Sure Energy Announces Third Quarter 2011 Financial And Operating Results

CALGARY, Nov. 9, 2011 /CNW/ - Sure Energy Inc. ("Sure Energy" or the "Company") today announced its financial and operating results for the quarter ended September 30, 2011.

The Company's MD&A, Financial Statements and AIF can be viewed or downloaded at www.sureenergyinc.com or www.sedar.com.

During the third quarter of 2011, Sure Energy accomplished the following:

  • Drilled 6 (5.8 net) successful oil wells at Redwater, Queensdale and Hatton during the third quarter of 2011
  • Production averaged 1,057 BOE/d but with successful drilling in the third quarter production has now ramped up to 1,500 BOE/d (58% oil)
  • In Virginia Hills the Company has successfully installed a liner and packer system into the 10-12-64-10 W5M Beaverhill Lake horizontal well and is set to perform an acid frac on the 100% well in November
  • Funds flow from operations was $2.76 million or ($0.06 per share basis)
  • The Company recently had its bank credit facility increased from $25 million to $33 million
  Three Months Ended
September 30,
Nine Months Ended
September 30,
HIGHLIGHTS 2011 2010 2011 2010
($000 except share and per share amounts)        
Financial        
Petroleum and Natural Gas Revenues 4,972 2,012 16,457 7,250
Funds Flow from Operations (1) 2,759 582 8,709 2,738
      Per Share, Basic  and Diluted 0.06 0.01 0.18 0.06
Income (loss) (293) (533) 687 (647)
      Per Share, Basic and Diluted (0.01) (0.01) 0.01 (0.01)
Capital Expenditures 9,987 3,962 30,162 8,244
Total Assets     77,941 43,350
Net Debt(1)     (36,342) (10,228)
Shareholders' Equity     34,412 29,384
Common Shares Outstanding        
      Basic     48,548,630 46,849,464
      Diluted     52,644,464 51,154,464
      Fully Diluted with Performance Rights and Warrants     57,974,464 54,659,464
Weighted Average Common Shares Outstanding        
      Basic and Diluted 48,548,630 46,849,464 46,849,464 46,848,678
         
Share Trading        
      High 1.79 1.32 1.99 1.37
      Low 1.20 0.67 1.20 0.57
      Close 1.30 1.34 1.30 1.34
Trading Volume 2,426,866 5,527,047 9,911,582 12,268,409


 
Three Months Ended
September 30
Nine Months Ended
September 30,
HIGHLIGHTS 2011 2010 2011 2010
         
Operations         
Production        
      Natural Gas (Mcf/d) 3,523 3,972 3,712 4,307
      Oil (bbls/d) 421 64 460 68
      NGLs (bbls/d) 49 36 48 40
      BOE/d 1,057 762 1,127 825
         
Average Selling Price        
      Natural Gas ($/Mcf) 3.83 3.73 4.05 4.40
      Oil ($/bbl) 88.78 80.05 91.22 77.45
      NGLs ($/bbl) 65.15 53.33 68.31 59.57
      BOE ($/BOE) 51.14 28.68 53.50 32.17
         
Operating Netback ($/BOE) (1) 31.85 13.05 34.42 16.76
Funds Flow Netback ($/BOE) (1) 28.38 8.28 28.30 12.15

(1)   Please refer to Management's Discussion and Analysis for a definition of Non-GAAP measures.

OPERATIONAL REVIEW

Drilling
Capital expenditures for the period were as follows:

  Three Months Ended
September 30,
Nine Months Ended
September 30,
Capital Program Summary 2011 2010 2011 2010
($000s)        
Land 332 27 1,435 729
Geological and geophysical 4 159 95 368
Drilling 4,260 2,508 6,408 4,212
Completions 3,387 273 4,563 856
Recompletions and workovers 624 22 934 816
Production equipment and facilities 1,453 853 4,289 1,304
Capitalized exploration G&A 185 52 556 161
Drilling credits (115) (1) 60 (451)
Asset acquisition (disposition) (214) 14 11,138 155
Other assets 18 - 32 -
  9,934 3,907 29,510 8,150
Non-cash items        
Decommissioning obligations 645 55 1,244 94
Expiry of undeveloped land (592) - (592) -
  9,987 3,962 30,162 8,244

Drilling activity for the three and six months is summarized as follows:

Three Months Ended September 30, 2011

  Gas   Oil   Dry and Abandoned   Total
  Gross Net   Gross Net   Gross Net   Gross Net
Exploration - -   - -   - -   - -
Development - -   6 5.8   - -   6 5.8
Total - -   6 5.8   - -   6 5.8

