The Buffalo Oil Corporation

The Buffalo Oil Corporation

May 30, 2006 08:30 ET

Buffalo Oil Reports Q1 2006 Results

CALGARY, ALBERTA--(CCNMatthews - May 30, 2006) - The Buffalo Oil Corporation ("Buffalo")(TSX VENTURE:BFO) is pleased to announce its operating and financial results for the three months ended March 31, 2006.


- Production was 1,232 boe/d in the current period, a 25% increase compared with Q4 2005. This was the fifth consecutive quarter of growth in daily average production.

- Operating costs per boe were reduced by 22% from $19.99 per boe in Q4 2005 to $15.56 per boe in the current quarter.

- General and administrative costs averaged $1.57 per boe.

- Cash flow from operations increased 88% to $928,000 in the first quarter of 2006 compared with $493,000 for the same period of 2005.

- Completed a $6 million equity financing during the quarter.

- Exited the quarter with cash of $5.2 million.

FINANCIAL ($000s except share and per share amounts)

Three months ended March 31 2006 2005 Change %
Revenue 3,451 1,264 173
Cash flow from operations (1) 928 493 88
Basic and diluted per share 0.06 0.05 15
Net loss (637) (203) 215
Basic and diluted per share (0.04) (0.02) 105
Capital expenditures 1,672 588 184

March December
31 31
As at 2006 2005 Change %
Working capital surplus (deficit) 4,893 (201) 2,339
Shareholders' equity 17,829 13,191 35
Total assets 25,003 21,150 18
Common Shares outstanding (000s) 17,779 13,183 35
(1) Cash flow from operations represents loss before depletion,
depreciation and accretion, stock-based compensation and
future taxes.

Three months ended March 31 2006 2005 Change %
Average daily production
Oil and NGLs (bbls/d) 1,017 192 429
Natural gas (mcf/d) 1,293 1,002 29
Barrels of oil equivalent (2) (boe/d) 1,232 359 243
Average realized prices
Oil and NGLs ($/bbls) 27.82 36.48 (24)
Natural gas ($/mcf) 7.78 7.02 11
Barrels of oil equivalent ($/boe) 31.12 39.11 (20)
Field netback ($/boe) 9.78 20.97 (53)
Cash flow ($/boe) 8.37 15.24 (45)
(2) In this report, all references to barrels of oil equivalent (boe)
are calculated by converting natural gas to oil at a ratio of six
thousand cubic feet to one barrel of oil.


Buffalo's average daily production rate increased from 988 boe/d in Q4 2005 to 1,232 boe/d in the current period, mainly because wells that were drilled in the fourth quarter of 2005 at Frog Lake, Alberta and at Heward, Saskatchewan were on production for the full quarter. In the first quarter 2006, production was weighted 74% to heavy oil and historically, winter is the most difficult period for heavy oil producers because heavy oil differentials (the discount between light oil prices and heavy oil prices) are historically at their highest during this period. In the current quarter, the heavy oil differential remained in line with Q4 2005 at $29 per barrel even though light oil prices dropped by 3%, thereby reducing Buffalo's realized average oil price. In addition, natural gas prices slumped during the period and Buffalo realized $7.78 per mcf compared with $12.47 per mcf in Q4 2005.

Despite this pressure on selling prices, Buffalo was able to generate cash flow of $928,000 for the three months. This was in line with Q4 2005 and was largely achieved through reductions in operating costs and general and administrative expenditures.


During the quarter, Buffalo participated in the drilling of one (net 0.3) heavy oil well targeting the Lloyd zone at Frog Lake and one (net 0.5) light oil well at Heward which targeted the Frobisher zone. These zones are productive in the respective areas and the wells are now on production. The results of the Heward well are extremely encouraging and confirm the area for further horizontal well development drilling. Buffalo re-completed or reactivated four suspended wells at Frog Lake during the period. Two wells are now on production, one has been abandoned and one remains suspended for further technical analysis. We are finding that there are numerous low cost projects that will enhance production on the Frog Lake lands and we will continue to test various opportunities for both oil and gas production.

