CALGARY, April 28 /CNW/ - Cirrus Energy Corporation (TSXV: CYR) ("Cirrus") is pleased to announce its results for the second quarter ended February 28, 2010.
Net production volumes of approximately 2,000 boe/d were reported in the second fiscal quarter of 2010. Funds from operations of $3.7 million were recorded during the same quarter.
Financial and Operating Highlights
Three months ended Six months ended
February 28, February 28,
($000s unless noted) 2010 2009 2010 2009
Production revenue 8,475 394 16,256 1,259
Funds from operations(1) 3,722 (415) 7,313 (602)
Per share (basic) 0.04 (0.01) 0.09 (0.01)
Per share (diluted) 0.04 (0.01) 0.09 (0.01)
Net loss (6,717) (921) (8,972) (1,758)
Per share basic and diluted (0.08) (0.01) (0.11) (0.02)
Working capital (excluding
restricted cash and borrowing
base facility) 60,174 51,691 60,174 51,691
Restricted cash 8,339 - 8,339 -
Borrowing base facility (net
of deferred financing charges) 20,221 - 20,221 -
Total assets 193,478 147,827 193,478 147,827
Shareholders' equity 125,940 94,596 125,940 94,596
Capital expenditures 12,396 11,934 27,542 35,220
Average common shares
outstanding (thousands) 87,873 70,972 87,873 70,972
(1) Funds from operations is a non-GAAP measure that represents net
earnings adjusted for non-cash items and is equal to positive
operating cash flow of $3.014 million ($0.258 million for six months)
adjusted for a net decrease in non-cash operating working capital
items of $0.708 million ($7.055 million for six months). The Company
evaluates its performance based on net earnings and funds from
operations. The Company considers funds from operations a key measure
as it demonstrates the Company's ability to generate cash flow
necessary to fund future growth though capital investment and to
Three months ended Six months ended
February 28, February 28,
2010 2009 change 2010 2009 change
(mcf/d)(1) 11,443 - - 10,638 - -
Crude oil (bbls/d) 94 97 (3) 100 106 (6)
Total oil equivalent
(boe/d) 2,001 97 1,963 1,873 106 1,667
Natural gas ($/mcf) 7.63 - - 7.76 - -
Oil ($/bbl) 72.80 44.97 62 71.94 65.54 10
Operating costs ($/boe) 11.17 26.22 (57) 11.16 30.28 (63)
administrative ($/boe) 7.01 67.26 (90) 6.70 69.65 (90)
(1) Based on total production from natural gas properties in The
Netherlands averaged over the entire three and six months,
irrespective of production start date.
Summary of Key Events
Production performance from M07-A01 continues as expected with average gross sales for the second fiscal quarter of 2010 of 19.1 MMscf/d (8.2 MMscf/d net). Production is currently contractually limited at the L09-FF processing platform and discussions are underway with the operators of the processing platform and the export trunk pipeline to increase available capacity for M07 gas. The well is currently producing at approximately 22.5 to 23.5 MMscf/d (gross).
Sidetrack activities on the A07 well in the L08-D Field commenced on December 30, 2009 and a new hole was drilled from 1,270 meters measured depth ("mMD") to 2,066 mMD. Unfortunately, after several attempts, casing was unable to be run in the new hole and drilling operations on the A07 well were suspended in January, 2010. The Noble Lynda Bossler rig was then released on January 23, 2010 at which time it was off contract. Total gross costs expended on the A07 well were approximately (euro)35.0 million ((euro)8.9 million or approximately $13.3 million net to Cirrus).
Production at the L11b-A06 well commenced October 4, 2009 and gross sales for the second fiscal quarter of 2010 averaged 12.6 MMscf/d (3.2 MMscf/d net). While high initial decline rates on this well were expected, production performance has declined more rapidly than anticipated. Field testing work was undertaken during the quarter and was completed and interpreted subsequent to quarter end. Key findings included that all three perforated gas sands were contributing to production in the proportions expected and furthermore, there was no evidence of near wellbore damage. It is currently assumed that the higher than expected initial production declines from the well are due to partial compartmentalization of the reservoir. During the second fiscal quarter a Front End Engineering and Designs (FEED) study was completed to evaluate options to make compression available for the L08-D field. This study concluded the most cost effective and economic plan will be to overhaul and re-activate the compression facilities already installed on the L11b platform. Detailed engineering has started to allow for compression to be available by year-end calendar 2010. With compression, the flowing wellhead pressure can be lowered from the current 1,330 psig (pounds per square inch gauge) to 435 psig, with an option to further reduce the flowing wellhead pressure to 145 psig at a later stage. Based on current production modeling, the addition of this compression is expected to slow the decline and maintain current production levels longer. The well is currently producing at approximately 7.5 to 8.5 MMscf/d (gross).
