Exall Energy Corporation announces results for the three months ended March 31, 2011

CALGARY, May 16 /CNW Telbec/ - Exall Energy Corporation ("Exall " or the "Company") (TSX:EE) is pleased to announce its International Financial Reporting Standards ("IFRS") compliant financial and operating results for the three months ended March 31, 2011.  Exall's public filings can all be found at www.exall.com or www.sedar.com.

Highlights:

  • A first quarter 2011 production average of 1,045 boe per day a 28 percent increase over the same quarter in 2010 (first quarter 2011 productive capability of 1,875 boepd),

  • Participated in the drilling of 4.0 gross (2.8 net wells) during the first quarter of 2011,

  • Successfully completed, and placed on production, at a combined (restricted) rate of 430 BOEPD (310 BOEPD net) two wells drilled during the first quarter of 2011, with two more pending completion operations,

  • Completed two 3D seismic programs in the Mitsue area in the first quarter of 2011,
    • Preliminary interpretation has indicated up to 14 potential drilling locations based on the 3D seism

  • Enhanced recovery application has been submitted to the ERCB for the southerly B Sand trend,

  • Treater and Vapour Recovery units have been installed and are operational,

  • Acquired 4,480 gross (2,957 net) acres of undeveloped land in the Mitsue area,

  • First quarter 2011 seismic and drilling operations have identified 35-40 drilling locations in the greater Mitsue area, fourteen of these wells, targeting light oil, are planned to be drilled through the balance of 2011 with six more to be drilled in 2012.
 
HIGHLIGHTS   Three months ended
March 31
        2011     2010   %
change
Financial ($)                  
Gross revenue       7,382,916     5,360,899   38
Funds from operations       4,181,132     1,893,506   121
Netback per boe (6:1) ($)       48.96     33.58   46
Funds from operation per share - basic       0.07     0.04   75
Net income       1,768,716     534,172   231
Net income per share - basic       0.03     0.01   200
Capital expenditures, net       12,025,086     5,335,042   125
Net debt       9,806,366     8,442,423   16

Production

Exall's average daily production for the first quarter of 2011 increased 28 percent to 1,045 barrels of oil per day ("boe/d") from 814 boe/d in the first quarter of 2010. As at March 31, 2011 Exall's net exit production rate and productive capacity were as outlined below:

     
Field
 
      March 31, 2011
Production
boe/d
      March 31, 2011
Capability*
boe/d
                 
Marten Mountain, Alberta       921       1,750
Jayar, Alberta       90       90
Overlea, Alberta       20       20
Harris Texas       13       13
Bow Island, Alberta       1       2
                 
Corporate Total       1,045       1,875

* Productive capability assumes B trend waterflood approval at Marten Mountain, Mitsue, Alberta.

The difference between the March 31, 2011 production rate of 1,045 boe/d and the productive capacity of 1,875 boe/d was due to a number of factors. First, Exall had shut in two wells due to the fact that they had overproduced their allowable volumes during the New Oil Well Production Period ("NOWPP") as prescribed by the Alberta Energy Resource Conservation Board ("ERCB"). This over production will be retired by July 1, 2011 and August 1, 2011. Should Exall receive approval of its B trend waterflood and Good Production Practice ("GPP") application, the over production would be retired earlier than the estimate, adding 600 boe/d net. Additionally, ongoing production optimization activities related to wax plugging and gas handling will add 230 boe/d net.

Exall's production strategy is to produce all new wells at a rate approximating their productive capacity during the NOWPP, which will usually result in the well over producing its allowable as prescribed by the ERCB. As such, each new well will see an initial period of high productivity, significantly enhancing Exall's production, followed by a period where the well is shut in. During the shut in time frame, Exall will, should the facts warrant, apply for additional waterflood approvals which will require water injection wells. Exall may convert existing producing wells into water injection wells if the result were to be; an overall increase to, and or a long term stabilization of production.

Exall estimates that as the number of producing wells continues to increase in the Marten Mountain region of Mitsue, Alberta, the significant production fluctuations now seen by the bringing on and shutting in of new wells will begin to diminish.

Outlook 

Exall has continued to focus its capital in development of the Marten Mountain Prospect area through the first quarter of 2011.  Four wells have been drilled through Q1 adding two producing wells which have now been tied in and are on stream through the Company-owned pipeline and battery facilities.  Completion operations on the remaining two wells as well as one well drilled in Q4 2010 will resume after breakup.

