C1 Energy Ltd.
TSX : CTT

C1 Energy Ltd.

May 11, 2006 16:30 ET

C1 Energy Ltd. Announces First Quarter Results

CALGARY, ALBERTA--(CCNMatthews - May 11, 2006) - C1 Energy Ltd. (TSX:CTT) of Calgary, Alberta is pleased to report its operating and financial results for the three months ended March 31, 2006.

FIRST QUARTER HIGHLIGHTS

During the first quarter of 2006, C1 accomplished the following:

- Increased proved plus probable reserves to 4.9 million boe from 3.5
million boe at year end

- Drilled 3 wells with a 100% success rate

- Increased average production to 685 boe/d from 470 boe/d last quarter



FINANCIAL AND OPERATING HIGHLIGHTS

For the Three Months
Ended March 31
(Unaudited) 2006 2005
------------------------------------------------------------------------
------------------------------------------------------------------------
Financial ($000s, except share information)
Petroleum and natural gas sales 3,273 3,176
Cash flow from operations(1) 1,376 1,316
Per share basic and diluted $0.04 $0.05
Net income (loss) 128 (88)
Per share basic and diluted $0.00 $0.00
Capital expenditures, net 5,765 11,812
Net debt 8,975 5,883
Total assets 75,358 54,600
Shareholders' equity 57,134 42,133
Common shares outstanding (000s) 33,036 27,612

------------------------------------------------------------------------
------------------------------------------------------------------------
Operations
Crude oil and NGL's production
Barrels 23,153 35,266
Barrels per day 257 392
Average selling price ($/bbl) 66.77 61.01
WTI (US $/bbl) 63.39 50.70

Natural gas production
Thousand cubic feet 231,170 158,219
Thousand cubic feet per day 2,569 1,758
Average selling price ($/mcf) 7.47 6.47

Oil equivalent production
Barrels of oil equivalent 61,681 61,636
Barrels of oil equivalent per day (6:1) 685 685
Average selling price ($/boe) 53.06 51.52
Average operating netback ($/boe) 29.10 29.10

Wells drilled
Gross 3 16
Net 2.0 10.7

(1) The Company, in part, evaluates its performance based on cash flow
from operations. Cash flow from operations is a non-GAAP measure
that represents cash generated from operating activities before
changes in non-cash working capital items during the period. Cash
flow from operations may not be comparable to similar measures
used by other companies.
------------------------------------------------------------------------
------------------------------------------------------------------------


OPERATIONS REVIEW

Drilling Activity

Our first quarter 2006 program included the drilling of 3 (2.0 net) wells providing the following results:

- 2 gross (1.0 net) cased potential gas wells. Both are expected to be
completed and tested in the second and third quarters of 2006.

- One (1.0 net) potential oil well which is expected to be completed
in the second quarter.

- 100% success rate on the program.



Three Months Ended March 31, 2006
Exploration Development Total
------------------------------------------------------------------------
Gross Net Gross Net Gross Net
------------------------------------------------------------------------
Oil 1 1.0 - - 1 1.0
Gas 2 1.0 - - 2 1.0
D&A - - - - - -
------------------------------------------------------------------------
Total 3 2.0 - - 3 2.0
------------------------------------------------------------------------
------------------------------------------------------------------------


Three Months Ended March 31, 2005
Exploration Development Total
------------------------------------------------------------------------
Gross Net Gross Net Gross Net
------------------------------------------------------------------------
Oil 1 1.0 - - 1 1.0
Gas 6 3.7 6 3.5 12 7.2
D&A 1 0.5 2 2.0 3 2.5
------------------------------------------------------------------------
Total 8 5.2 8 5.5 16 10.7
------------------------------------------------------------------------
------------------------------------------------------------------------


Production Summary

Our production for the first quarter of 2006 averaged 685 boe/d comprised of 257 bbls/d of light oil and 2,569 mcf/d of natural gas. This represents an increase of 40% compared to average production of 487 boe/d last quarter and is the same as the first quarter of 2005. The increased production from last quarter primarily related to behind-pipe production at Blueberry coming on-stream in late February. Our first quarter exit production rate increased to approximately 1,100 boe/d comprised of 75% gas and 25% light oil.

