Ember Resources Inc.
TSX : EBR

Ember Resources Inc.

March 24, 2010 08:30 ET

Ember Resources Inc. Reports 2009 Annual Results and Updates First Quarter Activity

CALGARY, ALBERTA--(Marketwire - March 24, 2010) -

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Ember Resources Inc. ("Ember") (TSX:EBR) announced today that it has filed its audited financial statements and related management discussion and analysis ("MD&A") for the year ended December 31, 2009 on www.sedar.com.



Financial Highlights

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Three Three
months months
ended ended
December December Percent
($000s except per share amounts) 31, 2009 31, 2008 Change
(Restated)
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Natural gas sales $ 9,659 $ 17,521 (45)
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Funds from operations $ 3,230 $ 9,581 (66)
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- per share basic & diluted $ 0.05 $ 0.19 (74)
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Net income (loss) $ (4,431) $ (901) 392
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- per share basic & diluted $ (0.07) $ (0.02) 250
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Capital investment additions $ 6,611 $ 8,387 (21)
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Property acquisition $ (80) $ - NA
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Property disposition $ 6 $ 1,750 (100)
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Corporate acquisition $ - $ (31) NA
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Total assets $ 365,539 $ 389,360 (6)
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Net bank debt and working capital $ 81,744 $ 100,728 (19)
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Shares outstanding 74,897 51,367 46
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Year ended Year ended
December December Percent
($000s except per share amounts) 31, 2009 31, 2008 Change
(Restated)
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Natural gas sales $ 36,872 $ 39,520 (7)
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Funds from operations $ 13,517 $ 21,548 (37)
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- per share basic & diluted $ 0.25 $ 0.82 (70)
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Net income (loss) $ (19,006) $ 1,529 (1,343)
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- per share basic & diluted $ (0.35) $ 0.06 (683)
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Capital investment additions $ 14,299 $ 24,419 (41)
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Property acquisition $ 3,133 $ - NA
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Property disposition $ 5,710 $ 1,750 226
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Corporate acquisition $ - $ 187,968 NA
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Total assets $ 365,539 $ 389,360 (6)
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Net bank debt and working capital $ 81,744 $ 100,728 (19)
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Shares outstanding 74,897 51,367 46
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Operating Highlights

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Three Three
months months
ended ended
December December Percent
(000s except per unit amounts) 31, 2009 31, 2008 Change
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Daily average gas production (Mcf/d) 23,583 28,930 (18)
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Daily average production (BOE/d) 3,931 4,822 (18)
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Average sales price ($/Mcf) 4.45 6.58 (32)
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Realized derivative gain ($/Mcf) 0.14 0.27 (48)
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Royalties ($/Mcf) 0.29 0.80 (64)
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Operating expenses ($/Mcf) 1.70 1.39 22
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Transportation expenses ($/Mcf) 0.17 0.19 (11)
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Operating netback ($/Mcf) 2.43 4.47 (46)
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Operating netback ($/BOE) 14.62 26.82 (45)
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CBM wells drilled (gross/net)
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- Horseshoe Canyon 29.0/20.9 11.0/8.6 164/143
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Land (000s of net acres) 460 488 (6)
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Year ended Year ended
December December Percent
(000s except per unit amounts) 31, 2009 31, 2008 Change
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Daily average gas production (Mcf/d) 25,320 14,700 72
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Daily average production (BOE/d) 4,220 2,450 72
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Average sales price ($/Mcf) 3.99 7.35 (46)
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Realized derivative gain ($/Mcf) 0.18 0.12 50
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Royalties ($/Mcf) 0.18 0.82 (78)
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Operating expenses ($/Mcf) 1.44 1.55 (7)
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Transportation expenses ($/Mcf) 0.17 0.19 (11)
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Operating netback ($/Mcf) 2.38 4.91 (52)
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Operating netback ($/BOE) 14.28 29.42 (51)
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CBM wells drilled (gross/net)
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- Horseshoe Canyon 50.0/33.0 64.0/44.6 (22)/(26)
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Land (000s of net acres) 460 488 (6)
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Continued focus in the Horseshoe Canyon - Coalbed Methane (CBM)

Ember is pursuing CBM from the Horseshoe Canyon coals, one of the lowest-cost natural gas resource plays in North America. As a result, Ember generates one of the highest netbacks in Alberta, which is a clear advantage in the current climate of low gas prices. Ember, along with other operators in the Horseshoe Canyon, estimates a breakeven cost of $3 to $4/Mcf, including both operating and capital costs. Even with such a low cost structure, Ember is continuing to drive down its cost metrics.

In 2009, cash costs (operating costs, transportation and general & administrative costs and excluding interest costs) were down 11% to $2.00/Mcf and further reductions are being pursued this year. Another cost advantage is Ember's low Crown royalty rate, which is expected to be less than 5% under both the existing and recently announced changes to the Alberta royalty regime. At $6/Mcf gas prices, Ember's royalty advantage would equate to the operating costs reported by most oil and gas companies.

