C1 Energy Ltd.
TSX : CTT

C1 Energy Ltd.

January 25, 2007 23:34 ET

C1 Energy Ltd. Updates Reserves, Operations and Announces Value Maximization Process and Management Change

CALGARY, ALBERTA--(CCNMatthews - Jan. 25, 2007) - C1 Energy Ltd. ("C1") (TSX:CTT) announces the following:

OPERATIONS REVIEW:

During the fourth quarter, C1 participated in the drilling of two wells (0.48 net) in the Blueberry area of the Peace River Arch resulting in one gas well (0.2 net) which was recently placed on production and one well (0.28 net) cased as a potential gas well but suspended following unsuccessful completion operations. The Corporation also completed and tested one natural gas well (0.75 net) drilled during the third quarter at its Seal property in the Peace River Arch. This well is expected to be on stream in March 2007.

Production in the fourth quarter averaged approximately 600 boe per day, compared to an average of 736 boe per day in the third quarter. Although no new wells or production were added during the fourth quarter, production levels from existing wells reasonably stabilized during the last two months of the year to produce a corporate operating range of approximately 550 boe per day to 600 boe per day, similar to current production levels during January 2007.

The total estimated debt of C1 at year end including working capital deficiency was approximately $12.5 million. C1 has available an approved loan facility of $14.0 million, on a revolving basis, plus a $3.0 million development facility through March 31, 2007.

Capital spending on new projects was slowed during the fourth quarter as management and the Board of Directors assessed the production and cash flow performance of its operating assets and evaluated the Corporation's capital structure with respect to its large undeveloped land base and numerous growth prospects going forward. C1 expects to continue with a restricted capital program in the near term as it assesses its operations and alternatives.

Sproule Associates Limited ("Sproule"), the Corporation's independent reserves evaluator, was retained to provide an independent evaluation of 100% of the Corporation's properties with an effective date of December 31, 2006 (the "Sproule Report"). The evaluation is now completed and a summary of the Sproule Report is presented below. In overall terms, the updated reserves evaluation reflects a material negative revision of C1's reserves on both a proved and a proved plus probable volume basis. In combination with lower forecast prices for the Corporation's natural gas properties, the updated evaluation represents 39% and 38% reductions, respectively, to the 10% before tax net present values of C1's proved reserves and proved plus probable reserves, for the escalated pricing case, when compared to 2005 year end reserves.

SHAREHOLDER VALUE MAXIMIZATION PROCESS

As part of C1's efforts to improve shareholder value and execute its growth strategy, C1's management and Board of Directors have elected to explore strategic alternatives to maximize shareholder value. Such alternatives may include the sale, merger or takeover of the company, or the reorganization or restructuring of some or all of the Corporation's properties, or any other alternatives that are considered to be in the best interest of C1 shareholders. C1 has retained GMP Securities L.P. ("GMP") as its exclusive financial advisor to assist in the process of maximizing shareholder value. There is no assurance that any transaction will be completed or the timing thereof.

C1 also announces that Hugh Pattillo has resigned today as an Officer and as a Director of the Corporation. C1 wishes him success in his future endeavours. Effective immediately, Don Wood has been appointed by the Board as the Corporation's President and Chief Executive Officer, and as a Director, and he will lead the Corporation's strategic process going forward. Mr. Wood joined C1 in June of last year and previously served as C1's Executive Vice President and Chief Operating Officer.

HIGHLIGHTS OF SPROULE RESERVE REPORT EFFECTIVE DECEMBER 31, 2006 INCLUDE:

- Company gross proved reserves of 1,279 mboe versus 2,148 at year end December 31, 2005.

- Company gross proved plus probable reserves of 2,080 mboe versus 3,467 mboe at December 31, 2005.

- Reserve life index of 5.9 years on a total proven basis and of 8.2 years on a total proven plus probable basis using a forecasted price basis (our reserve life index is 6.0 years and 8.4 years respectively utilizing a constant price case). Reserve life indexes are based on Sproule's forecast for 2007 production rates of 694 boe/d under the proven plus probable case and 595 boe/d under the proven case.

SUMMARY OF RESERVE INFORMATION

The following tables summarize certain information contained in the Sproule Report. Detailed reserves disclosure will be included within the Corporation's Annual Information Form filing for the year ended December 31, 2006. It should not be assumed that the estimates of future net revenue presented in the tables below represent the fair market value of the reserves. There is no assurance that the constant prices and costs assumptions and forecast prices and costs assumptions will be attained and variances could be material. The recovery and reserve estimates of crude oil, natural gas liquids and natural gas reserves provided herein are estimates only and there is no guarantee that the estimated reserve will be recovered. Actual crude oil, natural gas and natural gas liquid reserves may be greater than or less than the estimates provided herein.



