Culane Energy Corp.
TSX VENTURE : CLN

Culane Energy Corp.

April 28, 2010 18:57 ET

Culane Energy Releases 2009 Results and Operations Update

CALGARY, ALBERTA--(Marketwire - April 28, 2010) - Culane Energy Corp. ("Culane" or the "Company") (TSX VENTURE:CLN) announces its financial and operating results for the year ended December 31, 2009. The audited Financial Statements and related Management's Discussion and Analysis, Statement of Reserves, and Annual Information Form have been filed with Canadian securities regulatory authorities on SEDAR at www.sedar.com and posted on the Company's website at www.culaneenergycorp.com.



2009 2008 2009 2008
Q4 Q4 HIGHLIGHTS Y to D Y to D
--------------- ------------ ------------------------
1,073 1,787 Daily production - BOE 1,370 2,310
26.76 20.63 Netback per BOE 24.96 46.19

1,939 2,705 Cash flow - ($000's) 10,018 36,145
0.08 0.11 Cash flow per share (basic) 0.42 1.57

(375) (2,618) Earnings (loss) - ($000's) (4,840) 9,718

- 6 Wells drilled 4 28
4,968 6,001 Capital expenditures - ($000's) 13,105 23,435
- 118 Acquisitions -- ($000's) - 21,660
- - Dispositions -- ($000's) (408) -
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Working Capital (deficit) - ($000's) 169 (1,919)
Bank debt - ($000's) (13,913) (11,262)
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Net debt - ($000's) (13,744) (13,181)

Basic shares outstanding 24,519,754 23,872,354


Highlights - continued (per share information stated below is based on weighted average - basic outstanding shares)

- The Company began its full field water-flood at Killam in mid November following regulatory approval. The water-flood facilities were completed during the third quarter, and additional injection wells and water source wells were completed in the fourth quarter.

- In Saskatchewan, the Company spent $4.1 million in 2009 acquiring 37,575 acres (58.7 sections) of undeveloped land. The land is concentrated in three new areas of exploration and is 83% Crown land and 17% freehold. The Company also spent $291,000 for seismic and commenced drilling of the first well on December 28, 2009.

- Production averaged 1,370 BOE/d for 2009 compared to 2,310 BOE/d for 2008, a 41% decline. (Q4/09 - 1,073, Q4/08 - 1,787). Production mix for 2009 is 72% oil and 28% natural gas, of which 96% is from the Company's Killam oilfield in east central Alberta.

- Prices for 2009 averaged $57.95 per bbl for oil and $4.10 per Mcf for natural gas compared to 2008 prices of $89.05 per bbl for oil and $8.63 per Mcf of natural gas. Net backs were $24.96 per BOE for 2009 and $46.19 per BOE for 2008, a 46% reduction.

- Gross revenues were $24.5 million for 2009 (Q4 - $5.7, Q3 - $5.8, Q2 - $6.8, Q1 - $6.2) compared to $66.4 million for 2008, a 63% decrease. This was due to a 41% decrease in the Company's production for 2009 compared to 2008, and a 38% decrease in the average commodity prices received in the two comparative periods.

- Cash flow for 2009 was $10 million, or $0.42 per share, compared to $36.1 million for 2008, or $1.57 per share, a 73% decrease in per share cash flow. (Q4/09 - $1.9 (0.08/share), Q3/09 - $2.3 (0.10/share), Q2/09 - $3.0 (0.13/share), Q1/09 - $2.7 (0.12/share)).

- The Company recorded a loss of $4.8 million for 2009, or $0.21 per share, compared to earnings of $9.7 million, or $0.42 per share in 2008. The Company recorded depletion costs of $16.1 million in 2009 and $19.8 million in 2008.

- Capital expenditures of $13.1 million were invested in 2009 ($7 on water-flood facilities, related pipelines, and injection wells at Killam, $4.4 on undeveloped lands and seismic costs in new areas of exploration in Saskatchewan, $1.4 of additional development costs at Killam, and $0.3 on exploration drilling in Saskatchewan).

- Net debt (bank debt less working capital) at December 31, 2009 was $13.7 million compared to $13.2 million at December 31, 2008. Debt to annualized cash flow is 1.77 to 1 (based on fourth quarter cash flow), while debt to equity is 0.27 to 1.

