Breaker Energy Ltd. announces first quarter results and strategic rebalancing to oil development



    CALGARY, May 6 /CNW/ - Breaker Energy Ltd. ("Breaker" or "Company") (TSX:
WAV) is pleased to announce its financial and operating results for the
quarter ended March 31, 2009.

    
    Financial and Operating Summary
                                                   Quarter Ended
                                                   March     March  % Change
                                                      31,       31,
                                                    2009      2008
    -------------------------------------------------------------------------
    Financials ($000s except per share amounts)
    Oil and NGL sales                             13,514    21,844       (38)
    Natural gas sales                             10,884    11,021        (1)
    Processing sales                                 277       243        14
    Total oil, natural gas and NGL revenue        24,675    33,108       (25)
    Funds from operations(1)                       7,943    19,283       (59)
      Per share basic ($)                           0.18      0.52       (65)
      Per share diluted ($)                         0.18      0.51       (65)
    Net earnings (loss)                           (5,750)    6,544      (188)
      Per share basic ($)                          (0.13)     0.18      (172)
      Per share diluted ($)                        (0.13)     0.17      (176)
    Capital expenditures(2)                       22,990    30,903       (26)
    Net debt (end of period)                     100,321    62,562        60
    -------------------------------------------------------------------------
    Operating Highlights
    Production:
      Oil and NGL (bbls per day)                   3,159     2,484        27
      Natural gas (mcf per day)                   22,341    15,458        45
    -------------------------------------------------------------------------
      Total (boe per day) (6:1)                    6,883     5,060        36
    Average realized price:
      Oil and NGL ($ per bbl)                      47.53     96.63       (51)
      Natural gas ($ per mcf)                       5.41      7.83       (31)
      Realized loss on commodity contracts
       ($ per boe)                                 (0.24)        -        nm
      Combined average (incl. processing
       revenue) ($ per boe)                        39.59     71.90       (45)

    Netback ($ per boe)
    Oil, natural gas and NGL sales                 39.59     71.90       (45)
    Royalties                                      (8.96)   (14.00)      (36)
    Operating expenses                            (11.85)    (9.37)       26
    Transportation expenses                        (2.25)    (2.62)      (14)
    -------------------------------------------------------------------------
    Operating netback                              16.53     45.91       (64)
    -------------------------------------------------------------------------
    G&A expenses                                   (2.88)    (2.54)       13
    Interest expense                               (0.77)    (1.16)      (34)
    -------------------------------------------------------------------------
    Corporate netback                              12.88     42.21       (69)
    -------------------------------------------------------------------------
    Common Shares (000s)
    Class A Shares outstanding, end of period     46,030    36,298        27
    Weighted average Class A shares               43,307    36,254        19
    Weighted average Class B shares                    -       900      (100)
    Conversion of Class B shares
     - weighted average(3)                             -     1,104      (100)
    Weighted average basic shares outstanding(3)  43,307    37,358        16
    Stock option dilution (treasury method)            -       318      (100)
    Weighted average diluted shares
     outstanding(3)                               43,307    37,676        15
    -------------------------------------------------------------------------

    (1) Management uses funds from operations (before changes in non-cash
        working capital) to analyze operating performance and leverage. Funds
        from operations as presented does not have any standardized meaning
        prescribed by Canadian GAAP and, therefore, may not be comparable
        with the calculation of similar measures for other entities.
    (2) Capital expenditures includes cash additions for the period
        including, acquisition additions net of dispositions.
    (3) For the period ended March 31, 2008 the Class B shares were converted
        at the quarter-end Class A share price of $8.15 and added to the
        Class A shares to calculate basic shares outstanding. On August 13,
        2008, the Company converted all of its Class B shares to Class A
        shares. Each Class B share was exchanged for 0.8675 of a Class A
        Share, resulting in the issuance of 780,753 Class A shares.
    

    Strategic Rebalancing to Oil Development

    Breaker has shifted its focus to its various oil projects in light of the
recent commodity price environment and to capitalize on recent drilling
incentives introduced by the Alberta government. The Company has the
flexibility to switch capital within its large portfolio of drilling
opportunities.
    Breaker's balanced oil and natural gas asset base provides significant
opportunity for the Company to shift its capital focus towards oil projects
until such time as the natural gas outlook improves. Breaker's oil projects
provide a superior rate of return under the new provincial incentive programs,
even with current commodity prices. Breaker will continue the successful
development of large light oil in place pools at Irricana, Girouxville and
East Prairie and medium/heavy oil at Millard and Provost.
    Breaker has demonstrated its ability to strategically drill for and
acquire high netback light oil and natural gas assets and deliver strong
reserve and production growth by applying its technical expertise. The
Company's acquisition and operating strategy targets large light oil and
natural gas in place pools with low recovery factors. Through waterflood,
infill and horizontal drilling and multi-frac completions Breaker grew
production in these pools by increasing recovery factors and typically
increasing the estimated size of original resource in place through
delineation. Using this operating strategy Breaker grew its oil and natural
gas liquids production from zero at start up in late 2004 to more than 3,100
boe/d with a production weighting to oil and natural gas liquids of 52 percent
in 2008.