Nine Months Ended September 30, 2011

  Gas   Oil   Dry and Abandoned   Total
  Gross Net   Gross Net   Gross Net   Gross Net
Exploration - -   - -   - -   - -
Development - -   10 8.6   - -   10 8.6
Total - -   10 8.6   - -   10 8.6

Areas of Activity

 

Plains (Redwater)

The Company owns 11,095 net acres of land on the Lower Viking light oil trend at Redwater, just north of Edmonton.  The Viking in the area has recently been exploited by horizontal drilling.  Thirty day initial production rates typically vary from 60 - 125 barrels of oil per day, although some wells have averaged over 300 barrels of oil per day in the first 30 days.  All of Sure Energy's horizontal wells are subject to the New Well Royalty Rate which reduces royalties to 5 percent for a defined period or production volume dependant on the length of the well.  This royalty incentive leads to high operating netbacks.  From its new wells in North Redwater, the first of which came on production in November 2010, Sure Energy has realized over $75 net operating income per BOE (income after royalties operating and transportation expenses).

In the third quarter of 2011 the Company produced 305 BOE/d from the Redwater (Plains) area of which 265 BOE/d was oil (87 percent).  Oil production has significantly increased in the fourth quarter of 2011, as the Company has started to produce two new wells (one 100 percent and one 80 percent working interest), which were drilled in the third quarter and which are have added 244 net barrels of oil per day plus associated solution gas in October.  The Company also has two 40 percent working interest wells on the south end of the productive trend which are awaiting tie-in.

Sure Energy has 42 gross (32 net) low risk development locations surrounded by or adjacent to production on the trend.  In addition to this low risk drilling inventory the Company has 11.5 sections (11.0 net sections) of land still to evaluate on the productive oil trend.

SE Saskatchewan

Using a proprietary 3D seismic program Sure Energy identified an extension of the East Queensdale Alida light oil pool on its 100 percent working interest lands.  In the third quarter of 2010 the Company drilled its first horizontal well into the interpreted extension.  The well was an open hole drill and completion and cost just over $1.3 million to place on stream.  The well came on production at over 200 barrels of oil per day and has paid out in just over three months.  It benefited from the Saskatchewan horizontal well drilling incentive plan which reduces royalties to 2.5 percent for the first 6,000m3 (37,740 barrels) of production.  Production in the area is typified by increasing watercuts relatively early in the well's productive life.  Despite the cost of managing the associated water production, the well realized an average netback of $67.59 per barrel for the third quarter of 2011.  In the third quarter of 2011 the Company drilled three more horizontal wells into the prospect.  All three wells were drilled from one surface site on which a facility will be constructed, which will include equipment to treat the oil and handle water for disposal.  The wells all came on production during October.

In the third quarter of 2011 the Company produced 64 barrels of oil per day from southeast Saskatchewan, which was from the original Queensdale well.  The three follow up wells are currently on production but are as yet not producing at optimal rates.  Field estimates for October are 270 barrels of oil per day (100% oil) from the property.

 

Virginia Hills

In April of 2011 Sure Energy closed the second of two acquisitions in the Virginia Hills area thereby creating a new core area.  The Company acquired 69 sections of land (average 64 percent working interest) of various mineral rights and 160 BOE/d of associated production (72 barrels of oil per day) for $11.1 million.

The initial motivation for establishing a position in the Virginia Hills area was to gain exposure to a Viking resource play, similar to Redwater.

The Viking section at Virginia Hills is approximately twice as thick as that at Redwater.  The resource upside of the play exists in low permeabilty sediments.  Two key vertical wells demonstrate that the Viking contains oil and will produce it when frac'd, albeit at marginally economic rates.  The two key vertical producers produce at steady rates of 6 and 10 barrels of oil per day which compares to rates of two to five barrels of oil per day from mature vertical producers at Redwater.  In theory a multiple fractured horizontal well should produce at a comparable multiple to the vertical wells in the Redwater area (i.e. two to three times better).  No horizontals have been drilled in the Viking in the Virginia Hills area to date.  The Company owns 9.5 sections with approximately 50 percent working interest and 3 sections with 100 percent working interest on the core area of the play.  Sure Energy plans to drill one vertical well on its 100 percent lands and two horizontal wells on its 50 percent working interest lands late in 2011 or early in 2012.