The wells drilled during the first quarter of 2011 have continued to add production with multi-zone sand development and a number of offset drilling opportunities. The ability to continue development of this key property year round has allowed Exall to increase production potential and accelerate development plans in the Marten Mountain area.

The successful completion of two 3D seismic programs in the Mitsue area with the identification of two Gilwood sand trends on the Marten Mountain program has added two well locations, which are accessible through the summer. Exall is planning to spud the first of the two wells in July to verify the seismic lead. With success the second well will follow immediately. Up to fourteen locations have been identified on the seismic programs and with drilling verification will add substantially to the Company's activity and production through 2011 and beyond. The Company has an inventory of 35 to 40 wells identified on held lands. A number of locations are on lands acquired at recent sales, or farmin and acquisitions. Exall plans to drill fourteen wells through the balance of 2011. This is an increase of seven wells from the previous budget for a total of 18 for the year.

Exall has completed battery expansion and continues to modify fluid and gas handling capacity to accommodate increasing production rates. The Company's wells are currently constrained by limits to water injection and to some extent the gas handling capabilities.  An application to provide additional water injection for the Company's waterflood scheme has been submitted with the ERCB to begin injecting water for the south enhanced recovery scheme. An electric drive compressor with adequate capacity to handle future expected increases in gas deliveries will be installed at the battery in the fourth quarter.

Current net production for Exall is approximately 1,450 BOEPD as the result of resumed gas delivery to the Enerchem refinery post plant turnaround. Two wells are currently shut in and will add 200 BOEPD by the end of July. Exall currently has well capacity to produce 1,850 BOEPD upon approval of the waterflood project, which is currently in the hands of the ERCB. The target exit rate remains 3,000 BOEPD.

Exall is a light oil-weighted company with high operating margins. Starting from a modest production base of light oil and gas, the Company has shown itself capable of setting and achieving ambitious production and cash flow targets. This puts the Company in a favorable position to exploit existing opportunities and potentially take advantage of opportunities that arise. Exall will continue to focus on organic growth through exploitation and expansion of its existing oil producing properties.

 
RESULTS OF OPERATIONS

Production

 
Three months ended
March 31
Daily production       2011         2010       % Change
                   
Oil (bbl/d)       898         693       30
NGLs (bbl/d)       26         13       100
Natural gas (mcf/d)       732         648       13
Total production (boe/d) (6:1)       1,045         814       28

Production for the first quarter of 2011 averaged 1,045 boe per day, a 28 percent increase over the same quarter in 2010.  This increase was primarily the result of the successful drilling results during 2010. The first quarter of 2010 average daily production of 1,045 boepd was approximately 800 boepd less than Exall's productive capability, a result of having to shut in the 02-36 well to retire over production and having to shut in the 07-25 well to retire over production as well.

For the three month period ended March 31, 2011 oil and natural gas liquids accounted for 88 percent of production which is expected to continue to increase as the oil production currently shut-in is brought back on-stream and from additional successful drills in the Marten Mountain area of Alberta are placed on production.


Commodity Pricing

 
    Three months ended
March 31
Average sales prices realized       2011                 2010           %
Change
                                       
Oil ($/bbls)       86.37                 79.57           8
NGLs ($/bbls)       59.88                 67.86           (12)
Natural gas ($/mcf)       4.11                 5.51           (25)
Weighted average ($/boe) (6:1)       78.49                 73.21           7

The average price received per boe in the first quarter of 2011 increased 7 percent over the same period in 2010 to $78.49. The price for light, sweet oil at Edmonton in 2011 has averaged $88.16 per barrel in the first quarter, up from an average of $80.31 in the first quarter of 2010.  Alberta natural gas at AECO averaged $3.76 per mcf in the first quarter of 2011, and is currently trading at approximately $3.79 per mcf. The Company's Marten Mountain oil production attracts a price approximating the Edmonton light, sweet oil price due to its high quality.  The Company has not entered into any commodity hedges to date.


Oil and Gas Production Revenue

 
    Three months ended
March 31
      2011             2010
          $     %         $     %
                                 
Oil         6,974,363     94         4,960,817     93
NGLs         138,030     2         78,516     1
Natural gas         270,523     4         321,566     6
Total         7,382,916     100         5,360,899     100

Oil and gas revenue in the first quarter of 2011 increased 38 percent to $7,382,916 from $5,360,899 in the same period in 2010 as a result of the 28 percent increase in production and the 7 percent increase in commodity prices received.


