Ember Resources Inc.
TSX : EBR

Ember Resources Inc.

November 06, 2009 08:30 ET

Ember Resources Inc. Reports Third Quarter 2009 Results and Equity Financing Update

CALGARY, ALBERTA--(Marketwire - Nov. 6, 2009) -

NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES.

Ember Resources Inc. ("Ember") (TSX:EBR) announced today that it has filed its unaudited financial statements and related management's discussion and analysis ("MD&A") for the quarter ended September 30, 2009 on www.sedar.com.

EQUITY FINANCING

Ember announces that it has agreed to the terms of its previously announced equity offering of Common Shares (the "Offering"). Pursuant to the Offering, Ember will issue 23,530,000 Common Shares at a price of $0.85 per share, for total gross proceeds of approximately $20 million. The Offering is being conducted through a syndicate of underwriters led by RBC Capital Markets and including CIBC, FirstEnergy Capital Corp., GMP Securities L.P. and Peters & Co. Limited.

Ember's three major shareholders have expressed their intention to purchase 16,353,200 Common Shares pursuant to the Offering representing approximately 69.5% of the total Offering.

The Company intends to use the net proceeds of the Offering to repay $10 million of its existing revolving credit facility and approximately $9 million to fund forecast capital expenditures for 2009 and 2010 all of which is to be used in connection with the anticipated drilling and completion of 40 net wells over the next two quarters.

The Offering is scheduled to close on or about November 13, 2009. The Offering is subject to certain customary conditions and regulatory approvals, including but not limited to the approval of the Toronto Stock Exchange.

The Common Shares are being offered in all of the provinces of Canada (other than Quebec) and on a private placement basis in the United States pursuant to exemptions from the registration requirements of the United States Securities Act of 1933, as amended, (the "1933 Act").



THIRD QUARTER RESULTS

Financial Highlights

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Three
Three months
months ended
ended September
September 30, 2008 Percent
(000s except per share amounts) 30, 2009 (Restated) Change
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Natural gas sales $ 6,639 $ 9,166 (28)
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Funds from operations $ 48 $ 4,748 (99)
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- per share basic & diluted $ - $ 0.19 NA
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Net income (loss) $ (7,287) $ 420 (1,835)
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- per share basic & diluted $ (0.14) $ 0.02 (800)
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Capital investment additions $ 2,472 $ 9,046 (73)
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Property acquisition $ 1 $ - NA
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Property disposition $ 584 $ - NA
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Corporate acquisitions $ - $ 187,999 NA
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Total assets $ 363,919 $ 394,199 (8)
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Net bank debt and working capital
deficit $ 97,553 $ 102,473 (5)
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Shares outstanding 51,367 51,367 NA
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Nine
Nine months
months ended
ended September
September 30, 2008 Percent
(000s except per share amounts) 30, 2009 (Restated) Change
----------------------------------------------------------------------------
Natural gas sales $ 27,213 $ 21,999 (24)
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Funds from operations $ 10,287 $ 11,967 (14)
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- per share basic & diluted $ 0.20 $ 0.67 (70)
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Net income (loss) $ (14,575) $ 2,430 (700)
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- per share basic & diluted $ (0.28) $ 0.13 (315)
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Capital investment additions $ 7,688 $ 14,533 (47)
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Property acquisition $ 3,213 $ - NA
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Property disposition $ 5,704 $ - NA
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Corporate acquisitions $ - $ 187,999 NA
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Total assets $ 363,919 $ 394,199 (8)
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Net bank debt and working capital
deficit $ 97,553 $ 102,473 (5)
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Shares outstanding 51,367 51,367 NA
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Operating Highlights