Outlook

Our drilling operations will continue after spring breakup with a program of approximately 5 (3.0 net) new wells. This program will primarily consist of light oil and multi-zone exploration and development gas drilling at Blueberry as well as development drilling at Gift Lake and Seal. C1's inventory of projects provides the company and its shareholders with strong potential for growth in the near and long term.



MANAGEMENT'S DISCUSSION AND ANALYSIS

Capital Expenditures


For the Three Months Ended March 31
($000s) 2006 2005
------------------------------------------------------------------------
------------------------------------------------------------------------

Drilling and completions $ 2,955 $ 8,596
Land 668 417
Equipment and facilities 1,723 1,741
Geological & geophysical 6 884
Asset retirement obligations 114 115
Capitalized general and
administration expenses 292 48
Other 7 11
------------------------------------------------------------------------
Total capital expenditures 5,765 11,812
------------------------------------------------------------------------
------------------------------------------------------------------------


Capital expenditures were $5.8 million in the first quarter compared to $11.8 million over the same period a year ago. Capital expenditures for the first part of the quarter were concentrated on the completion and tie-in of wells drilled in 2005 in order to increase production. The majority of our capital was spent in Blueberry. Our drilling program commenced in late February with one well drilled in the Gift area, one in Hobbema and the third well drilled in Hotchkiss.

The capital program for 2006 is currently projected to be $16.0 - $18.0 million.

LIQUIDITY AND CAPITAL RESOURCES

Funding of Capital Program

Capital expenditures for the three months ended March 31, 2006 were $5.8 million. These expenditures were funded primarily by cash flow and available working capital. C1 expects the capital expenditures for the balance of the year to be funded by cash flow and bank debt.

Working Capital

C1 had a working capital deficiency of $9.0 million at March 31, 2006. This represents an increase in net debt of $4.4 million from year-end and was a result of the capital expenditure program C1 undertook in the first quarter with the increased production commencing at the end of February.

Bank Facilities

C1 had $15.0 million of credit facilities available with a Canadian chartered bank. The facilities were composed of an $11.0 million revolving demand loan plus a $4.0 million non-revolving reducing acquisition/development demand loan. The interest rate on outstanding debt was set at the bank's prime lending rate plus 0.25% and 0.5% respectively. The facilities are secured by a floating charge over all of C1's assets. There was $6.9 million drawn at March 31, 2006. In April 2006, the revolving credit facilities were increased to $13.0 million from $11.0 million bringing total credit facilities available to $17.0 million.

Share Capital

At March 31, 2006, C1 had 33,036,726 shares issued and outstanding, the same as the year end December 31, 2005. The weighted average number of shares outstanding for the period was the same (2005 - 27,611,608).

RESULTS OF OPERATIONS

Revenue

Petroleum and natural gas sales increased by 3% to $3.3 million for the three months ended March 31, 2006 from $3.2 million for the three months ended March 31, 2005 and $3.2 million last quarter. The increase in revenue was due to higher commodity prices compared to the same period a year ago. Compared to last quarter, the increased revenue resulted from higher production volumes partially offset by lower commodity prices.



Oil and Gas Sales
Three Months Ended March 31
($000s) 2006 2005
------------------------------------------------------------------------
------------------------------------------------------------------------
Crude oil and NGL sales 1,546 2,152
Natural gas sales 1,727 1,024
------------------------------------------------------------------------
Total petroleum and natural gas sales 3,273 3,176
------------------------------------------------------------------------
------------------------------------------------------------------------


Average Selling Prices
Three Months Ended March 31 2006 2005
------------------------------------------------------------------------
------------------------------------------------------------------------
Crude oil and NGL's ($/bbl) 66.77 61.01
Natural gas ($/mcf) 7.47 6.47
Total average realized price ($/boe) 53.06 51.52
------------------------------------------------------------------------
------------------------------------------------------------------------


Royalties

Royalty costs net of ARTC were $0.6 million for the quarter ($9.94/boe) compared to $0.7 million ($11.89/boe) last year and $0.5 million ($11.87/boe) last quarter. Royalty costs per boe were lower than the same period a year ago and lower than last quarter due to a higher proportion of royalties eligible for ARTC. Royalty burdens for C1 remain predominantly crown. For the period, crown royalties before ARTC averaged 18% and freehold and other royalties averaged 4% of total revenue.