Royalties

 
    Three months ended
March 31
        2011         2010 %
Change
                       
Royalties $       2,055,156         2,384,725   (14)
Average royalty rate (%)       28         44   (36)
Royalties ($/boe)       21.85         32.57   (33)

The year over year 33 percent decrease in the royalty rate for the first quarter of 2011 was primarily the result of Alberta Drilling Credits, plus a significant portion of the production during the quarter was primarily from wells which were producing under the New Oil Well Production period and as such were paying a 5% royalty rate.

Effective January 01, 2011 the new royalty rates in Alberta, applicable to oil production, were revised to a maximum of 40% from the 50% paid during fiscal 2010.


Oil and Gas Production Expenses

 
    Three months ended
March 31
$       2011         2010         %
Change
                             
Operating expenses       722,618       516,791         40
Operating expenses ($/boe)       7.68         7.06         9

Operating expenses for the first quarter of 2011 increased 40 percent from those incurred during the first quarter of 2010. This was primarily the result of two factors: first, there was a 28 percent increase in production. Second, the new wells brought on during the quarter and the well brought on in the fourth quarter of 2010 were not tied in to the Exall pipeline and as such the oil being produced was trucked during the quarter. These costs will be reduced once the tie in work has been completed. On a per boe basis, operating costs increased 9 percent, to $7.68 per boe from $7.06.


Operating Netback

 
    Three months ended
March 31
                            % Change
Netback per boe (6:1) $       2011           2010        
                             
Production revenue       78.49           73.21       7
Royalties       21.85           32.57       (33)
Operating expenses       7.68           7.06       9
Operating netbacks ($/boe)       48.96           33.58       46

Operating netbacks in the first quarter of 2011 increased 46 percent to $48.96 per boe compared to the first quarter 2010 operating netbacks of $33.58 per boe.  This is primarily the result of three factors. First, overall commodity prices improved 7 percent on a first quarter over first quarter basis. Second, decreased royalty rates as a result of the new royalty rates in Alberta, applicable to oil production, which were revised to a maximum of 40% from the 50% paid during fiscal 2010. Third,  from the fact that a significant part of first quarter production was coming from wells which were producing under the New Oil Well Production period and as such were paying a 5% royalty rate.


Depletion, Depreciation and Amortization ("DD&A")

 
    Three months ended
March 31
$       2011       2010       %
Change
                         
Depletion & Depreciation       1,535,434       1,062,041       45
Amortization       3,238       2,537       28
Total       1,538,672       1,064,578       45
DD&A ($/boe)       16.36       14.54       13

Depletion and depreciation are calculated using the unit-of-production method based on total estimated proved plus probable reserves.  DD&A for the first quarter of 2011 was $1,538,672 compared to $1,064,578 for the same period in 2010. First quarter 2011 DD&A expense per boe increased 13 percent primarily due to the significant capital spent during the balance of 2010 and the first quarter of 2011.


Administration Expenses

 
    Three months ended
March 31
$       2011           2010         %
Change
                               
Administration, gross       613,388           539,096         19
Overhead recoveries       (261,517)           (84,373)         210
Administration, net       351,871           454,723         (16)
Administration ($/boe)       3.74           6.21         (40)

General and administration costs represent the costs required to effectively operate a public company. The increase in costs from 2010 reflect the increased cost of staffing commitments made in conjunction with the increased production and capital expenditures in 2010 and 2011 as Exall continues to achieve positive results with regard to its drilling program in the Marten Mountain, Mitsue area. General and administration expenses per boe in 2011 have declined from 2010 due to increased production on a year over year basis, as a result of continued successful drilling operations at Marten Mountain, Alberta.  Management is continually monitoring general and administrative expenses to ensure that they are being managed effectively and efficiently.


Share Based Payment Expense

 
    Three months ended
March 31
$       2011             2010         %
Change
                                 
Stock-based compensation       96,590             60,495         60
SBC ($/boe)       1.03             0.83         24

The share based payments expense represents the expense for options granted and are recorded over the vesting period of the options. Additional unamortized stock-based compensation costs will be charged to income over the remaining vesting period of the options outstanding as well as any additional options that may be granted in the future.  See note 9 of the March 31, 2011 interim financial statements for additional details on the options granted and outstanding.

Exall recorded $96,590 or $1.03 per boe of non-cash, stock based compensation expense for the three months ended March 31, 2011. In comparison, Exall recorded $60,495 or $0.83 of non-cash, stock based compensation expense for the three months ended March 31, 2010.