- The Company had drawn $13.9 million on its primary credit facility of $27 million at December 31, 2009, leaving $13.1 million available.

- Early in 2009, the Company purchased and returned to treasury, 723,500 common shares of Culane at an average price of $0.99 per share, through the Normal Course Issuer Bid process.

- On September 29, 2009 the Company issued 1,397,000 flow-through common shares at $2.15 per share for gross proceeds of $3 million. There are 24,519,754 common shares outstanding at December 31, 2009 and April 27, 2010 (26,139,754 fully diluted).

Reserves

All of the reserves of the Corporation were evaluated by McDaniel & Associates Consultants Ltd. ("McDaniel") as at December 31, 2009 and have been prepared in accordance with National Instrument ("NI") 51-101. The reserve evaluation has been approved by the Board of Directors of Culane.



Company share of remaining reserves - forecast prices and costs
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Reserves Natural Gas
category Medium Oil Heavy Oil Sales Liquids Total
(Mbbl) (Mbbl) Gas (MMcf) (Mbbl) (MBOE)
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Gross Net Gross Net Gross Net Gross Net Gross Net
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Proved
producing 11.3 9.6 994.3 784.5 692.2 568.0 0.2 0.1 1121.2 888.9
Proved
non-producing 0.0 0.0 505.4 372.7 252.2 194.8 0.0 0.0 547.5 405.2
Proved
undeveloped 0.0 0.0 892.1 673.2 124.6 99.3 0.0 0.0 912.9 689.8
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Total proved 11.3 9.6 2391.9 1830.5 1069.0 862.1 0.2 0.1 2581.5 1983.9
Probable 5.0 4.1 1298.3 953.3 505.7 411.8 0.9 0.8 1388.5 1026.8
Total proved
plus probable 16.3 13.7 3690.2 2783.8 1574.7 1274.0 1.1 0.9 3970.0 3010.7
Possible 0.0 0.0 3723.6 2586.1 324.0 237.0 0.0 0.0 3777.6 2625.6
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Total proved
plus probable
plus possible 16.3 13.7 7413.8 5369.9 1898.6 1511.0 1.1 0.9 7747.6 5636.4
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Forecast prices Company share of Net Present Value Before Income Taxes ($M)
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Reserves category Discounted (per year) at:
-----------------------------------------------------
Undisc 5% 10% 15% 20%
-----------------------------------------------------
Proved producing 44,458.3 36,947.0 31,723.4 27,942.0 25,098.0
Proved non-producing 20,564.7 17,374.9 14,759.3 12,706.0 11,084.0
Proved undeveloped 36,071.4 23,784.1 16,911.7 12,609.9 9,697.0
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Total proved 101,094.4 78,106.0 63,394.3 53,257.9 45,878.0
Probable 61,344.8 31,136.9 18,082.9 11,308.7 7,386.0
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Total proved plus
probable 162,439.2 109,242.9 81,477.2 64,566.5 53,264.0
Possible 111,949.9 39,096.8 17,102.3 8,385.3 4,282.0
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Total proved plus
probable plus
possible 274,389.2 148,339.6 98,579.4 72,951.9 57,546.0
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Alberta
Bow Alberta
McDaniel's Edmonton Par River AECO
forecast WTI Cushing Price 40 Hardisty price
pricing Oklahoma degree API Crude Oil spot US / Cdn
assumptions ($U.S./bbl) ($Cdn./bbl) ($Cdn/bbl) ($Cdn/MMBtu) Exchange
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2010 80.00 83.20 72.30 6.05 0.95
2011 83.60 87.00 73.80 6.75 0.95
2012 87.40 91.00 74.40 7.15 0.95
2013 91.30 95.00 75.80 7.45 0.95
2014 95.30 99.20 79.20 7.80 0.95


Beyond year 2014, the price escalates on average 2% per year. A foreign exchange rate of $0.95 US to $1.00 Cdn was used beyond 2014.

In 2009, gross proved reserves increased by 5.5%, gross proved plus probable reserves decreased by 12.7%, and gross proved plus probable plus possible reserves increased by 4.0% from 2008. The net present value before income tax (discounted at 10%) of gross proved reserves at December 31, 2009 was $63.4 million, an increase of 28.1% from December 31, 2008, owing primarily to commodity prices. At December 31, 2009, the net present value before income tax (discounted at 10%) of gross proved plus probable reserves was $81.4 million, a decrease of 11.0% year over year. At December 31, 2009, the net present value before income tax (discounted at 10%) of gross proved plus probable plus possible reserves was $98.6 million, a decrease of 9.8% from December 31, 2008. All of the reserve increases are attributable to increased reserves for secondary and tertiary recovery at Killam, Alberta.

