Ember Resources Inc.
TSX : EBR

Ember Resources Inc.

November 07, 2007 09:00 ET

Ember Resources Inc. Releases 2007 Third Quarter Results

CALGARY, ALBERTA--(Marketwire - Nov. 7, 2007) -

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Ember Resources Inc. ("Ember")(TSX:EBR) announced today that it has filed its unaudited interim financial statements and related management's discussion and analysis ("MD&A") for the quarter and nine months ended September 30, 2007 on www.sedar.com.



FINANCIAL HIGHLIGHTS
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(000s except Three Three Nine Nine
per share months months months months
amounts) ended ended Percen- ended ended Percen-
September September tage September September tage
30, 2007 30, 2006 Change 30, 2007 30, 2006 Change
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Natural gas
sales $ 2,411 $ 2,431 (1) $ 9,448 $ 6,630 43
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Funds from
operations $ 1,054 $ 1,162 (9) $ 4,542 $ 2,571 77
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- per share
basic & diluted $ 0.03 $ 0.03 - $ 0.13 $ 0.08 63
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Net income
(loss) $ (767) $(1,040) 26 $ (1,142) $(3,212) 64
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- per share
basic & diluted $ (0.02) $ (0.04) 50 $ (0.03) $ (0.11) 73
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Capital
investment
additions $ 6,856 $12,204 (44) $ 13,809 $28,834 (52)
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Property
acquisition $ - $ - - $ 8,806 $ - NA
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Total assets $100,047 $82,597 21 $100,047 $82,597 21
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Net debt
(surplus) $ 14,228 $(7,143) 299 $ 14,228 $(7,143) 299
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Average shares
- basic &
diluted 36,097 30,418 19 34,859 30,418 15
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OPERATING HIGHLIGHTS
--------------------------------------------------------------------------
(000s except Three Three Nine Nine
per unit months months months months
amounts) ended ended Percen- ended ended Percen-
September September tage September September tage
30, 2007 30, 2006 Change 30, 2007 30, 2006 Change
--------------------------------------------------------------------------
Daily avg gas
production
(mcf/d) 5,174 4,972 4 5,375 4,166 29
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Daily avg
production
(boe/d) 862 829 4 896 694 29
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Average sales
price ($/mcf) 5.07 5.31 (5) 6.44 5.83 10
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Royalties
($/mcf) 0.19 0.53 (64) 0.38 0.73 (48)
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Operating
expenses
($/mcf) 1.05 1.44 (27) 1.15 1.63 (29)
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Transportation
expenses
($/mcf) 0.22 0.19 16 0.20 0.23 (13)
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Operating
netback ($/mcf) 3.61 3.15 15 4.71 3.24 45
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Operating
netback ($/boe) 21.68 18.92 15 28.19 19.46 45
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CBM wells
drilled
(gross/net) 23.0/ 20.0/ 15/ 24.0/ 27.0/ (11)/
19.8 19.5 2 20.8 26.5 (22)
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- Mannville 0/0 3.0/ (100)/ 1.0/ 3.0/ (67)/
2.5 (100) 1.0 2.5 (60)
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- Horseshoe Canyon 23.0/ 17.0/ 35/ 23.0/ 24.0/ (4)/
19.8 17.0 16 19.8 24.0 (18)
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Land (000s of net
acres) 297 300 (1) 297 300 (1)
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Quarterly Highlights

Financial

- Funds from operations of $1.1 million ($0.03 per share) declined 9% from third quarter 2006. Higher production rates, and lower operating costs and royalties offset a decrease in the average natural gas price and higher general and admin costs and higher financing costs.

- The Company continued to move closer to profitability recording a $0.8 million loss as compared to a $1.0 million loss in third quarter 2006.

- Ember's net debt including working capital increased to $14.2 million at the end of the quarter as drilling was ramped up to move the Company's Acme property to its planned production start-up in late November.

- Net debt at year end is forecast at $22 million drawn on a $25 million line of credit. When including production and cash flow from the Acme property, the Company's debt to cash flow ratio is estimated at 1.6 times on an annualized basis.

