Canoro Resources Ltd.
TSX VENTURE : CNS

Canoro Resources Ltd.

November 30, 2009 17:58 ET

Canoro Resources Ltd. Announces Its Results for the Quarter Ended September 30, 2009

CALGARY, ALBERTA--(Marketwire - Nov. 30, 2009) -

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Canoro Resources Ltd. ("Canoro" or "the Company") (TSX VENTURE:CNS) announces its financial and operational results for the second quarter ended September 30, 2009 (the "Quarter").

The table below provides a summary of the Company's financial and operating results for the three-month periods ended September 30, 2009 and 2008, and June 30, 2009 as well as the six month period ending September 30, 2009 and the same period ended September 30, 2008. Consolidated financial statements with management's discussion and analysis (MD&A) are now available on the Company's website (www.canoro.com) and will also be available on the SEDAR website within 24 hours (www.sedar.com). All amounts are presented in US$ unless otherwise noted.



----------------------------------------------------------------------------
Three Six
months ended months ended
US$000s, US$ Prior(1) September 30 September 30
per share Quarter 2009 2008 %change 2009 2008 %change
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Financial
Funds from/(used)
in operations (915) (800) 1,848 n/m (1,714) 3,413 n/m
per share
diluted (0.01) (0.01) 0.02 n/m (0.02) 0.03 n/m
Net loss for the
period (2,195) (1,942) (582) 234 (4,137) (963) 330
per share
diluted (0.02) (0.02) (0.01) 234 (0.04) (0.01) -
Net capital
expenditures 1,197 91(2) 7,898 (99) 1,288(2) 14,486 (91)
Working capital 4,956 4,046 24,782 (84) 4,046 24,782 (84)
Long-term debt - - - - - - -
Shareholders'
equity 76,155 74,353 82,922 (10) 74,353 82,922 (10)
Common shares
Outstanding
(000s) 113,709 113,709 113,709 - 113,709 113,709 -

Operational

Natural gas
(mcf/d) 2,629 2,310 3,810 (39) 2,483 3,771 (34)
Oil and
Condensate (bbl/d) 172 129 288 (55) 151 285 (47)
Total (boe/d) 610 514 923 (44) 565 914 (38)

Realized gas
price ($/mcf) 1.96 2.00 2.32 (14) 1.98 2.36 (16)
Realized oil price
($/bbl) 61.62 72.10 120.60 (40) 66.15 126.09 (48)
Nigerian Bonny
Light ($/bbl) 58.51 69.90 119.52 (42) 63.61 122.26 (48)

Realized price
($/boe) 25.79 27.09 47.23 (43) 26.39 49.12 (46)
Royalties ($/boe) 2.79 4.29 4.50 (5) 3.48 4.77 (27)
Operating costs
($/boe) 8.40 6.49 3.93 65 7.52 4.14 82
Netback ($/boe) 14.60 16.31 38.80 (58) 15.39 40.21 (62)
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(1) Denotes the three months ended June 30, 2009.

(2) Net of proceeds of $4.0 million received from Gemini during the
Quarter. Capital expenditures before receipt of funds were $4.1 million
for the three months ended.

September 30, 2009 and $5.3 million for the six months ended September
30, 2009.


Second Quarter Highlights

- production declined 15% over Q1 FY2010 to 514 barrels of oil equivalent per day ("boe/d") as the Company continued to experience reduced natural gas demand from area tea gardens as well as restricted condensate production in anticipation of the installation of gas reinjection;

- funds used by operations were reduced by $0.1 million to $0.8 million compared with $0.9 million funds used by operations in the prior quarter;

- exited the Quarter with no debt and working capital of $4.0 million;

- Amguri condensate recovery and gas injection project is expected to be commissioned by Q2 2010 with major equipment expected to arrive in Kolkata by mid-December; and

- drilling operations on Block AA-ONN-2003/2 (Canoro 15% interest) continue to be suspended due to site conditions with both the Operator (having resigned) and the Company seeking to exit the project.