Operating Expenses

Operating costs for the quarter were $0.8 million ($12.81/boe) compared to $0.6 million (9.32/boe) last year and $0.9 million ($19.15/boe) last quarter. Operating costs per boe declined during the quarter as production levels primarily in the Blueberry area increased in late February.

Transportation

Transportation costs were $75,000 for the three month period ($1.21/boe) compared to $75,000 ($1.21/boe) over the same period a year ago and $64,000 ($1.43/boe) last quarter.



General and Administrative Expenses

2006 2005
------------------------------------------------------------------------
------------------------------------------------------------------------
($000's except per unit amounts) $ $/boe $ $/boe
Gross G&A 718 11.63 666 10.80
Capitalized overhead (292) (4.73) (48) (0.78)
Overhead recoveries (73) (1.18) (148) (2.40)
------------------------------------------------------------------------
353 5.72 470 7.62
------------------------------------------------------------------------
------------------------------------------------------------------------


General and administrative expenses were $0.4 million for the quarter ($5.72/boe) compared to $0.5 million ($7.62/boe) last year and $0.3 million ($6.87/boe) last quarter. Gross administrative costs during the period were slightly higher than the same quarter last year primarily due to higher salary and benefit costs and increased office costs, but were similar to last quarter. Capitalized overhead and overhead recoveries were higher than the same period last year resulting in lower net general and administrative expenses.

Interest

Interest expense was $60,000 ($0.98/boe) during the period compared to $7,000 ($0.12/boe) during the same period last year and $64,000 ($1.44/boe) last quarter. Interest costs were higher than last year due to higher average outstanding bank debt. Interest was higher last quarter primarily due to approximately $43,000 of interest relating to the timing of expenditures on C1's 2004 flow-through obligation.

Stock-based Compensation

Stock-based compensation was $144,000 ($2.33/boe) for the quarter, similar to last years' charge of $149,000 ($2.42/boe) and $180,000 ($4.03/boe) last quarter. This represents a non-cash charge resulting from applying a Black-Scholes model to determine the fair value of Performance Shares and options that have been issued to date. The charge is amortized over the life of the instruments.

Depletion, Depreciation and Accretion

Depletion, depreciation, and accretion amounted to $1.0 million ($16.93/boe) for the quarter compared to $1.1 million ($18.59/boe) last year and $1.0 million ($23.00/boe) last quarter. Depletion, depreciation and accretion decreased on a $/boe basis due to significant reserves being recognized during the period on wells that were drilled, but not tested, in the fourth quarter last year.

Capital and Income Taxes

Capital taxes were $6,000 ($0.10/boe) this quarter compared to $nil last year. Future tax expense was $60,000 ($0.98/boe) for the quarter compared to $109,000 ($1.76/boe) during the same period last year and a tax recovery of $1.4 million ($30.81/boe) last quarter. C1 has estimated tax pools of $53.0 million as at March 31, 2006. These tax pools are available to reduce taxes otherwise payable in the future.

Cash Flow from Operations and Net Income

Cash flow from operations was $1.4 million for the quarter compared to $1.3 million last year and we generated net income of of $128,000 for the period, $0.00/share, compared to a loss for the same period last year of $88,000, or $0.00/share.

NETBACK, CASH FLOW AND NET INCOME



Three Months Ended March 31 2006 2005
------------------------------------------------------------------------
------------------------------------------------------------------------
Operations
Natural gas (mcf/d) 2,569 1,758
Oil and NGL's (bbls/d) 257 392
Boe/d (6:1) 685 685
------------------------------------------------------------------------
------------------------------------------------------------------------
Financial ($000s except per unit
amounts) $ $/boe $ $/boe
------------------------------------------------------------------------
------------------------------------------------------------------------
Oil and gas production 3,273 53.06 3,176 51.52
Royalties (net of ARTC) (613) (9.94) (733) (11.89)
Operating (790) (12.81) (575) (9.32)
Transportation (75) (1.21) (75) (1.21)
------------------------------------------------------------------------
Operating netback 1,795 29.10 1,793 29.10
General and administrative (353) (5.72) (470) (7.62)
Interest (60) (0.98) (7) (0.12)
Current taxes (6) (0.10) - -
------------------------------------------------------------------------
Cash flow from operations 1,376 22.30 1,316 21.36
Depletion and depreciation (1,044) (16.93) (1,146) (18.59)
Stock-based compensation (144) (2.33) (149) (2.42)
Future tax expense (60) (0.97) (109) (1.77)
------------------------------------------------------------------------
Net income (loss) 128 2.07 (88) (1.42)
------------------------------------------------------------------------
------------------------------------------------------------------------
Earnings (loss) per share 0.00 0.00
--------------------------------------------------------------
--------------------------------------------------------------