Financing Costs

 
    Three months ended
March 31
$       2011           2010         %
Change
                             
Accretion expense       9,390           7,262         29
Interest       74,463           109,436         (32)
        83,853           116,698         (26)
Interest ($/boe)       0.89           1.59         (44)

Financing costs represent the costs required to effectively finance the capital program of Exall. Exall recorded $74,463 or $0.79 per boe of interest expense for the three months ended March 31, 2011. In comparison, Exall recorded $109,436 or $1.49 per boe of interest expense for the three months ended March 31, 2010. The decrease in interest expenses from 2010 are directly attributable to financing completed by the Corporation on February 1, 2011.

Additionally, Exall recorded $9,390 or $0.10 per boe of accretion expense for the three months ended March 31, 2011. In comparison, Exall recorded $7,262 or $0.10 per boe of accretion expense for the three months ended March 31, 2010. The increase in accretion expenses from 2010 are directly attributable to the increase in abandonment liabilities incurred by the Corporation in association with its development and production activities.


Net Earnings and Funds from Operations

 
    Three months ended
March 31
$       2011                               2010
                                         
Net earnings       1,768,716                               534,172
Basic per share       0.03                               0.01
Diluted per share       0.03                               0.01
                                         
Funds from operations       4,178,808                               1,893,509
Basic per share       0.07                               0.04
Diluted per share       0.07                               0.04


Liquidity and Capital Resources

Exall has a revolving demand credit facility with a Canadian chartered bank for $17.0 million that bears interest at the lender's base prime rate plus 1.50 percent which is reviewed periodically by the bank. At March 31, 2011, the Company had approximately $5.9 million outstanding on its revolving credit facility and an approximate working capital deficit, excluding bank indebtedness, of $3.9 million for total net debt of approximately $9.8 million.

During the three month period ended March 31, 2011, the Company used funds received through its February 2011 brokered private placement, and cash flow from operations to fund capital expenditures and other financial requirements.  In 2011, the Company's capital expenditures will be limited by the cash flow available from operations, additional debt or equity as market conditions may allow and potential asset sales if the Company so chooses.

On February 01, 2011, Exall announced that it had closed a bought deal special warrant private placement, whereby Exall issued an aggregate of 5,750,000 special warrants at a price of CDN$2.00 per Special Warrant for aggregate gross proceeds of $11,500,000. The aggregate number of Special Warrants included 750,000 Special Warrants issued pursuant to the exercise in full of the option granted to the Underwriters' under the Offering. Each Special Warrant entitled the holder thereof to receive one common share of the Company on the exercise or deemed exercise of the Special Warrants.  Effective February 2, 2011, the Special Warrants were deemed to have been exercised and the Company issued an aggregate of 5,750,000 Common Shares to the Special Warrant holders.

As part of its capital management program, Exall compares its net corporate debt (the total amount of bank loan, net of working capital) to the annual, or annualized, funds from operations before changes in working capital (See Advisories - Non-GAAP Measurement - Funds Flow). Maintaining a ratio of less than 2:1 is a Company target but can be subject to significant short-term fluctuations.

 
          Funds From           Net     Debt to
Debt to Funds From Operations Ratio(1)         Operations           Corporate     Funds From
          in Quarter     Annualized     Debt     Operations
                             
2010 Q1 - March 31, 2010         1,893,506     7,574,024     8,442,423     1.1
2010 Q2 - June 30, 2010         2,510,291     10,041,164     8,796,664     0.9
2010 Q3 - September 30, 2010         3,836,864     15,347,456     10,491,867     0.7
2010 Q4 - December 31, 2010         3,023,121     12,092,484     14,174,155     1.2
2011 Q1 - March 31, 2011         4,178,808     16,715,232     9,806,366     0.6

(1) See Advisories Non-GAAP Measurements - Funds From Operations


Going Concern Assessment

The consolidated financial statements have been prepared on a going concern basis which contemplates the realization of assets and the discharge of liabilities in the normal course of business for the foreseeable future. As at March 31, 2011, the Company had a working capital deficit, excluding bank indebtedness, of $3.9 million.

On February 01, 2011, Exall announced that it had closed a bought deal special warrant private placement, whereby Exall issued an aggregate of 5,750,000 special warrants at a price of CDN$2.00 per Special Warrant for aggregate gross proceeds of $11,500,000. The aggregate number of Special Warrants included 750,000 Special Warrants issued pursuant to the exercise in full of the option granted to the Underwriters' under the Offering. Each Special Warrant entitled the holder thereof to receive one common share of the Company on the exercise or deemed exercise of the Special Warrants.  Effective February 2, 2011, the Special Warrants were deemed to have been exercised and the Company issued an aggregate of 5,750,000 Common Shares to the Special Warrant holders.