    Overview and Highlights

    
    -   Breaker's average production rate grew to 6,883 boe/d, a 36 percent
        increase over the first quarter of 2008 average of 5,060 boe/d and a
        three percent increase over the fourth quarter 2008 average of
        6,702 boe/d. This occurred even with production and capital deferrals
        in the first quarter of 2009. Breaker realized a 46 percent oil and
        natural gas liquids weighting in the first quarter of 2009. This
        represents Breaker's 18th consecutive quarter of production growth
        since inception.

    -   Breaker achieved 17 percent production per share growth in the first
        quarter of 2009 as compared to the same period of 2008.

    -   In the first quarter of 2009, the Company invested $23.0 million and
        achieved a 100 percent success rate drilling three 100 percent
        working interest wells, focused at Fireweed and Irricana.

    -   At Fireweed, Breaker brought two horizontal multi-frac wells on
        stream and more than doubled the capacity of its 100 percent working
        interest compression facilities. Through these operations, Breaker
        has almost tripled production at its Fireweed liquids rich natural
        gas resource play in northeast British Columbia.

    -   Fireweed continues to perform with high production rates. Breaker's
        first well, on stream in the first quarter of 2009, produced 91 mboe
        after just over two months of production.

    -   At Irricana, Breaker continues to increase its significant light oil
        production with its horizontal multi-frac drilling development.
        Breaker drilled two 100 percent working interest light oil wells
        during the first quarter of 2009. These wells came on stream at 425
        and 325 boe/d respectively.

    -   At Millard, Breaker drilled a well in the fourth quarter of 2008 with
        an initial production rate of 170 bbls/d. The well continues to
        perform in line with the best historical wells in the pool.

    -   The Company began waterflood operations at Breaker's large light oil
        discovery at East Prairie. Independent reserve evaluators estimate
        that oil recoveries should more than double under waterflood.

    -   Breaker's large high quality drilling inventory of more than 400
        locations includes more than 175 (gross) oil locations. Breaker has
        grown oil production by drilling similar locations in past years to
        increase access to more than 50 million barrels of oil in place at
        Millard, almost 90 million barrels of light oil in place at Irricana
        and more than 10 million barrels of light oil in place at East
        Prairie from internal estimates. Breaker estimates recovery factor to
        date on all three of these pools to be less than five percent.

    -   At Girouxville, where the company has demonstrated a success rate of
        approximately 90 percent drilling light sweet oil discoveries,
        Breaker doubled its undeveloped land position and shot its largest
        proprietary 3D seismic program to date last year. This significantly
        increased Breaker's drilling inventory in the area, most of which
        qualify for royalty-free initial production and high initial
        netbacks. Breaker has already discovered 13 new light oil pools in
        the area, with the best discovery to date testing at initial rates of
        1,500 bbls/d with cumulative production to date of over three hundred
        thousand barrels.

    -   Breaker took advantage of the Alberta government's new royalty
        incentive programs announced during the first quarter of 2009. The
        Company deferred the tie-in of more than 1 mmcf/d in its greater East
        Prairie area until April 2009. This ensures an initial crown royalty
        rate of five percent. Breaker also delayed the spudding of a well in
        its Medicine Hat area in early April 2009 to obtain both the drilling
        depth royalty credit and the five percent initial royalty rate.

    -   Breaker obtained cost savings in all recent projects compared with
        prior quarters and remains focused on finding further operational
        efficiencies.

    -   Breaker has an inventory of more than 400 low risk predominantly
        light oil and natural gas drilling locations with spacing approvals
        in hand. Many of these locations provide very high internal rates of
        return and are well placed to take advantage of the recent Alberta
        royalty incentives. The Company's current production mix includes
        significant light oil weighting which allows for higher than average
        netbacks and significant cash flow at current commodity prices.

    -   Breaker's high quality drilling inventory provides operational
        flexibility and puts the Company in a great position to respond to
        the changing economic, governmental and commodity price environment
        and to increase capital spending should conditions improve during the
        year.
    