Pursuant to NI 51-101, the Reserve category for the majority of Culane's crude oil reserves is heavy, based on new regulatory classifications for Crown royalty purposes in Alberta, effective January 1, 2009, as defined by the Alberta government under the New Royalty Framework ('NRF'). This resulted in a change in classification from medium to heavy in 2008. The Company still considers this medium-gravity crude, using industry-standard guidelines.

OPERATIONS UPDATE

In November of 2008 there was a lot of uncertainty over the looming economic downturn that was on the world's doorstep. Knowing that there was no way to avoid the downturn that was already underway, Culane examined go-forward strategies with the main emphasis on seeking opportunities to take advantage of the downturn and expand Culane's oil growth opportunities. Culane was in a strong financial position and identified a window of opportunity to acquire land when competition was at a lowest point. This was a time when the general industry sentiment was to conserve cash and ride out the downturn. In choosing its new area Culane wanted to remain focused on oil prone opportunities. In the end, the Crown Royalty system, infrastructure and excellent horizontal well economics in Saskatchewan were most suited to Culane for its next planned stage of organic growth. Culane's recent exploration drilling activities have been targeting both the Upper Shaunavon and the Birdbear Formations in S.W. Saskatchewan. However, the lands Culane has acquired have multi-zone oil potential. Culane is still in the very early stages of its exploration program in Saskatchewan.

In January of 2009, Culane commenced an active full cycle oil exploration initiative in S.W. Saskatchewan. Culane intends to carry out its future growth through the drill bit as it has since its inception. Over the course of 2009 Culane's oil exploration initiative included the acquisition, processing and interpretation of 2D seismic as well as the participation in Crown land sales and acquisition of freehold land. As of this date Culane owns a 100% working interest in approximately 63.0 sections (40,000 acres) of land in S.W. Saskatchewan. Total land acquisition costs to date in Saskatchewan are approximately $4.1 million. Total Saskatchewan seismic acquisition costs to date are approximately $322,000. On September 29, 2009 the Company issued 1,397,000 flow-through common shares at $2.15 per share for gross proceeds of $3 million. The proceeds of this financing have been used to fund Culane's S.W. Saskatchewan initial horizontal oil well exploration drilling program.

Culane is currently completing its initial phase of exploration activity in Saskatchewan. Vertical stratographic ("strat") test drilling operations of three new Culane exploration plays commenced on December 28th 2009. On two of the vertical strat wells, drill cores from the Birdbear Formation were recovered and sent to an independent laboratory in Calgary for analysis. Open-hole well logs were run on all three wells and the wells were then plugged back and horizontal drilling operations commenced. One horizontal test well targeted potential oil from the Upper Shaunavon Formation and two additional horizontal test wells targeted potential oil from the Birdbear Formation in two separate plays. Delays were encountered waiting for initial completion services after the wells were drilled. After the initial completion and swab testing of the wells, single well batteries were constructed for two of the horizontal wells. As these were the first test wells ever drilled by Culane in these formations, technical issues specific to these plays had to be addressed, resulting in completion of the wells taking longer than expected. Culane is currently carrying out the final completion of two of the three horizontal wells drilled.

The Notukeu Upper Shaunavon oil pool is located in S.W. Saskatchewan. Four abandoned vertical oil wells previously drilled and produced in the Notukeu pool are situated on land owned by Culane. Culane also owns the majority of land surrounding six additional vertical oil wells in the Notukeu pool, two of which are currently suspended and four of which are still producing oil. The Notukeu Upper Shaunavon oil pool has produced approximately 290,000 barrels of 22.8 API oil from ten vertical wells. This oil production amounts to less than 1% of the Saskatchewan Government's reported Original Oil in Place - "OOIP" ("Discovered Petroleum Initially-in-place") of approximately 16.0 million barrels for the Notukeu Shaunavon oil pool. Culane expects increased oil recoveries from the Notukeu pool with the use of horizontal infill drilling. Directly south of the Notukeu pool is the Instow Upper Shaunavon oil pool that has produced approximately 66 million barrels of 22 API oil to date. Northwest of the Notukeu pool, the Bench and Butte Upper Shaunavon pools have produced approximately 23 million barrels of 23 API oil combined. These pools were developed with vertical wells before the common use of horizontal drilling and advanced completion techniques.