Fair Value of Financial Instruments

The Company's financial instruments as at March 31, 2011 include cash, accounts receivable, accounts payable and accrued liabilities and the bank indebtedness.  The fair value of accounts receivable, accounts payable and accrued liabilities approximate their carrying amounts due to their short terms to maturity.  The Company's bank debt bears interest at a floating market rate and accordingly the fair market value approximates the carrying value.  The Company's merchant bank debt bears interest at a fixed rate and due to its short term to maturity accordingly approximates the carrying value.  Additional information concerning the Company's financial instruments and related risks are in note 15 to the consolidated financial statements.


Capital Expenditures

Three months ended
March 31
$       2011       2010       %
Change
                         
Land       370,470       348,854       6
Geological & Geophysical       1,730,910       65,792       2,531
Drilling and completions       8,379,099       4,573,182       83
Equipping, Tie-ins & Facilities       1,544,607       344,797       348
Administrative assets       -       2,417       (100)
Exploration & development expenditures       12,025,086       5,335,042       125
Asset retirement obligation       77,723       61,106       27
Total Capital Expenditures       12,102,809       5,396,148       124

Oil and gas property expenditures were $12,025,086 for the first quarter of 2011.  During the first quarter of 2011 the Company participated in the drilling of 4.0 gross wells (2.8 net) in the Marten Mountain / Mitsue area.

Oil and gas exploration and development expenditures were $5,335,042 for the first quarter of 2010.  During the first quarter of 2010 the Company participated in drilling of 2.0 gross wells (1.4 net), in the Marten Mountain / Mitsue area.

The Company has acquired 4,480 gross (2,957 net) acres of undeveloped land in the Mitsue area, during the three months ended March 31, 2011. As at March 31, 2011, the Company had 17,160 acres (11,164 acres net) of undeveloped land in Canada.


Drilling Activities

                           

Three months ended March 31, 2011
     
Drilled
   
Completed
   
Tied In
   
Dry
                           
Gross       4.0     2.0     0.0     0.0
Net       2.8     1.4     0.0     0.0


About Exall

Exall is a junior oil and gas company active in its business of oil and gas exploration, development and production from its properties in Alberta, British Columbia and Texas. Exall Energy is currently developing the new Mitsue area "Marten Mountain" discovery in north-central Alberta.

Exall Energy currently has 52,782,745 common shares outstanding. The Company's common shares are listed on the Toronto Stock Exchange under the trading symbol EE.


Reader Advisory

This news release contains forward-looking statements, which are subject to certain risks, uncertainties and assumptions, including those relating to results of operations and financial condition, capital spending, financing sources, commodity prices and costs of production. By their nature, forward-looking statements are subject to numerous risks and uncertainties that could significantly affect anticipated results in the future and, accordingly, actual results may differ materially from those predicted. A number of factors could cause actual results to differ materially from the results discussed in such statements, and there is no assurance that actual results will be consistent with them. Such factors include fluctuating commodity prices, capital spending and costs of production, and other factors described in the Company's most recent Annual Information Form under the heading "Risk Factors" which has been filed electronically by means of the System for Electronic Document Analysis and Retrieval ("SEDAR") located at www.sedar.com. Such forward-looking statements are made as at the date of this news release, and the Company assumes no obligation to update or revise them, either publicly or otherwise, to reflect new events, information or circumstances, except as may be required under applicable securities law.

For the purposes of calculating unit costs, natural gas has been converted to a barrel of oil equivalent (boe) using 6,000 cubic feet equal to one barrel (6:1), unless otherwise stated. The boe conversion ratio of 6 mcf: 1 bbl is based on an energy equivalency conversion method and does not represent a value equivalency; therefore boe may be misleading if used in isolation. This conversion conforms to the Canadian Securities Regulators' National Instrument 51-101 - Standards of Disclosure for Oil and Gas Activities.

 

 

 

SOURCE Exall Energy Corporation

For further information:

Exall Energy Corporation 

Frank S. Rebeyka
Vice Chairman
Tel: 403-815-6637 
 
        Roger N. Dueck
President & CEO
Tel: 403-237-7820 x 223
info@exall.com

Please visit Exall Energy's website at: www.exall.com

Renmark Financial Communications Inc.
Maurice Dagenais: mdagenais@renmarkfinancial.com
Florence Liberski : fliberski@renmarkfinancial.com
Tel.: (514) 939-3989 or (416) 644-2020
www.renmarkfinancial.com

 

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