Buffalo has begun to bid aggressively at crown land sales for parcels in areas where it has existing production facilities and in certain areas which it considers have the potential to be developed into new core production areas. A total of 4,040 acres of crown land were acquired during the quarter. A parcel was acquired at Frog Lake which completes the gas spacing unit for a suspended well (net 0.6) that was drilled and cased by a previous operator. This well tested gas at the rate of 1.1 mmcf/d over a 24 hour period. The well is being tied-in to Buffalo's gas gathering system by way of a 6 km pipeline.

Similar to many other junior oil and gas producers, Buffalo is experiencing difficulty in obtaining drilling rigs to meet the timing of its forecast capital program. In May 2006 a rig was contracted to drill ten wells at Frog Lake and drilling has commenced. This program will satisfy one farm-in commitment well at Frog Lake and the remaining commitment well will be drilled in the third quarter. The wells are expected to be drilled, completed, equipped and on production by the end of July 2006. In late May, Buffalo also began drilling a well at Huntoon, immediately south of Heward.


Between January and March 2006, Buffalo completed a $6 million equity financing by issuing 3,232,324 shares, including $1 million of flow-through shares at $2.20 per share and $5 million of common shares at $1.80 per share. During the quarter, an average of 23,000 Buffalo common shares traded on the TSX Venture Exchange each day at prices between $1.73 and $2.15 per share.


Buffalo's forecast 2006 production exit rate is between 1,800 and 2,000 barrels of oil equivalent per day. The forecast assumes drilling 42 (net 23) wells and generating cash flow from operations of $8.4 million ($0.48 per basic share). Both production and cash flow for the first quarter of 2006 were in line with this forecast.

Posted light oil prices tested record levels in April and May 2006 and at the same time, heavy oil differentials narrowed beyond the normal seasonal expectations. For the month of April and the first 24 days of May, the differential between Edmonton light oil prices and Lloydblend heavy oil prices averaged $17.42 per bbl whereas the average differential for April and May 2005 was $28.69 per bbl. In Buffalo's letter to shareholders that formed part of the 2005 Annual Report, we referenced the startup of two pipelines linking western Canada to new markets in the USA. Prior to these changes, large volumes of western Canadian heavy oil were being refined in the Chicago area. Enbridge activated the 120,000 bbl per day Spearhead pipeline for delivery of volumes from Chicago to the trading hub at Cushing, Oklahoma and Exxon reversed the flow of the 66,000 barrel per day pipeline linking Patoka Illinois to Corsicana Texas, thereby providing western Canadian heavy oil producers with access to the US Gulf Coast refineries. Enbridge is considering increasing the capacity of the Spearhead pipeline to 160,000 barrels per day which will further enhance the marketability of western Canadian heavy oil.

As production is currently weighted 74% to heavy oil, this new price environment should significantly improve Buffalo's average field netback and cash flow from operations.


Buffalo has been successful in growing its production base through the drill-bit and intends to continue its pursuit of low risk development projects at properties such as Frog Lake as well as higher risk exploration targets. In light of the current weakness in natural gas prices, Buffalo may consider pursuing the acquisition of producing natural gas properties in accordance with its strategy of attempting to maintain a balance between production of heavy oil and natural gas/light oil.

Buffalo's strengths include its diverse land base, large prospect inventory, experienced and committed management team and a strong balance sheet.

Certain information set forth in this press release contains forward looking statements. Readers are cautioned that the assumptions used in the preparation of such information, although considered reasonable at the time of preparation, may prove to be imprecise and, as such, reliance should not be placed on forward-looking statements. Buffalo's actual results, performance or achievements could differ materially from those expressed in, or implied by, these forward-looking statements and accordingly, no assurance can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do so, what benefits Buffalo will derive therefrom. Buffalo disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Barrels of oil equivalent (Boe's) may be misleading, particularly if used in isolation. A boe conversion ratio of 6 Mcf of gas = 1 Bbl of oil is based upon an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

The TSX Venture Exchange has not reviewed and does not accept responsibility for the adequacy or accuracy of this press release.

Contact Information

  • The Buffalo Oil Corporation
    Trevor Penford
    President and C.F.O.
    (403) 252-2462
    The Buffalo Oil Corporation
    William (Bill) Trickett
    Chairman and C.E.O.
    (403) 252-2462
    The Buffalo Oil Corporation
    Suite 180, 1209 - 59th Avenue S.E.
    Calgary, Alberta T2H 2P6
    (403) 252-2462
    (403) 252-1399 (FAX)