Additional information relating to the Company can be found on SEDAR at www.sedar.com.

Forward Looking Statements

This disclosure contains forward looking statements that involve substantial known and unknown risks and uncertainties, certain of which are beyond C1's control, including: the impact of general economic conditions in Canada and the United States, industry conditions, changes in laws and regulations including the adoption of new environmental laws and regulations and changes in how they are interpreted and enforced, increased competition, the lack of availability of qualified personnel or management, fluctuations in foreign exchange or interest rates, stock market volatility and market valuations of companies with respect to announced transactions and the final valuations thereof, and obtaining required approvals of regulatory authorities. C1's actual results, performance or achievement could differ materially from those expressed in, or implied by, these forward looking statements and, accordingly, no assurances 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, including the amount of proceeds, that C1 will derive there from.

Financial statements for the three months ended March 31, 2006 and 2005 are attached.



Balance Sheet
As at March 31
(dollars in thousands)(unaudited)

------------------------------------------------------------------------


March 31 2006 December 31 2005
---------------------------------

ASSETS

Current assets
Cash and cash equivalents $ - $ 864
Accounts receivable 5,365 4,975
Prepaid expenses 213 220
---------------------------------
5,578 6,059

Property and equipment (note 2) 63,209 58,448

Goodwill 6,571 6,532
---------------------------------
$ 75,358 $ 71,039
---------------------------------
---------------------------------

LIABILITIES

Current liabilities
Accounts payable and accrued
liabilities $ 6,840 $ 9,028
Bank loan (note 3) 7,713 1,650
---------------------------------
14,553 10,678

Asset retirement obligations (note 4) 1,061 996

Future income tax liability (note 7) 2,610 1,621
---------------------------------
18,224 13,295
---------------------------------

SHAREHOLDERS' EQUITY

Share capital (note 5) 50,308 51,190
Contributed surplus (note 5) 1,516 1,372
Retained earnings 5,310 5,182
---------------------------------
57,134 57,744
---------------------------------
$ 75,358 $ 71,039
---------------------------------
---------------------------------

See accompanying notes to the financial statements.


Statements of Operations and Retained Earnings
For the three months ended March 31
(dollars in thousands except
per share amounts) (unaudited)

------------------------------------------------------------------------


March 31 2006 March 31 2005
---------------------------------

Revenue
Petroleum and natural gas sales $ 3,273 $ 3,176
Royalties, net of Alberta Royalty
Tax Credit (613) (733)
---------------------------------
2,660 2,443
---------------------------------


Expenses
Operating 790 575
Transportation 75 75
General and administrative 353 470
Interest 60 7
Stock-based compensation (note 5) 144 149
Depletion, depreciation and accretion
(note 2) 1,044 1,146
---------------------------------
2,466 2,422
---------------------------------

Income before income taxes 194 21
---------------------------------

Income taxes
Current 6 -
Future 60 109
---------------------------------
66 109
---------------------------------

Net income (loss) 128 (88)

Retained earnings, beginning of period 5,182 2,991

---------------------------------
Retained earnings, end of period $ 5,310 $ 2,903
---------------------------------
---------------------------------

Earnings per common share (note 6)
-Basic and diluted $ 0. 00 $ 0.00
---------------------------------
---------------------------------

See accompanying notes to the financial statements.