Natural gas sales price
All gas currently produced by Cirrus is sold to GasTerra, B.V., ("GasTerra") the predominant gas buyer in The Netherlands. All GasTerra purchase contracts signed with domestic producers in the Netherlands over the past decade have been for the life of the reserves by field or block and utilize a mechanism for price determination by deriving a price based on a formula which includes pricing of competitive fuels (including oil, gas and electricity) in the industrial and residential markets utilizing both domestic and export pricing points. This formula produced a calculated gas price which historically was highly correlated to Brent oil prices with an approximate six month lag. The latest contract price formula commenced on January 1, 2009, however, in February 2010 GasTerra presented all currently contracted Dutch producers with a proposed revision to the existing off-take contract price formula which effectively increased the weighting of prompt (spot) gas pricing (observed at the Dutch TTF Gas Hub) in the formula. This proposal is expected to result in an approximate 15% decrease in 2010 realized gas prices relative to those that would have been received under the 2009 formula with an effective date of January 1, 2010. The Company has not yet signed this new contract. In the meantime, the prices being received for 2010 production are being calculated under the 2009 contract formula and consequently Cirrus has recorded a provision for the possible reduction in price (effective January 1, 2010) of $0.9 million. An average price of $7.63/mcf, after the provision, was reported for the second fiscal quarter of 2010 using GasTerra's proposed 2010 contract formula.
On January 5, 2010 the Company purchased the major gross over-riding royalty applicable to the M01-A field for a cash consideration of (euro)2.85 million (approximately $4.3 million). Following this transaction, the only remaining royalty applicable to the M01a licence is a flat 4% payable to a third party.
New rig commitment and drilling program
In September, 2008, Cirrus commenced an initial six well-slot rig commitment with Noble Neddrill International Ltd. ("Noble"). Five of the well-slot commitments had previously been discharged through a combination of Company drilling activity, a third party assignment and a Company requested cancellation. The final well-slot commitment was met and discharged on completion of the A07 well. Cirrus entered into an amendment of contract with Noble on December 14, 2009 whereby, after completion of the A07 well, Cirrus was granted an option to extend the drilling program for a period of 120 days, with an additional option for a further 120 days, at a daily operating rate of US$89,500 per day, provided that the initial extension would start between February 1, 2010 and April 1, 2010. Following receipt of partner approvals, Cirrus exercised its option to use the Noble Lynda Bossler jackup drilling rig for a minimum commitment of 120 days at a rate of US$89,500 per day for the drilling of two offshore wells. The Company's share of this commitment is approximately $5.1 million. The rig contract commences on April 1, 2010 with an option to extend the term for an additional 120 days at the same day rate.
Financial and operating highlights
The Company recorded its second consecutive quarter of positive funds from operations of $3.7 million ($3.6 million in the immediately preceding quarter). Production sales in The Netherlands of 8.2 MMscf/d and 3.2 MMscf/d were reported during the second quarter from M07-A01 and L11b-A06 respectively. An average price of $7.63/mcf was recorded during the second quarter. Operating netbacks of $5.20/mcf were recorded in the second fiscal quarter ($5.40/mcf in the immediately preceding quarter). Royalty rates and unit operating expenses have remained constant during the first two quarters of fiscal 2010 and were reported at 9% and $1.74 respectively during the second fiscal quarter.
Operations in Trinidad remained relatively constant when compared to the preceding quarter with production sales in the current quarter reported at 94 bopd. This operation provided marginal positive funds from operations during the current quarter with operating netbacks of $7.15/bbl. There has been relatively little change in recent quarters in the Trinidad operation due to the absence of an active capital program.
