 586 boe per day in the second
quarter of 2006 and up 30% from 995 boe per day in the first quarter of 2007.
Production growth in the second quarter of 2007 is primarily due to increased
oil volumes in Hamburg and higher gas production in McLeod. Although the Hamburg
wells are producing under maximum rate limitation ("MRL") guidelines and third
party production constraints the additional production from wells drilled during
the winter program has increased oil production in this area. Arcan is working
to reduce the third party production constraints in Hamburg by either acquiring
an operating interest in the area facility or building its own operated
facility. In McLeod, normal declines were more than offset with the gas
production from the wells drilled during the last winter program that began
producing during the end of the first quarter of 2007 or in the early part of
the second quarter. In Deer Mountain production in the second quarter of 2007
stayed level with production from the first quarter. Arcan expects that the
rates in Deer Mountain will increase as the planned water injection commences.
Conversion of the producing 15-29-67-8W5 oil well to a water injector originally
planned in November 2006, is now underway. This injector and the related water
pipeline are required to provide the pressure support necessary to this northern
portion of the Deer Mountain Unit. The Company has reduced its guidance for
2007, anticipating average production of 1,400 boe per day, down from 1,750 but
remains confident in the exit production of 2,300 boe per day.
Arcan's operations in the second quarter of 2007 resulted in an average
operating netback (defined as revenue; less royalties and operating expenses on
a per boe basis) of $39.86 per boe. Funds from operations grew by 121% to $3.0
million in the second quarter of 2007 from $1.4 million in the second quarter of
2006 and increased from $1.8 million in the first quarter of 2007 primarily as a
result of increased volumes and prices. This translated to a net loss of $0.4
million in the second quarter of 2007 as compared to a net loss of $0.8 million
in the second quarter of 2006 and a $0.6 million net loss in the first quarter
of 2007.
Arcan's bank line, based on the December 31, 2006 reserves report, increased to
$25.0 million and management expects that Arcan will have a conservative level
of leverage at the end of 2007, with a debt to annualized fourth quarter 2007
cash flow ratio of less than one.
The Company is excited as it looks forward to the balance of 2007, as drilling
and workovers are expected to start in Deer Mountain, and injection work in
Hamburg has commenced. With lower natural gas prices and strong oil prices,
Arcan will focus its efforts on developing and expanding its oil assets and
reducing its planned gas drilling at McLeod for the balance of 2007. All three
of Arcan's areas contribute to one of the key elements of Arcan's business plan,
being growth in value on a per share basis.
Hamburg
The Hamburg "GG" Slave Point oil pool was discovered by Arcan in February 2006.
Arcan owns 50% in the first four wells and 100% in the fifth well drilled into
the reef complex. Arcan previously disclosed the results of these wells. Arcan
believes these Slave Point oil wells have resulted in a significant oil
discovery of 40 degrees API sweet oil and liquid rich natural gas. Three of the
five wells were completed in 2007, which is expected to increase Arcan's
reserves. Arcan plans to drill an additional four to six (3 to 4 net)
development wells (including 1 - 2 injectors) into this reef complex this coming
winter.
The existing wells are currently subject to MRLs imposed by the Alberta Energy
and Utilities Board ("EUB"). Arcan applied and received approval for enhanced
recovery status from the EUB, which is expected to significantly raise these
production limitations. Approvals are conditional on water injection. To date
Arcan has sourced injection equipment, drilled a water source well and built an
all weather road into the area. Arcan is now completing and testing the source
well and then plans to re-complete the 13-20 well to convert it to an injector
and install the related facilities for completion targeted at October 1, 2007.
Management has over 18 years of experience drilling Slave Point targets in this
area with a 65% historical success ratio, which exceeds the industry average.
Arcan plans to continue to explore for new Slave Point reefs in the Hamburg area
with 3 to 5 (100% Arcan) of these higher impact exploratory Slave Point
prospects slated for this coming winter.
McLeod
Arcan's drilling at McLeod targets gas in Mannville and Jurassic aged strata at
depths of 1,800-2,300 metres. Arcan has drilled six (4.2 net) Gething gas wells
at McLeod. Four (3 net) of these wells are on production. These wells are
producing in excess of 400 boe per day net to Arcan. Arcan has recently
commenced drilling a 100% well in this area.
At McLeod, Arcan has a large inventory of medium-risk drilling prospects that
have been developed by its two geologists, who have worked the McLeod area for
over 15 years each with major companies, drilling in excess of 300 wells
combined. Arcan's exploration experience in this area facilitates farm-ins and
is expected to contribute to a high success ratio. Arcan competes by farming in
or acquiring lands where Arcan has developed drill-ready prospects. This
approach allows Arcan to run full economics and include risks for tie-in and
land expiries. Arcan is also pursuing deeper, Devonian high impact targets in
the area but is focusing the majority of its capital on oil development
projects, due to lower natural gas prices. A deeper target originally planned
for the fourth quarter of 2007 has been slated into 2008.
Deer Mountain
The Swan Hills Deer Mountain Unit #2 (the "Deer Mountain Unit") is part of the
Swan Hills Reef Complex. The Deer Mountain Unit is considered one of the most
undeveloped pools in this Swan Hills Complex as the majority of the complex is
under secondary and tertiary recovery schemes. To date, Arcan has fracture
stimulated some existing oil wells, reworked existing water injection wells,
drilled new oil wells and one new water injection well, tied-in liquids rich
solution gas that was previously flared and shot a new 3D seismic program
covering approximately 18 square kilometres. As well, Arcan has constructed a
new oil battery capable of 4,000 barrels of fluid per day and a new water
handling facility.