Statement of Cash Flows
For the three months ended March 31
(dollars in thousands)(unaudited)

------------------------------------------------------------------------


March 31 2006 March 31 2005
---------------------------------

Operating activities
Net income (loss) $ 128 $ (88)
Add:
Future income taxes 60 109
Depletion, depreciation and accretion 1,044 1,146
Stock-based compensation 144 149
---------------------------------
Cash flow from operations 1,376 1,316
Asset retirement expenditures (note 4) (91) -
Net change in non-cash working capital
(note 8) (4,391) (3,108)
---------------------------------
(3,106) (1,792)
---------------------------------
Investing activities
Property and equipment expenditures (5,651) (11,697)
Net change in non-cash working capital
(note 8) 1,820 7,406
---------------------------------
(3,831) (4,291)
---------------------------------
Financing activities
Issuance of common shares - 55
Share issue costs 10 (24)
Increase in bank indebtedness 6,063 -
---------------------------------
6,073 31
---------------------------------

Net change in cash and cash equivalents (864) (6,052)

Cash and cash equivalents, beginning of
period 864 6,930
---------------------------------

Cash and cash equivalents, end of
period $ - $ 878
---------------------------------
---------------------------------

See accompanying notes to the financial statements.


C1 ENERGY LTD.

Notes to the Financial Statements

For the three months ended March 31, 2006 and 2005

(all tabular dollars in thousands except per share amounts)

1. BASIS OF PRESENTATION

The interim financial statements of C1 Energy Ltd. (the "Company") have been prepared following the same accounting policies and methods of computation as the audited financial statements for the year ended December 31, 2005. Certain information and footnote disclosure normally included in the annual consolidated financial statements have been condensed or omitted. Accordingly, these interim financial statements should be read in conjunction with the financial statements and the notes thereto in the Company's annual report for the year ended December 31, 2005.



2. PROPERTY AND EQUIPMENT

March 31, 2006 December 31, 2005
------------------------------------------------------------------------
Petroleum and natural gas
properties and equipment $ 75,917 $ 70,153
Accumulated depletion and
depreciation (12,708) (11,705)
------------------------------------------------------------------------
Net book value $ 63,209 $ 58,448
------------------------------------------------------------------------
------------------------------------------------------------------------


At March 31, 2006, $20.9 million (March 31, 2005 - $17.9 million) of costs relating to unproved properties and seismic were excluded from costs subject to depletion.

During the three months ended March 31, 2006, $292,000 (March 31, 2005 - $48,000) of general and administrative expenses relating to exploration and development activities were capitalized.

3. BANK LOAN

On March 31, 2006, the Company had $15,000,000 of credit facilities available with a Canadian chartered bank. The facilities are composed of an $11,000,000 revolving demand loan facility plus a $4,000,000 non-revolving reducing acquisition/development demand loan. The interest rate on outstanding debt is set at the bank's prime lending rate plus 0.25% and 0.5% respectively. The facilities are secured by a floating charge over all of C1's assets. In April 2006, the revolving demand loan facility was increased to $13,000,000 bringing the total amount of credit facilities to $17,000,000.

4. ASSET RETIREMENT OBLIGATIONS

The following table presents the reconciliation of the beginning and ending aggregate carrying amount of the obligation associated with the retirement of oil and gas properties:



2006
------------------------------------------------------------------------
Asset retirement obligations, December 31, 2005 $ 996
Liabilities incurred 114
Settlement of liabilities (91)
Disposition of liabilities -
Accretion expense 42
Change in estimates -
------------------------------------------------------------------------
Asset retirement obligations, March 31, 2006 $ 1,061
------------------------------------------------------------------------
------------------------------------------------------------------------


At March 31, 2006, the total undiscounted asset retirement obligations are estimated to be $6.1 million. A 2 percent inflation rate and a 9 percent discount rate assumption have been used to estimate the obligations. Most of the obligations related to oil and natural gas wells are expected to be settled from 2015 to 2025 and those related to facilities are expected to be settled up to 2039 with all being funded from general corporate resources at the time of settlement.

