Cork Exploration Inc. announces second quarter 2007 results and filing of second quarter 2007 report
CALGARY, July 30 /CNW/ - Cork Exploration Inc. (the "Corporation" or
"Cork") (TSX: CRK) today announced its financial and operational results for
the second 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 and six months ended June 30, 2007. These
filings are available for review on the Corporation's SEDAR profile at
www.sedar.com.
Highlights
($ except unit Three months ended June 30 Six months ended June 30
amounts) 2007 2006 2007 2006
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Daily production
(boe/d) 2,701 729 2,332 548
Total revenues 13,111,862 3,135,596 21,908,296 4,893,111
Net earnings 1,042,021 16,413 69,392 304,407
Net earnings per
share - basic 0.02 0.00 0.00 0.01
Net earnings per
share - diluted 0.02 0.00 0.00 0.01
Funds from
operations(1) 7,211,679 1,474,602 11,069,277 2,541,027
Funds from operations
per share - basic(1) 0.14 0.04 0.22 0.07
Funds from operations
per share - diluted(1) 0.13 0.04 0.20 0.07
Total assets 159,725,754 90,615,173 159,725,754 90,615,173
Net debt(1) 45,230,181 (13,543,303) 45,230,181 (13,543,303)
Capital expenditures 13,573,341 14,794,155 32,937,320 38,949,042
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(1) Non-GAAP measures
Key highlights for the quarter include:
- 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
Corporation's 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. The total cost of
the acquisition was $9.3 million.
- Significant increase in average production - During the second
quarter of 2007, Cork's average production was 2,701 boe/d compared
to average production of 1,959 boe/d in the first quarter of 2007 and
729 boe/d in the second quarter of 2006. The protracted spring break-
up resulted in limited activity for the Corporation in the second
quarter of 2007 with the completion and tie-in of one gross (0.6 net)
well in Cochrane and the recompletion of one gross (1.0 net) well in
Brazeau late June. Also in June, the Corporation successfully
completed two gross (0.7 net) wells in Carrot Creek that had been
drilled prior to break-up, with tie-in completed in July.
- Review of reserves - Cork initiated a third party engineering review
of its reserves as at June 30, 2007. At June 30, 2007, the
Corporation's proved reserves totaled 5,706 mboe compared to 6,265
mboe at December 31, 2006. Cork's proved plus probable reserves
totaled 9,138 mboe compared to 9,562 mboe at December 31, 2006. The
decrease of 424 mboe of proved plus probable reserves since
December 31, 2006 is attributable to production of 409 mboe and
negative technical revisions of 973 mboe offset by drilling additions
of 758 mboe and the acquisition of 200 mboe. The 973 mboe of negative
technical revisions related to four of the Corporation's wells where
production rates were lower than previously estimated, including the
Corporation's first horizontal development well.
Production
For the three months ended June 30, 2007, production averaged 2,701
boe/d, and increase of 271% from production of 729 boe/d in the same period of
2007. Gas production comprised approximately 73% of total production with oil
and natural gas liquids "NGLs" representing the remaining 27%. The majority of
the oil and NGL production is comprised of natural gas liquids. For the six
months ended June 30, 2006, production was 2,332 boe/d, 325% higher than the
same period in 2006 of 548 boe/d, reflecting production additions from the
Corporation's 2006/2007 capital investment program.
Net Earnings
The Corporation reported net earnings of $1,042,021 ($0.02 per share,
basic and fully diluted) for the three months ended June 30, 2007 compared to
$16,413 ($0.00 per share, basic and fully diluted) for the three months ended
June 30, 2006. Net earnings in the second quarter of 2007 increased over the
same period in the prior year, primarily as a result of an unrealized gain on
commodity contracts and the combination of increased production and improved
operating netbacks, offset by higher depreciation.
For the six months ended June 30, 2007 the Corporation reported net
earnings of $69,392 ($0.00 per share, basic and fully diluted) compared to net
earnings of $304,407 ($0.01 per share, basic and fully diluted) for the same
period in 2006. The decrease in earnings reflects the impact of higher
depreciation, offset by an unrealized gain on commodity contracts and higher
production. Operating netbacks for the six months ended June 30, 2007 were
consistent with the same period of 2006.
The following is a summary of the operating netbacks for the periods set
forth below:
Three months ended June 30 Six months ended June 30
$/boe 2007 2006 2007 2006
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Revenues 53.35 47.25 51.91 49.34
Royalties (9.30) (11.71) (10.89) (11.72)
Operating expenses (8.89) (5.68) (9.09) (5.60)
Transportation expenses (1.49) (0.71) (1.41) (1.01)
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Operating netback 33.67 29.15 30.52 31.01
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Revenue per boe increased to $53.35 per boe and $51.91 per boe in the
three and six months ended June 30, 2007, respectively, compared to $47.25 per
boe and $49.34 per boe in the same periods, respectively of 2006, primarily as
a result of higher realized prices from natural gas partially offset by
realized prices from natural gas liquids sales. Royalty rates of 17% in the
second quarter of 2007 were lower than the 25% incurred in the second quarter
of 2006, reflecting royalty refunds received in the second quarter of 2007
upon approval of the Corporation's gas cost allowance application and the
granting of royalty holidays on six wells. Royalty rates declined to 21% in
the first six months of 2007 compared to 24% in the same period of 2006 for
the same reasons. The Corporation expects royalty rates for the remainder of
2007 to be approximately 24%. Operating costs of $8.89 per boe and $9.09 per
boe in the three and six months ended June 30, 2007, respectively, increased
from $5.68 per boe and $5.60 per boe in the three and six months ended
June 30, 2006, respectively. These costs trended towards the industry average
in the first quarter of 2007 and resulted primarily from 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. Transportation charges per boe
increased to $1.49 per boe and $1.41 per boe in the three and six months ended
June 30, 2007, respectively, compared to $0.71 per boe and $1.01 per boe in
the same periods of 2006 due to a higher proportion of production from areas
with higher transportation costs in during of 2007.