SUMMARY OF OIL AND GAS RESERVES
AND NET PRESENT VALUES OF FUTURE NET REVENUE
AS OF DECEMBER 31, 2006
FORECAST PRICES AND COSTS

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RESERVES
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LIGHT AND NATURAL GAS
MEDIUM OIL NATURAL GAS LIQUIDS BOE
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RESERVES
CATEGORY Gross Net Gross Net Gross Net Gross Net
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(Mbbls) (Mbbls) (MMcf) (MMcf) (Mbbls) (Mbbls) (Mbbls) (Mbbls)
PROVED
Developed
Producing 301.0 257.1 2,480 1,928 37.5 23.6 751.8 602.1
Developed
Non-
Producing 191 177 2.8 2.2 34.5 31.7
Undeveloped 2,410 1,718 90.5 52.5 492.2 338.7
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TOTAL
PROVED 301.0 257.1 5,081 3,823 130.7 78.3 1,278.5 972.5
PROBABLE 244.7 205.4 2,969 2,292 61.3 37.0 801.0 624.5
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TOTAL
PROVED
PLUS
PROBABLE 545.7 462.5 8,050 6,115 192.0 115.3 2,079.5 1,597.0
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Notes:
1. "Gross" means our interest (operating and non-operating) before
deduction of royalties and without including any royalty interest of us.
2. "Net" means our interest (operating and non-operating) after deduction
of royalties obligations, plus our royalty interest in production or
reserves.
3. We do not have any heavy oil reserves.
4. We have presented our associated and non-associated natural gas and
solution gas on a combined basis.


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Net Present Values of Future Net Revenue

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Before Income Taxes
Discounted at (%/Year)
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0 5 10 15 20
Reserves Category (M$) (M$) (M$) (M$) (M$)
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Proved

Developed Producing 21,025 18,367 16,385 14,855 13,639
Developed Non-Producing 654 595 545 502 465
Undeveloped 7,161 4,406 3,010 2,175 1,621
Total Proved 28,839 23,368 19,940 17,531 15,725
Probable 21,355 12,999 9,142 6,971 5,590
Total Proved Plus Probable 50,194 36,367 29,082 24,503 21,314
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Net Present Values of Future Net Revenue

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After Income Taxes
Discounted at (%/Year)
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0 5 10 15 20
Reserves Category (M$) (M$) (M$) (M$) (M$)
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Proved

Developed Producing 21,025 18,367 16,385 14,855 13,639
Developed Non-Producing 654 595 545 502 465
Undeveloped 7,161 4,406 3,010 2,175 1,621
Total Proved 28,839 23,368 19,940 17,531 15,725
Probable 21,355 12,999 9,142 6,971 5,590
Total Proved Plus Probable 50,194 36,367 29,082 24,503 21,314
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The following sets forth certain selected benchmark reference prices, as at
December 31, 2006, reflected in the reserves data. These price assumptions
were provided to us by Sproule.

SUMMARY OF SELECTED PRICING AND INFLATION RATE ASSUMPTIONS
AS OF DECEMBER 31, 2006
FORECAST PRICES AND COSTS(1)(4)

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Oil Natural Gas
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Edmonton Cromer
Par Medium
WTI Price 29.3 Natural Gas(1)
Year Cushing 40 degrees degrees AECO Gas
Oklahoma API API Prices
($US/bbl) ($Cdn/bbl) ($Cdn/bbl) ($Cdn/MMBtu)
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Forecast
2007 65.73 74.10 63.72 7.72
2008 68.82 77.62 66.75 8.59
2009 62.42 70.25 60.41 7.74
2010 58.37 65.56 56.38 7.55
2011 55.20 61.90 53.24 7.72

Thereafter Various Escalation Rates
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Natural Gas Liquids
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Pentanes
Plus Butanes
FOB F.O.B. Inflation Exchange
Year Field Gate Field Gate Rate(2) Rate(3)
($Cdn/bbl) ($Cdn/bbl) (%/Yr) ($US/$Cdn)
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Forecast
2007 75.88 55.23 5.0 0.87
2008 79.49 57.85 4.0 0.87
2009 71.94 52.36 3.0 0.87
2010 67.14 48.87 2.0 0.87
2011 63.40 46.14 2.0 0.87

Thereafter Various Escalation Rates
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Notes:
1. This summary table identifies certain benchmark reference pricing
schedules that might apply to a reporting issuer.
2. Inflation rates for forecast prices and costs.
3. Exchange rates used to generate the benchmark reference prices in this
table.
4. The pricing forecast used in determining the value of cash flow is based
on the December 31, 2006 forecast determined by Sproule.