    Fireweed, British Columbia

    Breaker nearly tripled production since acquisition at its Fireweed
liquids rich, natural gas resource play in north east British Columbia during
the first quarter of 2009. The Company brought two horizontal multi-frac wells
on stream and more than doubled the capacity of its 100 percent working
interest compression facilities.
    Breaker's first horizontal multi-frac well at Fireweed continues to
produce at high rates. In its first two and a half months of high rate
production ending April 15, 2009, the well produced approximately 91 mboe of
cumulative production and had an instantaneous raw production rate of
approximately 1,000 boe/d. Breaker notes that this well's decline rate has
started to flatten which is consistent with the Company's interpretation that
the well has tapped into a large resource.
    Breaker successfully treated its second horizontal multi-frac well with
eight fracs in mid-March 2009 and tied the well into Breaker's compressor
station at the end of March of this year. Field measurements recorded that the
well flowed at an average raw rate of approximately 1,000 boe/d (which
includes approximately 5.3 mmcf/d of natural gas and approximately 120 bbls/d
of natural gas liquids) for the last 24 hours of the test ending the morning
of April 3, 2009. Breaker drilled this well in the north end of the property
where wells historically produced at lower rates. The Company is pleased with
the results as the well has also confirmed gas saturation in previously
untested sands. Instantaneous raw gas production on April 15, 2009 was
approximately 3 mmcf/d which, when combined with the historical natural gas
yields for the field, translates to a sales rate of approximately 570 boe/d
for the new well.
    Both horizontal wells measured initial bottom hole pressures exceeding 16
MPa at a true vertical depth of approximately 1,645 metres, indicating only a
small amount of drainage from over 20 vertical legacy wells which have
cumulative production of over 17 bcf.
    With Breaker's facility expansion complete, the Company anticipates
average total production rates from the Fireweed property of approximately
2,300 boe/d for April 2009, close to triple the production rate when Breaker
acquired the property less than one year ago. Due to the high pressure and
flow rates of Breaker's two new horizontal wells, a portion of Breaker's
pre-existing Fireweed production of approximately 750 boe/d will continue to
be curtailed pending completion of the pipeline gathering system looping
project planned for the second half of 2009. This project will further enhance
the production capability from all wells and accommodate growing volumes in
the area.
    In addition to the value of the natural gas liquids produced at Fireweed,
the high heat content of the gas enables Breaker's Fireweed gas production to
obtain a significantly higher sales price per mcf than typical dry gas.
    This ongoing success confirms the potential of the Fireweed high rate,
liquids rich resource play. Currently, Breaker has identified 14 additional
drilling locations in the Doig at Fireweed bringing the Company's total
horizontal resource play inventory to approximately 190 potential new
locations.

    Irricana, Alberta

    Breaker continues to increase its significant light oil production at
Irricana with its horizontal multi-frac drilling development. Breaker drilled
two 100 percent working interest light oil wells during the first quarter of
2009. These wells came on stream at 425 and 325 boe/d respectively. Twelve
light oil locations remain in inventory at 400 metre inter-well spacing, with
approximately 57 additional locations possible at 200 metre inter-well
spacing.

    Provost, Alberta

    At Provost, Breaker's first horizontal multi-frac well into the extensive
Viking sand continues to outperform initial expectations. In four months, the
well has produced over 85 mmcf of natural gas and continues to produce over
600 mcf/d. In comparison, the best offset vertical well took over 3.5 years to
produce 85 mmcf of natural gas. The improved performance of its first
horizontal multi-frac well confirms Breaker's hypothesis that similar
horizontal wells will be the key to capturing the large gas-in-place at
superior economics to vertical wells. Breaker has identified up to 80 follow
up horizontal locations to this well.

    Millard, Alberta

    In the fourth quarter of 2008, Breaker drilled a well into its large
oil-in-place resource and the well continues to perform in line with the best
historical wells in the pool. Currently, the well is producing at over 70
bbls/d. Breaker has identified 32 similar drill locations in the pool.

    Medicine Hat, Alberta

    Breaker drilled one well in the previously defined extensive gas charged
sand at Medicine Hat in early April 2009 to capture an initial crown royalty
rate of five percent, in addition to the drilling depth royalty credit. Three
further wells will be drilled late in the second quarter of 2009 and testing
of all four wells will occur early in the third quarter of the year.

    East Prairie, Alberta

    Breaker commissioned the water injection scheme early in the first
quarter of 2009. Independent reserve evaluators estimate that oil recoveries
should more than double under waterflood to greater than 25 percent from this
large pool of light sweet oil.
    Breaker took advantage of the Alberta government's new royalty incentive
programs in its greater East Prairie area. Breaker completed the installation
of a booster compressor and a 9.6 kilometre pipeline during the first quarter
of 2009, however delayed the start-up until April 2 of this year to ensure an
initial crown royalty rate of five percent on 100 percent working interest
production of approximately 170 boe/d.