Culane's Notukeu pool, Upper Shaunavon horizontal test well swabbed 99% oil at rates of approximately 280 barrels per day. A single well battery was constructed in order to production test the well. Since this is the first well drilled in the Upper Shaunavon by Culane, the Company wanted to establish how the horizontal well would perform before committing to additional stimulation of the well. Pressure work indicated that the well was not in direct communication with the main reservoir. Culane has established a pre-stimulation production capability for this well and, on April 19, 2010, following the lifting of road bans due to spring breakup, began the final completion operation. After the operations were completed the well was swabbed in. After two days swabbing, the rates were approximately 310 BOPD with a 92% oil cut. THESE ARE NOT STABILIZED PRODUCTION RATES BUT INITIAL SWABBING RESULTS. Swabbing operations ceased on April 26th, and the well was placed on production on April 27th. Stabilized daily oil production rates cannot be determined at this time. Culane expects to be in a position to announce initial production results by mid May.

Gravity of the oil is 22.4 API. Culane will pay a 2.5% Royalty on the first 38,000 barrels (6000 m3) of oil produced from horizontal wells drilled in the Upper Shaunavon Formation on Saskatchewan Crown lands. Culane owns a 100% working interest in 13 sections (8300 acres) of land on this play and is the operator. Culane is currently licensing additional locations and expects to commence the second phase of drilling operations in the third quarter of 2010.

Culane has also drilled wells targeting the Birdbear formation in west central Saskatchewan. This is considered to be similar to the Hallam oil pool in West Central Saskatchewan, where approximately 18 horizontal wells have been drilled in the Birdbear Formation. The Hallam Birdbear pool is the model used by Culane for the development of this play concept.

Culane has drilled two test horizontal wells in the Birdbear Formation. The first well was acidized and swabbed with rates fluctuating from 0 to 70 barrels of oil per day and water cuts ranging from 65% to 100%. The oil quality is 14.6 API. A single well battery was then constructed to place this well on production test. This well requires further completion work and evaluation to determine if it is capable of economic production. Culane encountered delays completing this well, waiting on services that couldn't proceed because of road bans. Culane will pay a 2.5% Royalty on the first 100,000 barrels (16,000 m3) of oil produced from any horizontal wells drilled in the Birdbear Formation on Saskatchewan Crown lands. Culane owns a 100% working interest in this project.

In a separate Birdbear exploration project area, a second horizontal Birdbear test well was drilled, tested and suspended as un-economic. Total drilling costs in all areas of Saskatchewan to date have been approximately $4.9 million.

KILLAM

As was previously announced, Culane has fully delineated two main Lloydminster oil pools at Killam. Culane defines the Killam Lloydminster oil project as a recoverable oil reserve based play rather than a daily production growth play. With the full field implementation of the waterflood program, daily oil production rates are expected to increase. Culane has increased the number of injection wells from 2 to 13. The injection wells are a combination of both vertical and converted horizontal wells. Culane is producing oil from 32 multi-leg horizontal wells. Culane commenced construction of its water injection facilities mid July. Construction of the water injection facilities, including pipelines, was completed on October 3rd, 2009. This central injection facility will service all Culane lands in the Killam area. With full implementation of the waterflood, reservoir simulation modeling by a third party consultant, indicates that secondary oil recoveries can be expected to increase to approximately 22% from around 10% under primary production. A surfactant-polymer injection testing skid is being shipped to Killam to conduct in-field injectivity testing on one of Culane's existing injector wells. This is the last stage of testing before full implementation of surfactant-polymer for the whole field, which is planned for the third quarter of 2010. Subsequent reservoir simulation studies by a third party consultant, using existing pool analogies along with linear core flood testing, continue to support the theory that this combination of surfactant polymer added to the water flood can be expected to increase oil recoveries in excess of 40%.