Funds from Operations
Funds from operations for the three and six months ended June 30, 2007
increased to $7,211,679 ($0.14 per share basic and $0.13 per share fully
diluted) and $11,069,277 ($0.24 per share basic and $0.22 per share fully
diluted), respectively compared to $1,474,602 ($0.04 per share basic and fully
diluted) and $2,541,027 ($0.07 per share basic and fully diluted) during the
same periods, respectively, in 2006. The increase in funds from operations is
due primarily to the increase in production volumes and related revenues in
the current year. On a per boe basis funds from operations for the three and
six months ended June 30, 2007 increased to $29.35 and $26.23 for the three
and six months ended June 30, 2007 from $22.22 and $25.62 in the same period
in 2006. The increase in the funds from operations per boe was due to higher
realized prices and lower royalties offset by higher operating costs.
Capital Expenditures
The following is a summary of capital expenditures for the periods set
forth below:
Three months ended June 30 Six months ended June 30
($) 2007 2006 2007 2006
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Drilling and
completions 2,374,577 7,775,022 11,387,725 25,785,826
Equipment and
facilities 2,534,282 5,967,824 11,062,501 9,851,457
Land, acquisitions and
maintenance 8,367,937 363,857 9,755,193 1,598,340
Capitalized G&A 239,929 369,238 626,700 690,148
Seismic 56,616 318,214 105,201 1,023,271
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Total net capital
investment 13,573,341 14,794,155 32,937,320 38,949,042
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Total capital investment for the three and six months ended June 30, 2007
was $13,573,341 and $32,937,320, respectively, compared to $14,794,155 and
$38,949,042 for the same periods, respectively, in 2006. The decreased
expenditures on drilling and completions activity reflects a lower number of
wells drilled in the first six months of 2007 compared to the same period in
2006. In the second quarter of 2007, Cork did not drill any new wells compared
to 2 gross (1.0 net) wells drilled in the second quarter of 2006. For the six
months ended June 20, 2007, Cork drilled 8 gross (5.4 net) wells compared to
19 gross (11.0 net) wells for the same period in 2006 reflecting a lower level
of drilling and completions activity in the current year compared to prior
year.
In the second quarter of 2007, the Corporation acquired approximately
135 boe/d of production and an average working interest of 55% in 14 gross
(7.7 net) sections of undeveloped land for $9.3 million. In addition during
the first quarter of 2007, the corporation incurred expenditures on equipment
and facilities on the Carrot Creek de-bottlenecking project and tie-in of
wells in Cochrane.
Outlook
As a result of the impact on the Corporation's expected 2007 cash flow
from lower production than previously anticipated, Cork announced on June 29,
2007 that it had reduced its capital budget from $50 million to $43 million in
fiscal 2007. As a result of capital spending to date, approximately
$10 million will be expended during the third and fourth quarter of 2007,
which will be completely funded by the Corporation's operating cashflow. Since
June 30, 2007, Cork has successfully tied-in the two gross (0.7 net) wells in
Carrot Creek mentioned previously, drilled, completed and tied-in 1 gross
(0.6 net) well in Carrot Creek and re-completed 1 gross (0.8 net) well in
Brazeau. Cork is currently in the process of drilling 1 gross (0.8 net)
horizontal well in Carrot Creek. Cork plans to drill an additional 5 gross
(3.7 net) wells, including 1 gross (0.6 net) horizontal well in the remainder
of 2007.
On June 29, 2007, the Corporation also announced a reduction in its year
end average guidance to approximately 2,600 boe/d from previous 2007 average
production guidance of between 3,000 boe/d and 3,200 boe/d and a reduction in
its 2007 exit production guidance to approximately 3,000 boe/d from previous
2007 exit production guidance of between 4,000 boe/d and 4,500 boe/d. These
reductions reflect the impact of the higher than anticipated production
declines and the revised capital budget.
Non-GAAP Measures
This Press Release contains the terms "funds from operations", "netbacks"
and "net debt" 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 funds
necessary to finance 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 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 10.0 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; Raymond G. Smith, Interim President and Chief
Executive Officer and Chairman, or Geoffrey D. Krause, Vice-President, Finance
and Chief Financial Officer, Telephone: (403) 531-1695, Fax: (403) 531-1696,
Website: www.corkexploration.com
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