Ember's low cost structure was a contributing factor in meeting important targets in 2009; a significant $19 million reduction in net debt, and an accelerated drilling program at the end of 2009 and into first quarter 2010.


Highlights

Financial performance

- Funds from operations decreased 37% to $13.5 million ($0.25/share diluted) from $21.5 million ($0.82/share diluted) in 2008. Fourth quarter funds from operations were $3.2 million ($0.05/share diluted) compared with $9.6 million ($0.19/share diluted) in fourth quarter 2008. Funds from operations were mainly impacted by a 46% decrease in the average natural gas price to $3.99/Mcf.

- The Company recorded a net loss of $19.0 million in 2009 (net loss $0.35/share diluted) as compared to net income of $1.5 million ($0.06/share diluted) in 2008. Net loss for the quarter was $4.4 million (net loss $0.07/share diluted) versus a net loss of $0.9 million (net loss $0.02/share diluted) in Q4 2008.

- An equity financing in November 2009 raised gross proceeds of $20 million through the issue of 23.5 million Common Shares at $0.85 per Common Share. Proceeds from the offering were used to reduce the Company's drawn credit facilities by $10 million and to provide working capital for capital programs in Q4 2009 and Q1 2010.

- Capital expenditures including property acquisitions, net of $5.7 million in dispositions, totaled $11.7 million as compared to $22.7 million in 2008. Net capital expenditures for the fourth quarter of $6.6 million were level with Q4 2008.

- Net debt was reduced by $19 million. At year-end 2009 Ember had net bank debt and working capital totaling $81.7 million. The Company currently has a $92 million credit facility.

- Net asset value before tax was estimated at $3.04/share as at December 31, 2009. Net asset value is calculated using the net present value of proved plus probable reserves discounted at 10% and forecasted prices of Ember's independent reserve evaluator.

- Ember continued to improve cost efficiencies in 2009. Operating costs were $1.44/Mcf ($8.65/BOE), general and administrative costs were $0.39/Mcf ($2.36/BOE) and the effective royalty rate was 4.3%.

- For 2010 Ember expects both operating and general and administrative costs to continue to decline to $1.33/Mcf ($8.00/BOE) and $0.37/Mcf ($2.25/BOE) respectively. Royalties are expected to average 7.0%, continuing Ember's track record as one of the highest netback natural gas producers in Alberta.

Operating performance

- Average daily production increased 72% to 25.3 MMcf/d from 14.7 MMcf/d in 2008, primarily through a major acquisition in September 2008.

- Ember has grown its production base nearly 10-fold from 2.7 MMcf/d to 23.6 MMcf/d since inception in the third quarter of 2005.

- The drilling program continued to record 100% success with all wells targeting the highly predictable Horseshoe Canyon coals. In 2009 Ember drilled 50 wells (33.0 net) of which 31 wells (17.2 net) were drilled at Acme. The remaining 19 wells (15.8 net) were drilled in the Fenn-Big Valley and Bashaw core areas. A total of 29 (20.9 net) wells were drilled late in the fourth quarter with corresponding production additions in the first quarter of 2010.

- Ember's low cost of drilling continued to decline with drilling and completion costs & equipping costs averaging $350 thousand per well.

- Proved and probable reserves declined 6% to 135.7 Bcfe from 143.3 Bcfe in 2008. As a resource play, Ember's drilling is focused on converting undeveloped reserves into the developed and producing categories; 7.7 Bcf was moved into those categories even with limited capital spending. The Company sold 3.2 Bcfe of non-core assets and produced 9.2 Bcf of natural gas during the year which contributed to the overall decline.

- Finding, development and acquisition ("FD&A") costs, net of dispositions but including changes in future capital, were estimated at $9.86/BOE for proved reserves; $27.38/BOE for proved plus probable reserves. The high cost of proved plus probable reserves reflects asset dispositions where low values were received for probable reserves.

- Excluding dispositions, finding and development ("F&D") costs, including changes in future capital, were estimated at $13.06/BOE for proved reserves; $16.05/BOE for proved plus probable reserves. Increases in future capital estimates for undeveloped locations resulted in F&D costs being higher than Ember's three-year average.

- Ember's three-year F&D costs, including future development costs, were estimated at $1.58/Mcf ($9.48/BOE) for proved reserves; $1.20/Mcf ($7.18/BOE) for proved plus probable reserves.

- Operating netbacks were $14.62/BOE resulting in a recycle ratio, including changes in future capital, of 1.5 for proved reserves, 0.5 for proved plus probable reserves for the current year.

- Ember has developed a large inventory of Horseshoe Canyon locations exceeding 450+ net wells; 295 net wells were recognized in Ember's year-end reserves, of which 212 are considered proved undeveloped and 83 net wells are classified as probable undeveloped. In addition, 44 net wells are classified as possible locations (1 mile to 2 miles from existing production) and 150 net locations are currently unbooked (more than 2 miles from existing production).