- In the Alberta government's recent changes to royalties paid by industry, CBM resources were identified as a future source of energy and a new industry for Alberta and given favourable treatment to encourage development.

Operations

- Quarterly capital expenditures of $6.9 million were dedicated to drilling in Ember's two Horseshoe Canyon projects. Drilling commenced in July and 23 wells (19.8 net) were drilled by the end of the quarter; an additional 15 wells (15 net) were drilled in October.

- Quarterly production averaged 5.2 mmcf/d, up 4% from the same period in 2006 and a small increase from this year's second quarter. Current production is estimated at 6.0 mmcf/d.

- Production growth of 4.0 mmcf/d is being forecast by the end of the year as wells from the recent drilling campaign are tied in and the start-up of our Acme property. The 2007 exit rate is forecast at 10.0 mmcf/d.

- Well tie-ins are being planned to coincide with start-up of a gas processing plant at the end of November at the Company's Acme property. The facility and pipeline infrastructure are being constructed by AltaGas Income Trust ("AltaGas") as part of a long-term processing agreement for Ember's CBM resources in the Acme area.

Horseshoe Canyon CBM

Ember has recorded excellent drilling results from the low risk, low cost Horseshoe Canyon programs which kicked-off in July. By the end of the quarter, 23 new Horseshoe Canyon wells (19.8 net) had been drilled, rising to 41 new wells (36.6 net) with 13 tied in and producing (13 net) at the end of October. The remaining 28 new drills, along with nine existing shut-in wells, should be onstream by the end of the year. The tie-ins will significantly increase production to the targeted 2007 exit rate of 10 mmcf/d.

At Fenn-Big Valley 17 wells (14.7 net) were drilled during the quarter resulting in 16.0 successful wells (13.7 net) and one junked & abandoned well (1.0 net). An additional well (0.3 net) was drilled in October. Thirteen (13.0 net) of the wells were put on production in late September and in October, the remaining wells should be on production by the end of the year. Two existing wellbores were also recompleted in the Fenn area.

At Acme six wells (5.1 net) were drilled in the quarter and another 17 wells (16.5 net) were drilled in October for a total of 23 (21.6 net) wells. Ember had planned 28 wells in this program; however, five wells have been rescheduled for the first quarter of 2008 due to access issues. In addition to the new drills, nine (8.5 net) shut-in wells will be tied into new facilities currently under construction.

Results to date are very encouraging and have exceeded Ember's base expectations. Logged wellbores indicate good accumulations of Horseshoe Canyon coals, as well as multiple conventional sands in the Edmonton and Belly River formations. Completion activity at Acme is expected to be done by the end of November to coincide with the start-up of gas processing and pipeline infrastructure being constructed by AltaGas in the area. AltaGas has indicated that the plant will be available for start-up prior to the end of November, which will enable Ember to bring new wells onstream in stages with full production expected by mid-December.

Mannville CBM

Capital spending on Mannville CBM during the quarter was limited to remedial work on existing wells in the Rosalind area, primarily installation of new pumping equipment intended to reduce downtime caused by coal fines migration and to lower operating costs. New capital initiatives continue to be deferred until there is a sustained recovery in natural gas prices.

Despite no new investment in Mannville programs, results to date are encouraging. Six horizontal wells continue to produce from the Mannville coals. Productivity from these wells has been substantially higher but, as single-well drainage points, they have declined from their peaks due to lack of cumulative de-pressuring in the surrounding coals. To achieve higher sustainable rates, a number of infill locations are required to expand the drainage area. Successful multi-well programs have been demonstrated by operators in the Corbett Creek area where 140 horizontal wells have reached total production of 70 mmcf/d.

Industry activity in the Mannville coals increased during the third quarter with 15 rigs and up to nine operators drilling horizontal wells in various areas in Alberta. This renewed activity, including the application of numerous technologies, will provide additional data points and a greater technical understanding which ultimately will assist in the realization of the potential of this significant resource.