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Three Three
months months
ended ended
September September Percent
(000s except per share amounts) 30, 2009 30, 2008 Change
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Daily average gas production
(Mcf/d) 24,528 13,715 79
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Daily average gas production
(BOE/d) 4,088 2,286 79
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Average sales price ($/Mcf) 2.94 7.26 (60)
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Realized hedging gain (loss) NA
($/Mcf) - (0.05)
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Royalties expense (recovery)
($/Mcf) 0.22 0.90 (76)
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Operating expenses ($/Mcf) 1.54 1.58 (3)
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Transportation expenses ($/Mcf) 0.17 0.19 (11)
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Operating netback ($/Mcf) 1.01 4.54 (78)
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Operating netback ($/BOE) 6.10 27.30 (78)
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CBM wells drilled (gross/net)
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- Horseshoe Canyon 8.0 / 4.8 31.0 / 25.1 (74) / (81)
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Land (000s of net acres) 470 514 (9)
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----------------------------------------------------------------------------
Nine Nine
months months
ended ended
September September Percent
(000s except per share amounts) 30, 2009 30, 2008 Change
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Daily average gas production
(Mcf/d) 25,905 9,922 161
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Daily average gas production
(BOE/d) 4,317 1,654 161
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Average sales price ($/Mcf) 3.85 8.09 (52)
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Realized hedging gain (loss)
($/Mcf) 0.19 (0.02) (1,050)
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Royalties expense (recovery)
($/Mcf) 0.13 0.85 (85)
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Operating expenses ($/Mcf) 1.36 1.71 (20)
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Transportation expenses ($/Mcf) 0.18 0.19 (5)
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Operating netback ($/Mcf) 2.37 5.32 (55)
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Operating netback ($/BOE) 14.16 31.97 (56)
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CBM wells drilled (gross/net)
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- Horseshoe Canyon 21.0 / 12.1 53.0 / 36.0 (60) / (66)
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Land (000s of net acres) 470 514 (9)
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Q3 2009 Highlights

Financial performance

- Funds from operations for the three months ended September 30, 2009 decreased to $0.05 million ($0.00/share diluted) from $4.7 million ($0.19/share diluted) for the same period in 2008. The decline reflects a 60% lower average natural gas price of $2.94/mcf offset by lower, operating costs, transportation and general and administrative costs and higher interest expenses.

- Net loss for the third quarter was $7.3 million ($0.14/share diluted) versus net income of $0.4 million ($0.02/share diluted) for the same period in 2008.

- Capital expenditures for the third quarter totaled $2.6 million including capitalized expenses. During the quarter the Company drilled 4.8 net CBM wells.

- Cost efficiencies have continued to improve. Operating costs declined $2.07/BOE from the first nine months of 2008 to $8.18/BOE; general and administrative costs declined $0.71/BOE to $2.54/BOE.

- Total cash costs, including operating, transportation, general and administrative and interest costs, declined 13% in the first nine months to $14.67/BOE from $16.93/BOE in the first nine months of 2008.

- The effective royalty rate declined in the first nine months of 2009 to 3.6% reflecting the new Alberta Crown royalty rates, offset by higher freehold royalties on purchased production and a recovery of previously paid Crown royalties. At current gas prices and gas prices up to $7.00/mcf, Ember's combined royalty rate is estimated at 6.5 to 7.5% of revenue.

- Net bank debt and working capital at September 30, 2009 was $97.6 million. Subject to the completion of the Offering, the Company will repay $10 million on its existing borrowing facility and has negotiated a revised facility with its banking syndicate totaling $92 million comprised of a $5 million dollar revolving working capital amount and an $87 million revolving production facility.

Operating performance

- Average production for the third quarter increased 79% to 24.5 MMcf/d from 13.7 MMcf/d during the same period in 2008, with most of the increase resulting from the acquisition of Cordero Energy Inc. in September 2008.

- Production declined 5.8% from Q-2 with limited new drilling and modest capital expenditures. Production has declined 2.6 MMcf/d from Q-1 to Q-3 which includes the sale of 1.0 MMcf/d of non-core asset production. Excluding the divested production this represents a 6% decline year to date in our base Horseshoe Canyon CBM production.

- The operating netback for the first nine months of 2009 was $14.16/BOE compared to $31.97/BOE in 2008. Low gas prices contributed to a revenue decline of $25.46/BOE, offset by a $2.13/BOE reduction in operating and transportation expenses and a $4.26/BOE decrease in royalties.

