Diaz announces second quarter 2010 results

CALGARY, Aug. 16 /CNW/ - Diaz Resources Ltd. (TSX: DZR) announces that it has filed its Interim Report for the six months ended June 30, 2010.

Highlights of the second quarter were the placing on production of three horizontal Lloydminster oil wells which were drilled during the 1st quarter. Production from each of these wells, which commenced on May 21, have averaged approximately 60 barrels per day to date, with low water cuts.

These wells, which have added approximately 90 bopd net to Diaz, will have a favourable impact upon Diaz's 3rd quarter results, improving production volumes, cash flow, and average price per barrel.

Diaz completed an equity financing in Q1 raising $1.3 million. This financing, coupled with cash flow, has enabled the Company to maintain its level of bank debt, which now stands at a manageable level.

Strategic Plan

    
    The strategic plan which Diaz has implemented during 2010 focuses on:

        -  Development drilling of its Lloydminster heavy oil pool,

        -  Building an inventory of acreage, prospective for heavy oil
           accumulations in Alberta and Saskatchewan, and

        -  Continuing to reduce the Company's balance sheet leverage.
    

Exploration and Development

With the decline of natural gas prices in Canada Diaz changed its exploration focus in early 2009 exclusively to oil prospects.

To date, Diaz has acquired oil and gas leases on five prospects in Alberta (3,280 gross acres, 2,208 net acres) and seven prospects in Saskatchewan (13,399 gross acres, 8,585 net acres) for a total inventory of ten heavy oil projects and two medium/light oil projects. The primary pay zones are Lloydminster and Dina in Alberta and the Shaunavon and Birdbear zones in Saskatchewan.

Subsequent to the quarter, Diaz drilled a vertical Shaunavon oil well, 91/13-19-7-18W3, located in the Chambery field, Saskatchewan. Based on Diaz's analysis, the open hole logs indicate potential oil pay. Diaz has a 45% interest in the section along with an 80% interest in six additional sections of land in the area.

Financial

Revenue for the second quarter ended June 30, 2010 decreased to $1.7 million compared with $1.8 million for Q2 2009. Cash flow from operations for the second quarter of 2010 decreased to $336,000 or nil per share compared with $822,000 or $0.01 per share for Q2 2009. Diaz reported a loss for the second quarter of $1.1 million or ($0.01) per share versus a loss of $619,000 or ($0.01) per share in Q2 2009.

For the sixth month period, revenue decreased to $3.3 million compared with $4.2 million for the prior year period. Cash flow from operations for the sixth month period decreased to $720,000 or just under $0.01 per share compared with $1.4 million or $0.02 per share for the prior year period. Diaz reported a loss for the six month period of $2.6 million or ($0.03) per share versus a loss of $10.4 million or ($0.15) per share in the prior year period. The Company took an impairment write down during the prior year period of $11.4 million.

Net capital expenditures for the second quarter of 2010 totalled $770,000 compared with $1.7 million in the prior quarter. Capital expenditures during the quarter were financed with cash flow from operations, an increase in net debt and the proceeds of the Q1 2010 equity financing.

Production

The Company's total production for Q2 2010 decreased 22% to 525 BOEd compared with the prior year Q2 2009 average of 675 BOEd. However, production for the last three quarters has been held flat. With the addition of new production from three Lloydminster heavy oil field wells in June 2010 and new wells coming on stream later in the year, we anticipate oil production rates should increase in the last half of the year.

Business Outlook

Diaz expects oil prices to hold above $75 per barrel (WTI) during 2010 as industrial activity in North America slowly recovers.

Due to current high natural gas storage levels and significant volumes of gas being developed on North American shale gas projects there is still considerable uncertainty as to when natural gas prices will improve. To mitigate the uncertainty in natural gas prices, Diaz has put in place fixed gas price contracts for approximately half of the Company's anticipated 2010 gas production, at prices in excess of $5.75 per Mcf.

The Company will continue to focus on its Lloydminster heavy oil development program and if successful, Diaz should exit 2010 with almost half of its production derived from oil.

Corporate Summary

    
    -------------------------------------------------------------------------
    (Thousands, except shares and                       Six Months Ended
     per share amounts)                                       June 30
                                                       2010          2009
    -------------------------------------------------------------------------
    Financial
      Revenue (net of royalty expense)             $     3,304   $     4,180
      Cash flow from operations*                         718         1,436
        per share, diluted                                0.01          0.02
      Loss for the period                               (2,598)      (10,373)
        per share, diluted                               (0.03)        (0.15)

        Capital additions                                2,650           949
        Dispositions                                       187           113
       ----------------------------------------------------------------------
      Net capital additions                              2,463         1,753

      Net current debt                                   6,357         7,695
      Convertible debentures**                       6,527         6,233

      Total assets                                      37,004        39,826
      Total shares outstanding at period end            85,991        67,178

    Operations
      Production
        Gas (MMcfd)                                        2.6           3.8
        Oil (Bopd)                                         103           104
        BOEd (6 Mcf equals 1 Bbl)                          528           733
      Product Prices
        Gas ($/Mcf)                                      $4.90         $5.09
        Oil ($/Bbl)                                     $66.14        $49.05
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    * Non-GAAP measure. Please see the reconciliation of "cash flow from
    operations" to "cash flow from operating activities" after the
    shareholders message.

    ** Convertible debentures have a face value of $7.1 million and
    mature on March 26, 2012. See Note 7, "Convertible Debentures", in the
    notes to the financial statements for the six months ended June 30, 2010.
    

Diaz is an oil and gas exploration and production company based in Calgary, Alberta. Diaz's current focus is on oil development and exploration in Alberta and Saskatchewan.

ADVISORY: This press release contains forward looking statements. Although Diaz believes that the expectations reflected in these forward looking statements are reasonable, undue reliance should not be placed on them because Diaz 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.

Where amounts are expressed on a barrel of oil equivalent (boe) basis, natural gas volumes have been converted to barrels of oil at six thousand cubic feet (mcf) per barrel (bbl). Boe figures may be misleading, particularly if used in isolation. A boe conversion of six thousand cubic feet per barrel is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. References to oil in this discussion include crude oil and natural gas liquids (NGLs).

The forward looking statements contained in this press release are made as of the date hereof and Diaz undertakes no obligations 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.

NEITHER THE TORONTO STOCK EXCHANGE NOR ITS REGULATION SERVICES PROVIDER (AS THAT TERM IS DEFINED IN THE POLICIES OF THE TORONTO STOCK EXCHANGE) ACCEPTS RESPONSIBILITY FOR THE ADEQUACY OR ACCURACY OF THIS RELEASE.

SOURCE DIAZ RESOURCES LTD.

For further information: For further information: Robert W. Lamond, Chairman - or - Donald K. Clark, Chief Operating Officer, DIAZ RESOURCES LTD., Telephone: (403) 269-9889, Fax: (403) 269-9890, Website: www.diazresources.com, Email: info@diazresources.com, TSX: DZR

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DIAZ RESOURCES LTD.

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