RECONCILIATION OF
COMPANY NET RESERVES (AFTER ROYALTY)
BY PRINCIPAL PRODUCT TYPE AS OF DECEMBER 31, 2006
FORECAST PRICES AND COSTS(1)

ASSOCIATED AND
LIGHT AND MEDIUM OIL NON-ASSOCIATED GAS
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Net Net
Proved Proved
Net Net Plus Net Net Plus
Proved Probable Probable Proved Probable Probable
FACTORS (Mbbls) (Mbbls) (Mbbls) (MMcf) (MMcf) (MMcf)
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December 31, 2005 485.1 431.4 916.5 5,523 3,329 8,852

Extensions - - - 84 57 141
Improved Recovery - - - - - -
Technical Revisions (163.6) (151.5) (315.1) (1,367) (441) (1,808)
Discoveries - - - 779 248 1,027
Acquisitions - - - - - -
Dispositions - - - - - -
Economic Factors - (74.5) (74.5) (402) (901) (1,303)
Production (64.4) - (64.4) (794) - (794)

December 31, 2006 257.1 205.4 462.5 3,823 2,292 6,115

Notes:
1. A reconciliation of reserve estimates may be presented using either
constant prices or forecast prices and costs provided that the price
and cost base is indicated in the disclosure.


RECONCILIATION OF CHANGES IN
NET PRESENT VALUES OF FUTURE NET REVENUE
DISCOUNTED AT 10% PER YEAR
PROVED RESERVES AS OF DECEMBER 31, 2006
CONSTANT PRICES AND COSTS

2006
FACTORS ($000s)
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December 31, 2005 38,924

Sales and Transfers of Oil and Gas Produced, Net of Production
Costs and Royalties (1) (6,607)
Net Change in Prices, Production Costs and Royalties Related to
Future Production (2) (11,388)
Actual Development Cost During the Period (1) (1,043)
Changes in Estimated Future Development Costs (2) (2,765)
Extensions, Infill Drilling and Improved Recovery (2) 135
Discoveries (2) 1,248
Acquisitions of Reserves (2) 0
Dispositions of Reserves (2) 0
Accretion of Discount (3) 3,810
Other Significant Factors (2) 2,155
Net Change in Income Taxes (4) 0
Changes Resulting from Technical Reserves Revisions Plus Effects
of Timing (2) (8,049)
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December 31, 2006 16,420

Notes:
1. Undiscounted before income tax.
2. Discounted before income tax.
3. Ten percent (10%) of beginning of year net present value, before income
tax.
4. Discounted.


Based on the results of the Sproule evaluation, management of C1 expects that there will be an impairment in the book value of property and equipment upon application of the year end ceiling test. Also there is expected to be impairment in the book value of the Corporation's goodwill.

C1 Attributes

C1 Energy is an exploration focused junior E&P company that has assembled an extensive undeveloped land position containing 133,500 net acres of high working interest lands, with the majority located in C1's core operating areas of Gift Lake and Blueberry in the Peace River Arch.

C1 has developed a significant inventory of drilling locations on its lands with many of these locations seismically supported utilizing C1's proprietary data base of 2D and 3D seismic as well as an extensive trade data base, in total exceeding 600 kilometres of 2D seismic and 750 square kilometres of 3D seismic data.

C1's core production base in the Peace River Arch is comprised of 65% gas and 35% light oil and is predominantly operated by C1 with high working interests and either company-owned infrastructure or stable access to centralized third party gathering and processing facilities. The Corporation's non-core properties are mainly located in established operating areas of Central and Northern Alberta and often feature non-operated production or standing wells drilled within the last two seasons.

C1's tax pools are estimated to total approximately $60 million at the end of 2006. There are a total of 35,742,727 issued and outstanding shares of the Corporation (basic and diluted).

Certain information set forth in this press release contains forward-looking statements. All statements other than historical fact contained herein are forward-looking statements, including, without limitation, statements regarding the future financial position, business strategy, production rates and plans and objectives of or involving C1 Energy Ltd. By their nature, forward-looking statements are subject to numerous risks and uncertainties, some of which are beyond C1's control, including the impact of general economic conditions, industry conditions, governmental regulation, volatility of commodity prices, currency fluctuations, imprecision of reserve estimates, environmental risks, competition from other industry participants, the lack of availability of qualified personnel or management, stock market volatility and ability to access sufficient capital from internal and external sources. 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, undue reliance should not be placed on forward-looking statements. C1's actual results, performance or achievement 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 that C1 will derive therefrom. C1 disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Disclosure provided herein in respect of barrels of oil equivalent ("boe") may be misleading, particularly if used in isolation. A boe conversion ratio of 6 Mcf:1 bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

Contact Information

  • C1 Energy Ltd.
    Donald S. Wood
    President & CEO
    (403) 232-1115 ext 105
    or
    C1 Energy Ltd.
    Gary L. Lobb
    VP Finance & CFO
    (403) 232-1115 ext 106
    or
    C1 Energy Ltd.
    500, 521-3rd Avenue S.W.
    Calgary, AB T2P 3T3 Canada
    (403) 232-1115
    (403) 232-1130 (FAX)
    Website: www.c1energy.ca