Hawk Announces Third Quarter 2011 Results

CALGARY, Nov. 24, 2011 /CNW/ - Hawk Exploration Ltd. ("Hawk" or the "Corporation") announces its results for the three and nine months ended September 30, 2011. Selected financial information for the three and nine months ended September 30, 2011 is provided as follows and is presented in Canadian dollars, unless otherwise indicated:

    Three months    Nine months
    ended September 30,    ended September 30,
    2011   2010  % Change    2011    2010  % Change
Financial ($000's except per share amounts)                    
Petroleum and natural gas sales  $  2,617  $  1,512  73%  $  7,378  $  5,254  40%
Funds flow from operations (1)     1,090   738  48%    3,134   2,360  33%
  Per share     0.03   0.03  0%    0.12   0.11  9%
Comprehensive loss     (301)    (834)  (64%)     (274)   (3,094)  (91%)
  Per share      (0.01)   (0.04)  (75%)    (0.01)    (0.14)  (93%)
Capital expenditures     3,930   3,256  21%     9,326    10,281  (9%)
Working capital surplus (deficit) - excluding bank debt and commodity contracts, end of period               $  (953)  $  243  (492%)
Bank debt, end of period                   -   -  -
Total assets, end of period                $  34,936   24,844  40%
Common Shares outstanding, end of period:                    
  Class A Shares                   34,481   21,981  57%
  Class B Shares                   1,080   1,080  0%
  Options to acquire Class A Shares                   2,110   2,077  2%
  Crude oil and natural gas liquids (bbl/d)    403    254  59%    364   275  32%
  Natural gas (mcf/d)     333    226  47%    316   289  9%
  Total (boe/d)     458    291  57%    415   324  28%
Average Selling Price                    
  Crude oil and ngls (per bbl)  $  67.56  $  61.65  10%  $  71.17  $  65.37  9%
  Natural gas (per mcf)     3.74   3.53  6%    3.87    4.23  (9%)
  Total (per boe)     62.10   56.49  10%    65.09   59.44  10%
Operating netback (per boe at 6:1) (2)                    
  Price  $  62.10  $  56.49  10%  $  65.09  $  59.44  10%
  Royalties     (12.18)    (10.60)  15%    (12.13)     (11.87) 2%
  Production expense     (19.69)    (12.57)  57%    (18.43)     (14.03)  31%
  Transportation expense     (1.68)   (1.75)  (4%)    (1.76)   (1.69) 4%
Operating netback ($/boe)  $  28.55 $  31.57  (10%)  $  32.77 $  31.85  3%

(1) Management uses funds flow from operations and funds flow from operations per share to analyze operating performance, leverage and liquidity. Funds flow from operations and funds flow from operations per share as presented do not have any standardized meaning prescribed by International Financial Reporting Standards ("IFRS") and therefore may not be comparable with the calculation of similar measures by other entities.

(2) Management considers operating netbacks as an important measure as it demonstrates profitability relative to current commodity prices. Operating netbacks do not have a standardized meaning prescribed by IFRS and therefore may not be comparable with the calculation of similar measures by other entities.


Highlights for the three months ended September 30, 2011 were as follows:

  • Increased third quarter production by 57% to 458 boe/d compared to 291 boe/d in the third quarter of 2010 and increased third quarter production by 17% over the second quarter of 2011,
  • Generated record funds flow from operations of $1.1 million in the quarter, an increase of 48% over the $0.7 million for the comparable quarter of 2010,
  • Grew petroleum and natural gas sales in the third quarter of 2011 by 73% to $2.6 million from $1.5 million for the third quarter of 2010,
  • Earned strong operating netbacks of $28.55 per boe in the third quarter of 2011,
  • Shot two separate 2D seismic programs at Epping and Edam in western Saskatchewan to delineate further infill oil drilling.