- The success rate on Ember's Horseshoe Canyon programs has essentially been 100% with only one mechanical failure in the past three years. The Company's drilling results are consistent and predictable as measured by both production rates and reserve additions.

First quarter 2010 operational update

- Ember drilled and completed a 31-well program (18.7 net) at Acme and Bashaw in first quarter 2010. Both programs had 100% success with average per well additions in the 130 Mcf/d range.

- New cost reduction initiatives were completed in the quarter. A joint venture with an industry major will see a 15% reduction in processing fees charged at Acme, with a further 15% reduction expected for 2011. As operator of the joint venture Ember expects to earn $1 million in capital fees and $300 thousand dollars annually in operator fees.

- In March the ERCB announced the suspension of testing requirements for CBM wells resulting in an estimated $1 million savings in annual operating costs. Ember is forecasting 2010 operating costs to decline 8% to $8.00/BOE ($1.33/mcf).

- Production during the first quarter has been averaging approximately 24 MMcf/d, despite cold weather that resulted in well freeze offs and disrupted production. With the return of warmer weather and recent drilling, Ember expects to exit the quarter above the 26 MMcf/d level.

- Outlook - 2010 and beyond

Success in a low gas price environment hinges on being a low-cost operator. Ember fully expects gas price volatility to continue so a primary focus is to further reduce costs on all fronts. Ember is already one of the highest netback gas producers in Western Canada, and the Company expects another 10-15% reduction in cash costs this year. When including capital costs for drilling and completions, Ember's breakeven point is in the range of $3.50/Mcf, which makes us one of the lowest cost operators in the Horseshoe Canyon. It is also competitive with the emerging shale gas plays.

The current 2010 guidance would put the Company back on a growth profile. As previously announced, guidance for 2010 is for the drilling of 60-65 wells, assuming gas prices in the range of $6 per Mcf, which would take production to 29 - 30 MMcf/d by the end of the year. Over the next three to four years, plans are to drill more than 250 locations from the existing inventory, assuming gas prices are at or above $6/mcf. By 2013, Ember could be producing 40 to 45 MMcf/d just from organic growth. This may seem to be long-term planning, but the Company's Horseshoe Canyon assets are consistent and predictable.

In recent weeks, natural gas prices have weakened considerably and forward prices are averaging $4.60/mcf for 2010. To mitigate the volatility of gas pricing, approximately 30% of production for 2010 is hedged under various contracts, which will help support cash flowing to capital programs. Still, management is monitoring 2010 guidance in light of gas prices with the goal of balancing capital spending with cash flow forecasts. Given that significant capital spending will not occur until the third quarter, Ember will be confirming or updating guidance closer to that time.

"As an established resource player, we have an asset base that has proven to deliver very predictable results. Ember has climbed the technical and cost-efficiency learning curves to deliver one of the highest natural gas netbacks in Western Canada. We have large resources in place which can be converted to production and reserves with low risk, low cost drilling. And we are highly competitive with the emerging shale gas plays in our ability to deliver long-term production with very attractive economics," said Doug Dafoe, President and CEO. "We are targeting to have a much stronger balance sheet by the end of the year through a program of debt and cost reductions. And in anticipation of a more reasonable level for gas prices, we are ready to ramp up drilling to return to our track record of profitable growth."

As referred to above, Embers' audited financial statements and related MD&A for the year ended December 31, 2009 can be located at www.sedar.com or www.emberresources.com. To the extent investors do not have access to the internet, copies of the audited 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 2009 year-end results will take place on March 24, 2010 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 1-877-407-8033. A live webcast will also be provided on: www.emberresources.com. A playback recording of the conference call will be available for 30 days and can be accessed by calling 1-877-660-6853 and enter the account #286 and conference ID #346882.

Reader Advisory

FORWARD-LOOKING STATEMENTS

This press release may contain forward-looking statements including future production, anticipated capital expenditures and development plans. 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. Actual results, performance or achievement could differ materially from those expressed in, or implied by, such 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. Except as required by law, Ember undertakes no obligation to update or revise any forward-looking statements. 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.

BOE Disclosure: 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.

Reserve information in this press release is based on an independent reserve evaluation report prepared by McDaniel & Associates Consultants Ltd. ("McDaniel") dated March 9, 2010 with an effective date of December 31, 2009.

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
    President & CEO
    (403) 270-0803
    (403) 270-2850 (FAX)
    or
    Ember Resources Inc.
    Mr. Terry S. Meek
    Executive Vice-President & COO
    (403) 270-0803
    (403) 270-2850 (FAX)
    or
    Ember Resources Inc.
    Mr. Bruce Ryan
    Vice-President Finance & CFO
    (403) 270-0803
    (403) 270-2850 (FAX)
    www.emberresources.com