Subsequent to Quarter Highlights

- the Government of India announced that the Cabinet Committee on Economic Affairs approved the splitting of the Production Sharing Contract ("PSC") for Block AA-ON/7 (Canoro 65% and Operator) in two parts, to consider the separate exploration period of Nagaland part of the Block;

- the Company asked to join a State of Assam task force on gas supply in Assam along with Oil India Ltd., ONGC, Indian Oil Corporation and other transporters and consumers of gas with the objective of improving natural gas markets and supplying gas to the city of Guwahati in southeast Assam;

- the Company continued with a feasibility study for a 30 megawatt to 100 megawatt gas-fired power plant in Amguri as well as the installation of LPG facilities to strip liquids from the natural gas stream.

Canoro continued to make progress during the second quarter of its fiscal 2010 year in solidifying its production base, strengthening its financial position and expanding its revenue base. The Company is nearing the completion of a full re-interpretation of its Amguri asset. With the assistance of private equity financing from Gemini Oil & Gas Advisors which closed during the Quarter, Canoro is moving into the construction phase of its condensate recovery / gas re-injection facility at Amguri. With the prospects of a significant increase in cash flow by calendar Q2 2010, the Company is firmly focused on meeting the challenges over the next few months to get there. Capital will be very tight until that time, however Management is committed to reaching this goal. In addition to continuing to aggressively cut costs, in the near term Canoro is seeking to increase its cash flow with increased gas production by entering into a short term gas contract. Management is acutely aware of the investment which has been made in the people and assets of Canoro, and the Company is committed to deliver on that investment.

Expanding the Company's asset base is a key priority of Canoro. With the people and infrastructure in place, the Company is capable of much more. In addition to seeking to create value from the Company's midstream and downstream activities, Management is actively reviewing a number of opportunities to expand Canoro both inside and outside of India.

Financial review

The Company incurred a net loss during the Quarter of $1.9 million and utilized funds from operations of $0.8 million. The results of the Company's initiative to reduce G&A costs began to show effect in the Quarter. The Company continues to scrutinize all aspects of its cost structure and management is committed to further reductions going forward.

During the Quarter, the Company funded a major portion of its condensate recovery and gas re-injection project by entering into an agreement with a private equity fund (the "Fund") whereby the Fund provided a follow-on limited recourse funding of $4.0 million. The Fund did not earn a participating interest in the field, and is not responsible for future capital costs. The Fund is entitled to receive payments based on Canoro's 60% share of gross revenue from the Amguri Field ranging from 8% before recovery of the original $4.0 million, declining to 4% thereafter. Subsequent to the end of the Quarter, the Company issued 270,885 common shares at a deemed price of $0.10 per share to the Company's agent for the transaction.

In addition to the private equity funding, the Company continued working to secure additional sources of capital for its various initiatives and to strengthen its operational capabilities, including joint venture partners, strategic investors and debt facilities in the Indian market. The Company exited the Quarter with no debt and working capital of $4.0 million.

Operations review

Amguri

Amguri (Canoro 60% working interest) production averaged 514 boe/d consisting of 2,310 thousand cubic feet ("mcf") per day of natural gas and 129 barrels ("bbl") per day of condensate. Production decreased 44 percent from the comparative quarter in the prior year and decreased 16% from the previous quarter. As was the case in Q1 F2010, the reduction in quarterly year-over-year production is due to both a curtailment of condensate volumes to maintain reservoir pressure while the gas injection facility is being constructed, combined with a decreased seasonal demand for natural gas in the region. Quarter-over-quarter, natural gas volumes decreased by 12% with continued cutbacks in natural gas demand. Liquids production decreased approximately 25% along with reduced natural gas volumes as condensate production continued to be curtailed in anticipation of the gas injection facility.

Natural gas marketing

As a result of the curtailments in natural gas sales during the Quarter, the Company continued to shut in the A-14 Tipam gas well which had been tied in the previous quarter. Prospects for increased near term gas sales improved as Canoro continued its negotiations on a short term gas sales contract with a large public sector company in Assam. If, as and when completed, the contract would provide for increased gas sales volumes by the end of 2009. Looking towards the medium to longer term, the Company continued its discussions with a number of regional industrial users of natural gas with respect to longer term fixed price and volume contracts. Further, subsequent to the end of the Quarter, the Company was invited to attend a task force commissioned by the state government of Assam to assess the supply and demand for natural gas in Assam, with the specific objective of identifying potential sources of long term gas supply to the state capital Guwahati.