Through the acquisitions the Company also acquired 1,705 acres (2.7 net sections) of land with Beaverhill Lake rights.  Horizontal wells drilled into the Beaverhill Lake and frac'd multiple times with large volumes of acid have exhibited high production rates.  Included in Sure Energy's acquisition at Virginia Hills were two horizontal Beaverhill Lake producers which were completed open hole but were never frac'd.  Both wells produce clean oil, but at low rates (15- 22 barrels per day) consistent with production from a low permeability reservoir.  Both these wells should exhibit markedly higher production rates if frac'd in a similar way to prolific offset producers.  To this end the Company has installed a liner and packer system in its 10-12-64-10 horizontal wellbore and has set the well up to be acid frac'd.  The Company is currently securing the acid and the services to frac this wellbore as soon as possible.  This operation will cost the Company approximately $2 million as opposed to the $5 to 6 million required to drill and complete a new well.  Should the operation prove successful the Company will attempt a similar completion on its unfrac'd wellbore in 10-23-65-13 W5M.

 

Hatton (SW Saskatchewan)

In September 2011 Sure Energy drilled its first well into a heavy oil prospect at Hatton in southwest Saskatchewan.  The Company's vertical appraisal well encountered 6.5 meters of heavy oil pay.  The well was completed and is currently awaiting facility construction and the installation of a screw pump to enable it to be placed on production.  The well is expected to commence production in mid November.  Encouraged by the well's results the Company purchased three additional sections of 100 percent working interest lands (to give it a total of 4) on the play.

Other Properties

The Company produces approximately 500- 550 BOE/d from the Peace River Arch, Southern Plains (Chinook), Tweedie and a series of minor properties in the West Central area of Alberta.  Most of this production is gas and due to the current depressed state of the gas markets the Company has spent very little capital in 2011 on these properties.  Furthermore the Company has no immediate plans to expose significant capital in these areas.

Production

Production for the period by major property is as follows:

  Three Months Ended September 30, 2011
  Gas Oil NGLs Total
  Mcf/d Bbls/d Bbls/d BOE/d
Peace River  915 10 16 179
Plains 238 265 - 305
Saskatchewan - 64 - 64
Southern Plains 536 - 2 92
Tweedie 819 - - 137
West Central 1,015 82 31 280
Total 3,523 421 49 1,057

  Nine Months Ended September 30, 2011
  Gas Oil NGLs Total
  Mcf/d Bbls/d Bbls/d BOE/d
Peace River  1,025 11 16 198
Plains 298 327 - 377
Saskatchewan - 64 - 64
Southern Plains 805 - 5 139
Tweedie 777 - - 130
West Central 807 58 27 219
Total 3,712 460 48 1,127

Production for the period was 1,057 BOE/d, essentially flat to that of the second quarter.  Production volumes for the period were particularly impacted by gas plant dew point problems at a third party plant in Southern Plains, which reduced volumes by 60 BOE/d and by high line pressures in the Hill and Gordondale areas of the Peace River Arch which impacted overall capability by 41 BOE/d.  In the Redwater area the 12-2-58-23 well was shut in for most of July due to wet weather trucking issues and this impacted volumes for the period by approximately 20 BOE/d.  In the Virginia Hills area oil trucking interruptions on one of the Company's Gething oil wells contributed to reducing volumes by approximately 20 BOE/d.

The Company is currently producing approximately 1,500 BOE/d (about 60 percent oil and liquids) according to field estimates.  Some minor volumes of gas have been shut-in at Chinook (approximately 30 BOE/d) for economic reasons and about 40 BOE/d of gas at Gordondale flows only intermittently because of high line pressures.  The Company is also waiting for its two 40 percent wells at south Redwater to be tied in and expects its new Hatton heavy oil well to come on production in mid November.

 

OUTLOOK

 

After a very busy operational final quarter of 2010 the Company was less active drilling in first half of 2011.  During this period the focus was on extending the Company's portfolio of opportunities to sustain future growth.  This was achieved by the acquisition of the Virginia Hills property which has exposed the Company to another resource play in the Viking formation and a high impact play in the Beaverhill Lake.  The Company is set to acid frac one of its Beaverhill Lake wells in the Virginia Hills area as soon as services become available.  The Viking in the area has never been exploited by multi-frac'd horizontal wells.  The reservoir section is thicker than at Redwater.  Drilling horizontal wells and multi-frac'ing technology should greatly improve productivity as it does at Redwater.  Success with this prospect would layer on another wedge of resource development locations to the Company's drilling inventory.

Significant potential exists with Sure Energy's Hatton prospect.  Test results on the initial well are extremely encouraging.  The Company is currently installing facilities to establish productivity.  The next step is to determine the extent of the pool with two or three delineation wells.  When this is complete the Company will be able to evaluate the potential of the resource and its economic impact.