On November 10th 2010 Culane announced that it had received regulatory approvals for four water flood applications submitted by Culane for its Killam project. Culane had endured external delays in gaining approval for the implementation of the Killam water flood of over a year resulting in declining oil production rates as reservoir pressure continued to drop. Culane has been ramping up water injection rates starting in the first quarter of 2010. Water injection rates are now approximately 4,200 barrels of water per day. For the past 4 months Culane's production has stabilized at Killam, so the Company's total production has held around 1,050 BOE/D. As the reservoir pressure increases the fluid level in the well bores are increasing. When the reservoir pressure increases sufficiently, Culane intends to increase pump speeds and oil production rates, this is expected to happen during the third quarter. Culane also plans to introduce surfactant-polymer in the third quarter. The addition of the surfactant-polymer will cause the water production rates to drop as the oil is pushed in a front instead of fingering and breaking through. Culane is currently planning to drill two more water source wells to increase water injection volumes.

Culane's independent engineering evaluator has completed its evaluation of the Company's reserves as of December 31, 2009. The reserves have been assigned as Proved, Probable and Possible. The evaluator has assigned Possible reserves (3P) to the surfactant polymer flood. The Proved, Probable and Possible reserves assigned at this time combine for a 22.5% oil recovery factor. The "Discovered Petroleum Initially-in-place" at Killam net to Culane is estimated at approximately 42 million barrels of 24 API oil. Culane maintains 100% ownership in this asset and is the operator.

Production averaged 1,370 BOE/d for 2009 compared to 2,310 BOE/d for 2008, a 41% decline. (Q4/09 - 1,073, Q4/08 - 1,787). Production mix for 2009 is 72% oil and 28% natural gas, of which 96% is from the Company's Killam oilfield in east central Alberta.

Capital expenditures of $13.1 million were invested in 2009 ($7 on water-flood facilities, related pipelines, and injection wells at Killam, $4.4 on undeveloped lands and seismic costs in new areas of exploration in Saskatchewan, $1.4 of additional development costs at Killam, and $0.3 on exploration drilling in Saskatchewan). Net debt (bank debt less working capital) at December 31, 2009 was $13.7 million compared to $13.2 million at December 31, 2008. Debt to annualized cash flow is 1.77 to 1 (based on fourth quarter cash flow), while debt to equity is 0.27 to 1. The Company was drawn to $13.9 million on its primary credit facility of $27 million at December 31, 2009, leaving $13.1 million available.

The 2009 reserve report does not include any of the new horizontal wells drilled in Saskatchewan in the first quarter of 2010 as these wells have either just been completed or are in the process of being completed

About Culane Energy Corp.

Culane is a junior oil and gas company engaged in the exploration, development and production of oil and natural gas in western Canada.

FORWARD-LOOKING STATEMENTS

This press release contains forward-looking statements. More particularly, this press release contains statements concerning anticipated results from the Company water flood program, oil recoverability, and anticipated exploration activities. The forward-looking statements contained in this document are based on certain key expectations and assumptions made by Culane. Although Culane believes that the expectations and assumptions on which the forward-looking statements are based are reasonable, undue reliance should not be placed on the forward-looking statements because Culane can give no assurance that they will prove to be correct. Since forward-looking statements address future events and conditions, by their very nature they involve inherent risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors and risks. These include, but are not limited to, the failure to obtain necessary regulatory approvals, risks associated with the oil and gas industry in general (e.g., operational risks in development, exploration and production; delays or changes in plans with respect to exploration or development projects or capital expenditures; the uncertainty of reserve estimates; the uncertainty of estimates and projections relating to production, costs and expenses, and health, safety and environmental risks), commodity price and exchange rate fluctuations and uncertainties resulting from potential delays or changes in plans with respect to exploration or development projects or capital expenditures. Certain of these risks are set out in more detail in Culane' Annual Information Form which has been filed on SEDAR and can be accessed at www.sedar.com.

The forward-looking statements contained in this document are made as of the date hereof and Culane undertakes no obligation to update publicly or revise any forward-looking statements or information, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws.

24,519,754 Common Shares

NEITHER THE TSX VENTURE EXCHANGE NOR ITS REGULATION SERVICES PROVIDER (AS THAT TERM IS DEFINED IN THE POLICIES OF THE TSX VENTURE EXCHANGE) ACCEPTS RESPONSIBILITY FOR THE ADEQUACY OR ACCURACY OF THIS RELEASE.

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