With natural gas prices in northeast India expected to continue to be lower than the rest of India in the near to medium term, the Company continues to explore all of its options before committing to long term gas sales contracts at what it believes are sub-market prices. With an increasing policy emphasis by both national and state governments in India to increase power generation capacity, Canoro continued to work towards defining the scope and feasibility of a staged 30-100 megawatt natural gas-fired power plant at Amguri. The Company believes that at present a power plant is one of the most attractive means to extract value from both the gas reserves and the downstream market. Costs of the project are currently estimated to be from $30 million to $100 million, expected to be funded 70/30 debt/equity. The Company has received a number of indications of interest in participation in the equity and debt portion of the project.

Amguri condensate recovery / gas re-injection project

The Amguri condensate recovery and gas re-injection project is expected to be commissioned by Q2 2010. Major equipment is expected to arrive by mid-December at the port in Kolkata and cleared for land shipment to Amguri. The Company recently received tenders for the construction contract and is currently working with the contractor to finalize the construction schedule. Site work is expected to commence in December 2009. The gas recycling scheme required to maximize recovery of condensate also ensures that optimal condensate volumes can be produced with or without a local gas market as lean gas is re-injected into the reservoir to maximize reservoir pressure and recovery of condensate. The Company is also evaluating the feasibility of installing an LPG train which would strip the butane and propane from the natural gas stream for sale to the local markets. Assam is a net importer of these products which are used for cooking gas and industrial applications.

Amguri PSDM seismic reinterpretation

The Company is well on its way to achieving its objective of obtaining a complete and accurate geo-technical understanding of Amguri. The Pre-Stack Depth Migration ("PSDM") reprocessing of the primary volume of Amguri 3D seismic data was completed by the end of the Quarter and interpretation has been ongoing since. The Company also commissioned a second PSDM volume during the Quarter, from which a first volume has been recently received. The volume is being quality inspected prior to accepting delivery of a final volume. A complete re-interpretation of the Amguri block is still expected to be completed by the end of the year. As a result of the re-interpretation of Amguri from both PSDM volumes, combined with additional work such as inversion and reservoir characterization, the Company is expecting a more reliable geological model of the block. From this new model, the Company intends to propose additional drilling locations to its partner in the block, with a view to commencing a second drilling programme late in 2010. Key issues to be resolved include ascertaining the extent to which individual pools are in communication, as well as the aerial extent of known accumulations, such as that around the A-13B well.

AA-ONN-2003/2

With the continued site complications due to adverse weather conditions and other factors associated with lease construction during monsoon season, activity at the JRMC location on the AA-ONN-2003/2 Block (Canoro 15% interest) has been halted. With drilling operations at a standstill and the future operations of the block uncertain, the Operator has notified the partners that it has resigned operatorship. Both the former Operator and Canoro have notified the partners of their intention to exit the project. The remaining partners are currently evaluating their options to move forward.

AA-ON/7 Belt of Schuppen (BOS) Nagaland Block

Subsequent to abandoning the Deragon No. 2 well in January 2009, the Company withdrew its application to the Government of India seeking an extension of the exploration phase thereby relinquishing the Assam portion of the AA-ON/7 Block. Unable to proceed with operations on the Nagaland portion of the AA-ON/7 Block, the Company on behalf of the partners applied for a new PSC covering this 341 square kilometer section along the Naga Hills thrust belt. In early November, the Government of India announced that the Cabinet Committee on Economic Affairs approved the splitting of the PSC for Block AA-ON/7 in two parts, to consider separate exploration period of the Nagaland part of the Block by the signing of a separate PSC for Nagaland portion at terms and conditions not inferior to the existing terms and conditions in the present PSC. The Company has yet to receive official notification from the Government of India with respect to its announced intentions regarding AA-ON/7, however Canoro is excited about the opportunities in Nagaland.