Changes to the Alberta Royalties

In late October, the Alberta government announced changes to royalties paid to the province to be effective on January 1, 2009. The province has identified non-conventional resources, such as CBM and the oil sands, as future industries for Alberta and changes to the royalty structure are designed to encourage further development.

Under the new royalty regime Ember will see a 50% decrease in the amount of Crown royalties paid. Based on Ember's 2007 exit rate and a natural gas price of $7.00/mcf, this translates to annual savings of $1.5 million. In addition, the investment profile was improved for low productivity long-life Horseshoe Canyon wells as the royalty rate was reduced by as much as 50% for wells that produce 100 mcf/d or less. These rate reductions will continue at lessening amounts up to $10.50/mcf.

Ember believes that two other changes will have long-term benefits to the Company and the CBM industry. Firstly, an incentive was introduced for gas wells with total measured depths in excess of 2,000 metres. Typical single-leg horizontal Mannville wells have measured depths of 2,000-2,500 metres. The second initiative is the shallow rights reversion which will require shallow zones, such as the Horseshoe Canyon coals, to revert back to the Crown for resale when the existing lease is held by deeper production.

Outlook

Natural gas fundamentals continue to point to an excess of supply relative to demand creating uncertainty in near-term prices. During this period of price weakness, the Company is conservatively managing its capital projects to maintain financial flexibility. Priority will be given to projects that show economic returns in the current pricing environment and will benefit the most from a recovery in natural gas prices.

Production is expected to average 6.0 mmcf/d for the year, which is at the lower end of the previously released guidance. Capital spending has been trimmed $3 million to $32 million for the year due to deferral of five wells in the Acme program and cost savings. As a result, the 2007 exit rate is now estimated to be 10 mmcf/d (previously 11 mcf/d). Forecasted net debt at year end is expected to be $22 million drawn on $25 million of available lines of credit.

"Ember is well positioned for future growth in 2008 and beyond. We have 200 drilling locations on our Horseshoe Canyon coals, which gives us a three-year inventory of low-risk development drilling and a source of near-term production growth. When combined with new royalty incentives for Mannville coals, we are well positioned to convert resources to reserves across our substantial asset base," said Doug Dafoe, Chairman and Chief Executive Officer.

As referred to above, Embers' unaudited financial statements and related MD&A for the three and nine month periods ended September 30, 2007 can be located at www.sedar.com or www.emberresources.com. If investors do not have access to the internet, copies of the unaudited financials and related MD&A can be obtained on request without charge by contacting Ember Resources Inc. at 403 270 0803.

Conference Call

A conference call to review Ember's third quarter results will take place on Wednesday, November 7, 2007 at 9:00 am MDT (11:00 am EDT). The conference call can be accessed by dialing in 15 minutes prior to the scheduled start at 1-866-334-3876. A live webcast will also be provided on www.emberresources.com, and a playback recording will be available via the site. A playback recording will also be available by telephone until March 12, 2008 by calling 1-866-245-6755 and entering the pass code 585720.

FORWARD-LOOKING STATEMENTS

This press release may contain forward-looking statements including expectations of future production, funds from operations, earnings, operating expenses and capital expenditures. These statements are based on current expectations that involve a number of risks and uncertainties, which could cause actual results to differ from those anticipated. These risks include, but are not limited to: the risks associated with the oil and gas industry (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 fluctuation and uncertainties resulting from potential delays or changes in plans with respect to exploration or development projects or capital expenditures. Additional information on these and other factors that could affect the Company's operations or financial results are included in the Company's reports on file with Canadian securities regulatory authorities.

Ember Resources Inc. is a resource company specializing in coalbed methane (CBM) with extensive land and resource holdings in Alberta, Canada. Ember's shares are traded on the Toronto Stock Exchange under the trading symbol "EBR".

Contact Information

  • Ember Resources Inc.
    Mr. Douglas A. Dafoe
    Chairman & CEO
    (403) 270-0803
    (403) 270-2850 (FAX)
    or
    Ember Resources Inc.
    Mr. Terry S. Meek
    President & COO
    (403) 270-0803
    (403) 270-2850 (FAX)
    Website: www.emberresources.com