Initial production from the Deer Mountain Unit commenced in 1964 and unitization
occurred in late 1984. Recovery from the Deer Mountain Unit is low compared to
offsetting pools in the field because of a historic lack of drilling and water
injection. It is estimated that the oil recovered from the unit to date is
approximately 8.6% and total recovery is currently estimated to reach 35 - 40%.
Arcan believes ultimate recovery will increase significantly as development
drilling and water injection proceeds. Adjoining units in the field have actual
and expected recoveries estimated to be 35-40% with some operators expecting
further increases in the future from potential CO2 injection schemes. To help
plan operations, Arcan has shot 3-D seismic, constructed a geological model
using Petrel software and is running a waterflood simulation using Eclipse
software.
Arcan considers Deer Mountain to be a "legacy asset" which is expected to
produce for another 20 years or more. Arcan's most recent well drilled in the
second quarter of 2007 had initial production rates in excess of 350 boe per day
and is the most prolific well drilled by Arcan in this pool. This well had
production declines due to lack of pressure maintenance and Arcan has just
completed the injector to provide the required pressure support. Additional
drilling is expected to commence late in the third quarter of 2007. The new
battery and centralized water injection facilities were on stream in February
2007 and will allow Arcan to implement a field wide water flood and continue
drilling patterns of producing wells and water injection wells. Based on 200
metre well spacing, Arcan expects to have several years of development drilling
to increase rates and recoveries from the unit. Additional upside is expected
through well bore optimization and work-overs of existing well bores. Arcan has
also identified the potential for exploration drilling in the Deer Mountain
area.
Financial Statements and Management's Discussion and Analysis
Arcan is filing with certain Canadian securities regulatory authorities today
its financial statements for the quarter ended June 30, 2007 and the
accompanying Management's Discussion and Analysis. These filings will be
available under Arcan's SEDAR profile at www.sedar.com.
Arcan Resources Ltd. is an Alberta, Canada corporation that is principally
engaged in the exploration, development and acquisition of petroleum and natural
gas located in Canada's Western Sedimentary Basin. As at August 24, 2007 Arcan
had 33,770,995 common shares, 619,191 Warrants, 1,500,000 performance warrants,
6,550,400 performance shares and 3,140,000 stock options outstanding.
Legal Advisories
BOE Presentation - Production information is commonly reported in units of
barrel of oil equivalent ("boe"). For purposes of computing such units, natural
gas is converted to equivalent barrels of oil using a conversion factor of six
thousand cubic feet to one barrel of oil. Boe's may be misleading, particularly
if used in isolation. A boe conversion ratio of six thousand cubic feet of
natural gas to one barrel of oil (i.e., 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. Boe's may be misleading,
particularly if used in isolation.
Special Note Regarding Non-GAAP Measures - This press release contains financial
terms that are not considered measures under Canadian generally accepted
accounting principles ("GAAP"), such as "funds from (used in) operations". This
measures is commonly utilized in the oil and gas industry and is considered
informative for management and shareholders. Specifically, "funds from (used in)
operations" represents net loss for the period adjusted for non-cash items in
the statement of operations. Operating and corporate netbacks are also presented
in which operating netbacks represent Arcan's revenue per boe, less per boe
royalties and operating expenses, and corporate netbacks represent Arcan's
operating netback per boe, less per boe general and administrative and interest
expense, in order to determine the mount of funds generated by each boe
produced.
These measures do not have any standardized meaning prescribed by GAAP and
therefore are unlikely to be comparable to similar measures presented by other
companies. These terms should not be considered an alternative to, or more
meaningful than cash flow from operating activities as determined under GAAP as
an indicator of the Company's performance. Management considers these terms to
be important as they help evaluate performance and demonstrate the Company's
ability to generate sufficient cash to fund future growth opportunities. Readers
should be aware that historical results are not necessarily indicative of future
performance.
Advisory Regarding Forward-Looking Statements
Certain information with respect to the Company contained herein, including its
assessment of future plans and operations contain forward-looking statements. In
some cases, forward-looking statements and information can be identified by
terminology such as "may", "will", "should", "expects", "projects", "plans",
"proposed", "anticipates", "targets", "believes", "estimates", "continue", "
designed", "objective", "potential" and similar expressions. In particular, this
document contains forward-looking statements and information with respect to:
estimated volumes and timing of future production; business plans for drilling,
exploration and development; estimated dates for seismic and other programs; and
other expectations, beliefs, plans, goals, objectives, assumptions, information
and statements about possible future events, conditions, results of operations
and performance. These forward-looking statements are based on assumptions and
are subject to numerous risks and uncertainties, certain of which are beyond the
Company's control, including: the impact of general economic conditions,
industry conditions, volatility of commodity prices, currency exchange rate
fluctuations, imprecision of reserve estimates, uncertainty regarding drilling
results, environmental risks, competition from other explorers, stock market
volatility and ability to access sufficient capital. As a result, the Company's
actual results, performance or achievement could differ materially from those
expressed in, or implied by, these forward-looking statements and, accordingly,
no assurance can be given that any events anticipated by the forward-looking
statements will transpire or occur. In addition, the reader is cautioned that
historical results are not necessarily indicative of future performance.
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