5. SHARE CAPITAL

a) Authorized

The Company is authorized to issue an unlimited number of common shares and 1,442,000 performance shares.



b) Issued and outstanding

Number of
Common shares shares Amount
------------------------------------------------------------------------
Balance at December 31, 2005 33,036,726 $ 51,178
Tax effect of renunciation of
resource expenditures on
flow-through shares (i) - (892)
Share issue costs 10
------------------------------------------------------------------------
Balance at March 31, 2006 33,036,726 $ 50,296
------------------------------------------------------------------------
------------------------------------------------------------------------

i) In accordance with the terms of the Company's various flow-through
share offerings, and pursuant to certain provisions of the Income
Tax Act (Canada), the Company renounced, for income tax purposes,
exploration expenditures related to the issuance of its flow-through
shares in the aggregate of $2,500,000.


Number of
Performance shares shares Amount
------------------------------------------------------------------------
Balance at December 31, 2005 1,178,000 $ 12
------------------------------------------------------------------------
Balance at March 31, 2006 1,178,000 $ 12
------------------------------------------------------------------------
------------------------------------------------------------------------

Contributed surplus Amount
------------------------------------------------------------------------
Balance at December 31, 2005 $ 1,372
Stock-based compensation 144
------------------------------------------------------------------------
Balance at March 31, 2006 $ 1,516
------------------------------------------------------------------------
------------------------------------------------------------------------


c) Stock-based compensation

During the first three months of 2006, C1 recorded $144,000 (2005 - $149,000) of compensation expense related to the performance shares and stock options. The fair value of each performance share and option was determined at the share issuance and stock option grant date respectively using the Black-Scholes model. This value is amortized over the expected life of the instruments and is included in stock-based compensation expense.

No additional options were issued during the period. Details on the Company's stock options outstanding at March 31, 2006 are as follows:



Exercise Price Number of Contractual Options
($/share) Options (000's) Life (years) Exercisable (000s)
------------------------------------------------------------------------
1.75 325,000 3.63 years 108,333
1.91 175,000 3.22 years 58,333
1.95 125,000 3.25 years 41,667
2.10 75,000 3.86 years 25,000
2.31 635,410 4.00 years 211,803
------------------------------------------------------------------------
2.08 1,335,410 3.73 years 445,136
------------------------------------------------------------------------
------------------------------------------------------------------------


6. EARNINGS PER SHARE

C1 uses the treasury stock method to determine dilution resulting from the issuance of stock options, warrants and other dilutive instruments. The number of shares used to calculate the diluted net income per share for the three months ended March 31, 2006 included the weighted average number of shares outstanding of 33,036,726 plus 587,446 shares related to the dilutive effects of the exercise of stock options and the conversion of Performance Shares (March 31, 2005 - 27,611,608 plus 1,253,548 shares related to the dilutive effects of the exercise of stock options and the conversion of Performance Shares).

7. INCOME TAXES



The components of the future income tax liability are as follows:

March 31, 2006 December 31, 2005
------------------------------------------------------------------------
Future income tax liabilities
(assets)
Property and equipment $ 3,986 $ 2,991
Asset retirement obligations (357) (335)
Attributed Canadian Royalty
Income benefit ("ACRI") (469) (436)
Share issue costs (567) (616)
Other 17 17
------------------------------------------------------------------------
Net future income tax liability $ 2,610 $ 1,621
------------------------------------------------------------------------
------------------------------------------------------------------------


8. SUPPLEMENTARY CASH FLOW INFORMATION

Changes in non-cash working capital items increased (decreased) cash and
cash equivalents as follows:

Three months Three months
ended ended
March 31, 2006 March 31, 2005
------------------------------------------------------------------------
Accounts receivable $ (390) $ 847
Prepaid expenses 7 (122)
Accounts payable and accrued liabilities (2,188) 3,573
------------------------------------------------------------------------
Change in non-cash working capital $ (2,571) $ 4,298
------------------------------------------------------------------------

Operating activities $ (4,391) $ (3,108)
Investing activities 1,820 7,406
------------------------------------------------------------------------
Change in non-cash working capital $ (2,571) $ 4,298
------------------------------------------------------------------------


There was $60,000 paid during the three month period for interest expense (2005 - $7,000) and there were no income or capital taxes paid during the same period this year or last.

Contact Information

  • C1 Energy Ltd.
    Hugh Pattillo
    President & CEO
    (403) 232-1115 ext 107
    or
    C1 Energy Ltd.
    Gary Lobb
    Vice-President, Finance & CFO
    (403) 232-1115 ext 106
    Website: www.c1energy.ca