Guidance update

- Ember has revised its production and spending guidance for full-year 2009. Production is expected to average 25.5 MMcf/d, down from the previously forecast 26-27 MMcf/d, and capital spending has been reduced to $15 million, down from $25 million. Fourth quarter capital expenditures are estimated at $8 million and will be funded from cashflows and proceeds from the Offering. This will result in the drilling of an estimated 30-35 net wells for the full year with 22 net wells planned for the fourth quarter.

- Ember's board of directors has approved an initial budget for 2010. The Company plans a capital program totaling $30.0 million resulting in approximately 60-65 net wells. These wells will be focused in Ember's core Horseshoe Canyon CBM properties at Acme and Bashaw. Based on an average estimated natural gas price of $6.00 Mcf at AECO the Company expects to generate $30 million of cash flow on an average production rate of 26-27 MMCF/d. Year end net bank debt and working capital is estimated at $82 million which represents approximately 2.7 times debt to cashflow for the full year.

Signs of gas market rebalancing

Natural gas prices in the second and third quarters have remained weak and below levels required to encourage new investment in most natural gas projects in North America. Natural gas storage is at record levels for this time of the year which is keeping prices depressed. There are signs of rebalancing beginning to emerge in the marketplace. The sharp reduction in natural gas drilling has reduced supplies in both Canada and the United States and signs are emerging of an economic recovery. Although weather dependent, the combination of these factors could help restore balance in the marketplace and improved natural gas pricing during the upcoming winter months.

Outlook

Proceeds from Ember's Offering together with cashflow will allow the Company to resume its organic growth going into 2010. Over the next two quarters Ember plans to invest approximately $18 million at its two core properties at Acme and Bashaw. An estimated 40 net wells will be drilled resulting in approximately 5-5.5 MMcf/d of incremental production.

- After the accelerated drilling anticipated over the next two quarters, Ember will continue to invest cashflows which should result in steady and predictable growth for the remainder of 2010.

- Ember's efficient cost structure together with low crown royalty rates generates one of the highest netbacks for natural gas production in Western Canada. Base production has been very stable as evidenced by the low rate of decline from the first quarter of this year despite minimal new drilling and capital maintenance costs.

- Ember has in excess of 450 low risk Horseshoe Canyon CBM drilling locations in its current inventory. If natural gas prices continue to stabilize in the $6-7.00/Mcf Ember would expect to drill upwards of 200 of those locations using available cashflows over the next three years. Easy access to surface leases and existing infrastructure allow Ember to have new wells drilled and producing within six weeks.

- Ember has a significant competitive advantage as a result of lower crown royalty rates applied to its base CBM production. More importantly these rates will continue to remain low as natural gas prices recover resulting in the upside in natural gas prices going to the Company's bottom line. Ember estimates that for every $1.00/Mcf change in the price of natural gas, cashflow changes by approximately $10 million.

"With our equity offering now complete, Ember has raised sufficient capital to make a meaningful reduction in our balance sheet leverage while at the same time providing capital to kick start our production growth," said Doug Dafoe President and CEO. "In an environment of increasing natural gas prices our cashflows will improve steadily due to our low royalty rates and efficient cost structure."

As referred to above, Embers' unaudited financial statements and related MD&A for the quarter ended September 30, 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 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 November 6, 2009 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 1-877-407-0778. 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 #335679.

Reader Advisory

This news release shall not constitute an offer to sell or the solicitation of any offer to buy, nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of such jurisdictions. The Common Shares offered will not be registered under the 1933 Act and may not be offered or sold in the United States or to, or for the account or benefit of, U.S. persons absent registration or an applicable exemption from the registration requirements of the 1933 Act and applicable state securities laws.

FORWARD-LOOKING STATEMENTS

This press release may contain forward-looking statements including anticipated levels of bank debt, 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 prices 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 filings 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 4, 2009 with an effective date of December 31, 2008. Net asset value calculations do not necessarily represent or equate to fair market value.

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 C. Ryan
    Vice-President Finance & CFO
    (403) 270-0803
    (403) 270-2850 (FAX)
    www.emberresources.com