Redwater has become the cornerstone of the Company.  The economics of the play are compelling.  The Company brought on six new wells at North Redwater between November 2010 and February 2011.  Those six wells cost an average of $1.75 million each to drill, case, complete and equip.  Another $1.47 million was spent on the project for multi-well pad construction, roads, pipelines, and workovers for a total of $12 million.  By the end of September the wells had been on production for 53 months collectively and had produced 94,634 barrels of oil generating net operating income of $7.2 million (income after royalties, operating expenses and transportation).  In September the wells generated net operating income of 0.5 million.  This was the Company's first major capital exposure to the play; success and repeatability were of utmost importance.  As the Company moves forward with development, costs and operating efficiencies will improve, and the economics will improve even more.  The Company has an extensive (minimum 32 net) low risk development inventory on the play and 11 ½ more sections to evaluate.

The Company has taken steps to improve its operating efficiencies and ability to execute its drilling and completion plans.  As drilling and completion services become more difficult and expensive to attain it is extremely important that drilling programs be planned well in advance.  Recognizing this the Company has added a Drilling and Completions Manager to its staff.

In the third quarter of 2010 Sure Energy produced 762 BOE/d of which 64 barrels per day was oil.  In October 2011 the Company estimates production of approximately 1,500 BOE/d of which 870 barrels per day is oil.  This represents a significant turnaround for the Company in the past year.  The Company has the development locations to continually add to the oil production base plus has three projects which could significantly enhance the oil drilling inventory.

With an increased credit facility along with the undrawn portion of the Deans Knight Debenture the Company continues to have financial flexibility with over $16.7 million of available credit capacity.

Forward-looking Information
Certain statements contained in this press release contain forward-looking information. These statements relate to future events or Sure Energy's future performance. The use of any of the words "could", "expect", "believe", "will", "projected", "estimated" and similar expressions and statements relating to matters that are not historical facts are intended to identify forward-looking information and are based on Sure Energy's current belief or assumptions as to the outcome and timing of such future events. Actual future results may differ materially. In particular, the statements related to commencement of production of the six wells drilled in the third quarter, expectations with respect to general and administrative costs, expectations for the payment of current income tax, and in the section "Outlook" are forward looking information. Sure Energy's Annual Information Form and other documents filed with securities regulatory authorities (accessible through the SEDAR website www.sedar.com) describe the risks, material assumptions and other factors that could influence actual results and which are incorporated herein by reference. Sure disclaims any intention or obligation to publicly update or revise any forward-looking information, whether as a result of new information, future events or otherwise, except as may be expressly required by applicable securities laws.

Use of BOEs
In this press release the calculation of barrels of oil equivalent (BOE) is calculated at a conversion rate of 6,000 cubic feet (Mcf) of natural gas for one barrel (bbl) of oil based on an energy equivalency conversion method. BOEs may be misleading particularly if used in isolation.  A BOE conversion ratio of 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.

SURE ENERGY INC.
Condensed Statement of Financial Position

(in thousands of Canadian dollars)
(unaudited)

    September 30, December 31, January 1,
      2011   2010   2010
Assets         (note 12)   (note 12)
      Trade and other receivables   $ 2,775 $ 3,110 $ 1,829
      Deposits and prepaid expenses     1,308   853   457
Total current assets     4,083   3,963   2,286
               
Property, plant and equipment     67,019   46,062   33,723
Exploration and evaluation assets     5,197   1,481   1,899
Deferred financing costs     1,642   2,179   -
Total assets   $ 77,941 $ 53,685 $ 37,908
               
Liabilities              
      Bank debt   $ 20,541 $ 440 $ 3,046
      Trade and other payables     9,884   8,223   3,777
Total current liabilities     30,425   8,663   6,823
               
Note facility     10,000   10,000   -
Decommissioning obligations     3,104   1,792   1,450
Total liabilities     43,529   20,455   8,273
               
Equity              
      Share capital     37,463   37,282   35,399
      Warrants     2,065   2,065   -
      Contributed surplus     3,645   3,331   3,152
      Deficit     (8,761)   (9,448)   (8,916)
Total equity     34,412   33,230   29,635
               
Total equity and liabilities   $ 77,941 $ 53,685 $ 37,908

SURE ENERGY INC.
Condensed Statements of Income and Comprehensive Income

(in thousands of Canadian dollars, except per share amounts)
(unaudited)