Changpang Nagaland

The state government of Nagaland has commissioned a committee of members of the legistative assembly to review the constitutional issues concerning the ownership of mineral rights in the state. The Company expects results of such review to be communicated within the next few months. In the meantime, the Company continues to work with all stakeholders towards the finalization of the Changpang deal, which Canoro believes will result in significant local employment, job training, improvement in infrastructure and revenue to the state as a result of the rehabilitation and development of the Changpang field.

Outlook

Capital Spending

The Company is forecasting capital expenditures of approximately $3.0 to $4.0 million over the third and fourth quarter of fiscal 2010, primarily on the gas compression project and A-11 workover.

Production Guidance

For fiscal 2010, the Company has forecast average production of 700 boe/d to 900 boe/d with an exit rate of 1,000 boe/d. Due to reduced natural gas demand, the Company is expecting full year production to be at the low end of the range, with no change to the anticipated exit rate of 1,000 boe/d. The commissioning of the compression project is projected to change the production mix of the Company from approximately 70 percent natural gas and 30 percent condensate to greater than 60 percent condensate. The impact on cash flow from operations will be significant as the Company received approximately $12.00 per boe for natural gas production and $72.10 per bbl for oil during the Quarter.

Additional Information

Additional information relating to Canoro, including Canoro's Second Quarter 2010 Report, 2009 Annual Report, 2009 Year-End Audited Financial Statements, Management Discussion and Analysis and Annual Information Form for the year ended March 31, 2009, can be accessed on-line on SEDAR at www.sedar.com, or from the Corporation's website at www.canoro.com.

Disclaimer

Certain information regarding Canoro in this news release including management's assessment of future plans and operations including drilling plans, timing of production increases, well costs, facilities expansion and the timing thereof and availability and election to use transitional royalties, the Corporation's planned 2009/10 capital projects, the method of funding thereof and the expected resulting production levels, may constitute forward-looking statements under applicable securities laws and necessarily involve risks including, without limitation, risks associated with oil and gas exploration, development, exploitation, production, marketing and transportation, loss of markets, volatility of commodity prices, currency fluctuations, imprecision of reserve estimates, environmental risks, competition from other producers, inability to retain drilling rigs and other services, capital expenditure costs,including drilling, completion and facilities costs, unexpected decline rates in wells, wells not performing as expected, delays resulting from or inability to obtain required regulatory approvals and ability to access sufficient capital from internal and external sources. As a consequence, actual results may differ materially from those anticipated in the forward-looking statements. Readers are cautioned that the foregoing list of factors is not exhaustive. The net present value of estimated future net revenues does not represent fair market value.

Additional information on these and other factors that could affect Canoro's operations and financial results are included in reports on file with Canadian securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com), at Canoro's website (www.canoro.com). Furthermore, the forward-looking statements contained in this news release are made as at the date of this news release and Canoro does not undertake any obligation to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by applicable securities laws.

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.

The press release contains the terms "funds from operations", and "netbacks" which are not recognized measures under Canadian generally accepted accounting principles. The Company uses these measures to help evaluate its performance. Management considers netbacks an important measure as it demonstrates its profitability relative to current commodity prices. Management uses funds from operations to analyze performance and considers it a key measure as it demonstrates the Company's ability to generate the cash necessary to fund future capital investments and to repay debt. Funds from operations has been defined by the Company as net earnings adjusted for non-cash items (depletion, depreciation and accretion, stockbased compensation, unrealized (gain)/loss on foreign exchange, and unrealized investment (gain)/loss) and excludes the change in non-cash working capital related to operating activities and expenditures on asset retirement obligations and reclamation. Canoro's determination of funds from operations may not be comparable to that reported by other companies nor should it be viewed as an alternative to cash flow from operating activities, net earnings or other measures of financial performance calculated in accordance with Canadian GAAP.

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

Contact Information

  • Canoro Resources Ltd.
    Robert S. Wynne
    President and Chief Executive Officer
    (403) 592-6295
    rwynne@canoro.com
    or
    Canoro Resources Ltd.
    Ryan Ellson
    Vice President, Finance
    (403) 410-6777
    rellson@canoro.com
    or
    Canoro Resources Ltd.
    700 Elveden House
    717 Seventh Avenue SW
    Calgary, Alberta
    Canada T2P 0Z3
    www.canoro.com