Net loss for the quarter was reported at $6.7 million as compared to the net loss of $2.9 million in the immediately preceding quarter. Included in the net loss in the preceding quarter was the recognition of a deferred gain on a partial disposition of the M07 licence to the Netherland's state oil company, Energie Beheer Nederlands B.V. (a further description of this transaction can be found in the interim consolidated financial statements). The operating profit in both quarters (including the deferred gain in the first quarter) has been offset by high depletion charges.
The balance on the Borrowing Base Facility with the Royal Bank of Scotland plc sits at (euro)15.2 million ($21.9 million) at the end of the current quarter. This facility was established to finance the completion of the two currently producing wells (M07-A01 and L11b-A06) ("Eligible Projects").
Unrestricted and restricted cash balances at the end of the current quarter were reported at $57.5 million and $8.3 million respectively. The restricted cash balance is comprised of cumulative net cash receipts (defined as revenue net of royalties, operating expenses and certain eligible capital expenditures) related to the Eligible Projects. The availability of the restricted cash balance will be determined once certain operational milestones have been met. The Company has not yet met these milestones.
Firm wells planned for Cirrus' 2010 offshore drilling program include the exploratory M01-04 which will be drilled on the M01-Delta prospect in the M01a licence in close proximity to Cirrus' M01-A gas field. This well spud on April 23, 2010. The M01-04 well has an estimated drilling time of 50 days to reach a total planned depth of 4,000 meters. Estimated drilling cost (excluding the cost of completion and testing) is approximately (euro)11.9 million gross (currently approximately $18.0 million gross; $8.5 million net).
Following the completion of this well the rig will be moved to the M07-A production platform to drill the M07-07 well which is a deviated appraisal well. The M07-07 well has an estimated drilling time of 53 days to reach total planned depth of 4,185 meters (2,950m TVD). Estimated drilling cost (excluding the cost of completion and testing) is approximately (euro)12.7 million gross (currently approximately $19.0 million gross; $8.1 million net).
A third deviated well, MSG-03, is planned to be drilled from an onshore surface location to test the offshore Q16-Alpha prospect. Planning is well advanced with a rig site location identified near to Rotterdam. Partner and other approvals are currently being sought and the well is expected to spud prior to the end of calendar 2010. The MSG-03 well has an estimated drilling time of 56 days to reach total planned depth of 5,050 meters MD. Estimated drilling cost (excluding the cost of completion and testing) is approximately (euro)10.9 million (currently approximately $16.2 million gross; $9.3 million net). All estimates are prior to Farmout (terms of which are under negotiation).
Further information can be obtained from the Company's Interim Consolidated Financial Statements and Management Discussion and Analysis for the second quarter ended February 28, 2010 which have been filed with securities regulatory authorities in Canada. These documents are available on the System for Electronic Document Analysis and Retrieval at www.sedar.com.
Cirrus Energy Corporation is an international oil and gas Company headquartered in Calgary and currently has approximately 93.3 million fully diluted common shares outstanding.
This press release may include forward-looking statements including opinions, assumptions, estimates and expectations of future production, cash flow and earnings. When used in this document, the words "anticipate", "believe", "estimate", "expect", "intent", "may", "project", "plan", "should" and similar expressions are intended to be among the statements that identify forward-looking statements. Forward-looking statements are subject to a wide range of risks and uncertainties, and although the Company believes that the expectations represented by such forward-looking statements are reasonable there can be no assurance that such expectations will be realized. Any number of important factors could cause actual results to differ materially from those in the forward-looking statements including, but not limited to, the volatility of oil and gas prices, the ability to implement corporate strategies, the state of domestic capital markets, the ability to obtain financing, changes in oil and gas acquisition and drilling programs, operating risks, production rates, reserve estimates, changes in general economic conditions and other factors more fully described from time to time in the reports and filings made by Cirrus with securities regulatory authorities.
The TSX Venture Exchange does not accept responsibility for the adequacy or accuracy of this release.
SOURCE CIRRUS ENERGY CORPORATION
For further information: For further information: David Taylor, President and Chief Executive Officer, Pamela Orr, Vice President, Finance and Chief Financial Officer, Cirrus Energy Corporation, Suite 208, 5 Richard Way SW, Calgary, Alberta, T3E 7M8, Canada, Website: www.cirrusenergy.ca, Telephone: (403) 216-5030, Facsimile: (403) 265-9530