    Three months ended
September 30,
  Nine months ended
September 30,
      2011   2010   2011   2010
          (note 12)       (note 12)
Petroleum and natural gas revenues   $ 4,972 $ 2,012 $ 16,457 $ 7,250
Royalties     (540)   (175)   (1,740)   (758)
      4,432   1,837   14,717   6,492
                   
Production and operating     1,034   807   3,281   2,330
Transportation     302   114   845   385
Exploration and evaluation     632   40   715   135
General and administrative     337   334   1,882   1,039
Interest and financing charges     546   90   1,458   193
Depletion, depreciation and amortization     1,717   819   5,489   2,664
Stock based compensation     157   166   360   393
      4,725   2,370   14,030   7,139
                   
Net income (loss) and comprehensive income (loss) for the period   $ (293) $ (533) $ 687 $ (647)
                   
Earnings per share:                  
      Basic and diluted   $ (0.01) $ (0.01) $ 0.01 $ (0.01)

SURE ENERGY INC.
Condensed Statements of Changes in Equity

(in thousands of Canadian dollars)
(unaudited)

    Nine months ended Year ended Nine months ended
    September 30, 2011 December 31, 2010 September 30, 2010
    Number $ Number $ Number $
               
Share capital              
Balance, beginning of period   48,431,130 37,282 46,873,962 35,399 46,873,962 35,399
Exercise of stock options   117,500 181 1,588,666 1,912 7,000 3
Cancelled   - - (31,498) (29) (31,498) (29)
Share capital, end of period   48,548,630 37,463 48,431,130 37,282 46,849,464 35,373
               
Warrants              
Balance, beginning of period   2,800,000 2,065 - - - -
Issued for Note Facility   - - 2,800,000 2,065 - -
Warrants, end of period   2,800,000 2,065 2,800,000 2,065 - -
               
Contributed surplus              
Balance, beginning of period     3,331   3,152   3,152
Cancellation of common shares     -   29   29
Exercise of stock options     (46)   (560)   -
Stock-based compensation expense     360   710   393
Contributed surplus, end of period     3,645   3,331   3,574
               
Deficit              
Balance, beginning of period     (9,448)   (8,916)   (8,916)
Net income (loss) for the period     687   (532)   (647)
Deficit, end of period     (8,761)   (9,448)   (9,563)

SURE ENERGY INC.
Condensed Statements of Cash Flows

(in thousands of Canadian dollars)
(unaudited)

      Three months ended
September 30
  Nine months ended
September 30
      2011   2010   2011   2010
                   
Cash flows from operating activities:                  
                   
Net income (loss) and comprehensive income (loss) for the period   $ (293) $ (533) $ 687 $ (647)
Adjustments for:                  
      Exploration and evaluation     632   40   715   135
      Interest and financing charges     546   90   1,458   193
      Depletion, depreciation and amortization     1,717   819   5,489   2,664
      Stock based compensation     157   166   360   393
Change in non-cash working capital     (1,258)   55   (1,743)   (618)
Net cash from (used in) operating activities     1,501   637   6,966   2,120
                   
Cash flows from investing activities:                  
Exploration and evaluation     (40)   (40)   (123)   (135)
Property, plant and equipment expenditures     (10,147)   (3,893)   (18,372)   (7,995)
Acquisition of property, plant and equipment     213   (14)   (11,138)   (155)
Change in non-cash working capital     5,310   1,143   3,284   874
Net cash from (used in) investing activities     (4,664)   (2,804)   (26,349)   (7,411)
                   
Cash flows from financing activities:                  
      Proceeds from issue of share capital     -   -   135   3
      Proceeds from loans and borrowings     3,441   2,233   20,101   5,436
      Interest paid     (278)   (66)   (853)   (148)
Net cash from financing activities     3,163   2,167   19,383   5,291
                   
Change in cash and cash equivalents     -   -   -   -
                   
Cash and cash equivalents beginning of period     -   -   -   -
                   
Cash and cash equivalents end of period   $ - $ - $ - $ -

Sure Energy Inc. is a publicly traded oil and gas exploration and development company listed on the Toronto Stock Exchange under the symbol "SHR".


 

 

 

 

 

 

 

 

SOURCE Sure Energy Inc.

For further information:

For further information, please visit our website at www.sureenergyinc.com or contact:

Mr. Jeff Boyce, Chairman and CEO
Mr. Chris Baker, President and COO
Mr. Lance Wirth, Vice President, Finance and CFO
Phone: (403) 410-3100
Fax: (403) 410-3111
Email: info@sureenergyinc.com

Profil de l'entreprise

Sure Energy Inc.

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