Production for the quarter averaged a record 458 boe/d during the third quarter of 2011 and was comprised of 403 bbls/d of crude oil and liquids or 88 percent of the total. For the nine months ended September 30, 2011, production averaged 415 boe/d with crude oil and liquids again comprising 88 percent of the average production.

At Seagram Lake, current production from the two (1.0 net) producing wells continues to average approximately 90 (45 - net) bbl/s of oil with a water cut of 65 percent. The Corporation is currently licensing a single leg horizontal well adjacent to its existing producing wells which is expected to be drilled in the first half of 2012. Also, Hawk is in the process of converting the Seagram Lake 16-28-42-24W4 well into a water disposal well to lower operating expense in the area.

Hawk is currently participating in the drilling of a well in the Rainbow Lake area of northern Alberta targeting light oil in the Keg River formation. Hawk is paying 33.75 percent of the drilling and completion costs to earn a 24.8 percent interest in the well and two and half sections of land in the area which are covered by 23 square kilometers of three dimensional seismic. In the event the well is successful, additional follow up locations have been identified on the seismic data.

Commodity Risk Management

During the third quarter of 2011, Hawk entered into a contract to fix the differential between Edmonton light crude and Western Canadian Select ("WSC") heavy oil at $13.96 per bbl on a notional 100 bbls/d for the period from October 1, 2011 to June 30, 2012. Recently, the Corporation entered into a costless collar transaction for Edmonton light crude with a floor price of $90 per bbl and a ceiling price of $103.10 per bbl on a notional 100 bbls/d for the period from January 1, 2012 to June 30, 2012. These two transactions provide Hawk with an effective floor price on WCS heavy oil of $76.04 per bbl on 100 bbl/d for the first half of 2012 and helps protect the Corporation's funds flow from operations for this period.


Hawk achieved funds flow from operations in the third quarter of 2011 of approximately $1.1 million compared to $0.7 million for the third quarter of 2010. The Corporation generated an operating netback of $28.55 per boe which is slightly lower than the operating netback in the third quarter of 2010 of $31.57 per boe due to higher operating costs in 2011. Hawk is looking at ways to reduce its operating costs going forward and has shut in some marginal producing, higher operating cost wells to ensure the Corporation continues to generate strong operating netbacks.

Hawk had no outstanding bank debt at September 30, 2011 on existing credit facilities of $11 million consisting of a $8.5 million revolving line of credit and a $2.5 million acquisition and development line of credit, with the next review date to occur on or before February 29, 2012. During the third quarter, the Corporation received the net proceeds from its offering of subscriptions receipts in May 2011 of approximately $9.2 million. The Corporation continues to maintain a solid balance sheet with no outstanding bank debt and a $1.0 million working capital deficit at September 30, 2011 which equates to a net debt to annualized quarterly funds flow from operations of 0.2:1.


Hawk is currently in the process of determining its capital budget for 2012 and will disclose details of the capital budget when approved by the Corporation's board of directors which is expected to take place in mid December. The Corporation will continue to focus its capital budget on development opportunities in western Saskatchewan targeting heavy crude oil both through horizontal and vertical drilling, including at least one (0.5 net) single-leg horizontal well at Seagram Lake. Furthermore in 2012, Hawk will drill at least five net vertical wells in the Lloydminster area as well as two (2.0 - net) horizontal wells in western Saskatchewan targeting the Basal Mannville Formation.

Updated Presentation

An updated copy of Hawk's corporate presentation is available for viewing on the Corporation's website at www.hawkexploration.ca under Investor Info - Corporate Presentation.

The unaudited financial statements and management's discussion and analysis for the interim period ended September 30, 2011 have been filed on SEDAR and are available for viewing at www.sedar.com or on the Corporation's website at www.hawkexploration.ca.

Hawk is an emerging exploration company engaged in the exploration, development and production of conventional crude oil and natural gas in western Canada and is based in Calgary, Alberta. The Class A Shares and Class B Shares of Hawk trade on the TSX Venture Exchange under the trading symbols of HWK.A and HWK.B, respectively.