    Outlook

    Breaker has shifted its focus to its various oil projects in light of the
recent commodity price environment and to capitalize on recent drilling
incentives introduced by the Alberta government. The Company has the
flexibility to switch capital within its inventory of more than 400 low risk
light oil and natural gas drilling locations.
    Breaker's balanced oil and natural gas asset base provides significant
opportunity for the Company to shift its capital focus towards oil projects
until such time as the natural gas outlook improves. Breaker's oil projects
provide a superior rate of return under the new provincial incentive programs,
even with current commodity prices. Breaker will continue the successful
development of light oil at Irricana, Girouxville and East Prairie and
medium/heavy oil at Millard and Provost. Many of these locations provide very
high internal rates of return and are well placed to take advantage of the
recent Alberta royalty incentives. The Company's current production mix
includes significant light oil weighting which allows for higher than average
netbacks and significant cash flow at current commodity prices.
    Breaker's high quality drilling inventory provides operational
flexibility and puts the Company in a great position to respond to the
changing economic, governmental and commodity price environment and to
increase capital spending should conditions improve during the year.

    Financial Statements and Management's Discussion and Analysis

    Breaker has filed with Canadian securities regulatory authorities its
unaudited financial statements for the quarter ended March 31, 2009 and the
accompanying Management's Discussion and Analysis. These filings are available
for review at www.sedar.com.

    Breaker Energy Ltd. is a junior oil and gas company focused on creating
shareholder value by growing per share production and reserves through
acquisitions and a focused exploration, development and exploitation plan.
    Breaker had 46.0 million Class A shares and 4.0 million options
outstanding at May 6, 2009.
    Breaker Energy trades on the TSX under the symbol WAV.

    Forward-looking Statements

    This press release contains forward-looking statements. More
particularly, this press release contains statements concerning anticipated:
(i) capital expenditures for 2009, (ii) exploration and development
activities, (iii) average oil & natural gas production during 2009, and (iv)
effects on Breaker of the Alberta royalty regime.
    The forward-looking statements are based on certain key expectations and
assumptions made by Breaker, including expectations and assumptions concerning
the performance of existing wells and success obtained in drilling new wells,
anticipated expenses, cash flow and capital expenditures and the application
of regulatory and royalty regimes.
    Although Breaker believes that the expectations and assumptions on which
the forward-looking statements are based are reasonable, undue reliance should
not be placed on the forward-looking statements because Breaker can give no
assurance that they will prove to be correct. Since forward-looking statements
address future events and conditions, by their very nature they involve
inherent risks and uncertainties. Actual results could differ materially from
those currently anticipated due to a number of factors and risks. These
include, but are not limited to, risks associated with the oil and gas
industry in general (e.g., operational risks in development, exploration and
production; delays or changes in plans with respect to exploration or
development projects or capital expenditures; the uncertainty of reserve
estimates; the uncertainty of estimates and projections relating to
production, costs and expenses, and health, safety and environmental risks),
commodity price and exchange rate fluctuations and uncertainties resulting
from potential delays or changes in plans with respect to exploration or
development projects or capital expenditures. Certain of these risks are set
out in more detail in Breaker's Annual Information Form which has been filed
on SEDAR and can be accessed at www.sedar.com.
    The forward-looking statements contained in this press release are made
as of the date hereof and Breaker undertakes no obligation to update publicly
or revise any forward-looking statements or information, whether as a result
of new information, future events or otherwise, unless so required by
applicable securities laws.

    Note: Boe means barrel of oil equivalent on the basis of 1 boe to 6,000
cubic feet of natural gas. Boe may be misleading, particularly if used in
isolation. A boe conversion ratio of 1 boe for 6,000 cubic feet of natural gas
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/d means barrel of oil equivalent per day.

    In this press release: (i) mcf means thousand cubic feet; (ii) mcf/d
means thousand cubic feet per day (iii) mmcf means million cubic feet; (iv)
mmcf/d means million cubic feet per day; (v) bbls means barrels; (vi) bbls/d
means barrels per day; (vii) bcf means billion cubic feet; (viii) mboe means
thousand barrels of oil equivalent; and (ix) MPa means million pascals.

    
    The TSX does not accept responsibility for the adequacy or accuracy of
    this release.
    

    %SEDAR: 00021180E




For further information:

For further information: Dan O'Neil, President & Chief Executive
Officer, (403) 215-5264; or Max Lof, Vice President, Finance & Chief Financial
Officer, (403) 215-5264, info@breakerenergy.com, www.breakerenergy.com

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BREAKER ENERGY LTD.

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