Neither the TSX Venture Exchange nor its Regulation Services Provider (as the term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

Certain statements contained in this press release constitute forward-looking statements. All forward-looking statements are based on the Corporation's beliefs and assumptions based on information available at the time the assumption was made. The use of any of the words "anticipate", "continue", "estimate", "expect", "may", "will", "project", "should", "believe" and similar expressions are intended to identify forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. Hawk believes the expectations reflected in those forward-looking statements are reasonable, but no assurance can be given that these expectations will prove to be correct. Such forward-looking statements included in this press release should not be unduly relied upon. These statements speak only as of the date of this press release.

In particular, but without limiting the forgoing, this press release contains forward-looking statements pertaining to the following: the performance characteristics of Hawk's oil and natural gas properties; business strategies and plans; projections of market prices and cost; supply and demand for oil and natural gas; planned development of the Corporation's oil and natural gas properties; capital expenditure programs for the remainder of 2011; the timing of and nature of capital expenditure program for 2012; and the expected sources of funding for the capital expenditure program.

The material factors and assumptions used to develop these forward looking statements include, but are not limited to: the ability of the Corporation to engage drilling contractors, to obtain and transport equipment, services, supplies and personnel in a timely manner and at an acceptable cost to carry out its activities and plans; the ability of the Corporation to market its oil and natural gas and to transport its oil and natural gas to market; the timely receipt of regulatory approvals and the terms and conditions of such approval; the ability of the Corporation to obtain drilling success consistent with expectations; and the ability of the Corporation to obtain capital to finance its exploration, development and operations.

Actual results could differ materially from those anticipated in these forward-looking statements as a result of the risk factors including, without limitation: volatility in market prices for oil and natural gas; liabilities inherent in oil and natural gas operations; uncertainties associated with estimating oil and natural gas reserves; competition for, among other things, capital, acquisitions of reserves, undeveloped lands and skilled personnel; incorrect assessments of the value of acquisitions and exploration and development programs; geological, technical, drilling and processing problems; changes in tax laws and incentive programs relating to the oil and natural gas industry; failure to realize the anticipated benefits of acquisitions; general business and market conditions; and certain other risks detailed from time to time in Hawk's public disclosure documents (including, without limitation, the other factors discussed under "Risk Factors" in the Corporation's most recently filed Annual Information Form).

Statements relating to "reserves" or "resources" are deemed to be forward-looking statements, as they involve the implied assessment, based on certain estimates and assumptions that the resources and reserves described can be profitably produced in the future. Discovered petroleum initially-in-place ("DPIP") is also a forward-looking statement, and there are numerous uncertainties inherent in estimating DPIP and no assurance can be given that the indicated level of DPIP or its recovery will be realized. Readers are cautioned that the foregoing lists of factors are not exhaustive. The forward-looking statements contained in this press release are expressly qualified by this cautionary statement. Except as required under applicable securities laws, Hawk does not undertake any obligation to publicly update or revise any forward-looking statements.

Barrels of oil equivalent (boe) may be misleading, particularly if used in isolation. A boe conversion ratio of six thousand cubic feet (mcf) of natural gas to one barrel (bbl) of oil is based on an energy conversion method primarily applicable at the burner tip and is not intended to represent a value equivalency at the wellhead. All boe conversions in this press release are derived by converting natural gas to oil in the ratio of six thousand cubic feet of natural gas to one barrel of oil. Certain financial amounts are presented on a per boe basis, such measurements may not be consistent with those used by other companies.

SOURCE Hawk Exploration Ltd.

For further information:

Steve Fitzmaurice 
President, CEO and Chairman 
Tel: (403) 264-0191 Ext 225 
Email: steve@hawkexploration.ca
          Dennis Jamieson
Chief Financial Officer
Tel: (403) 264-0191 Ext 234
Email: dennis@hawkexploration.ca

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