Exall Energy Corporation
TSX : EE

Exall Energy Corporation

March 24, 2010 09:00 ET

Exall Energy Corporation Announces Results for the Three Months and Year Ended December 31, 2009

CALGARY, ALBERTA--(Marketwire - March 24, 2010) - Exall Energy Corporation ("Exall") (TSX:EE) is pleased to announce its financial and operating results for the three months and year ended December 31, 2009; and that it has filed its Annual Information Form which contains reserves data and other oil and gas information required by Section 2.1 of NI 51-101. Exall's annual filings can all be found at www.exall.com or www.sedar.com.

Exall achieved record production in 2009 and saw significant reserve additions due to its operational success in Mitsue, Alberta. Exall's 2009 operational success has resulted in Exall currently producing approximately 950 boe per day with 150 boe per day shut-in awaiting approval by the ERCB of an "Injection on Behalf Of" agreement.

Highlights of Fiscal 2009 include:

  • The addition of 259.9 Mboe of Total Proved ("TP") reserves and 1,168.7 Mboe of Total Proved plus Probable ("P+P") reserves,
  • Fiscal Year Ended December 31, 2009 Company TP reserves of 1,151.6 Mboe (an increase of 53 % from December 31 2008) and Company P+P reserves of 2,473.6 Mboe (an increase of 75 % from December 31 2008),
  • An 111 % increase in the Fiscal Year Ended December 31, 2009 Net Present Value (NPV) of the P+P reserves to $58.6 million (discounted at 10 %, before tax, utilizing the AJM price forecast effective December 31, 2009) up from $27.8 million,
  • A fourth quarter 2009 production average of 444 boe per day a 152 % increase over the same quarter in 2008,
  • A Fiscal 2009 production average of 412 boe per day a 63 % increase over fiscal 2008.
  • The approval of an application to the ERCB (Alberta Energy Resources Control Board) to implement an enhanced oil recovery scheme by water injection at Exall's Marten Mountain property, in the Mitsue Gilwood A Pool. As a result of the approval, the Marten Mountain 102/14-1-75-6W5 well was granted Good Production Practice (GPP) status,
  • Completion of the Marten Mountain pipeline and battery facility, and
  • Commencement of water injection for the enhanced oil recovery scheme at Marten Mountain.

To view the charts associated with this release, please visit the following link: http://media3.marketwire.com/docs/ee0324fig1.pdf.

HIGHLIGHTS Three months ended
December 31
  Year ended
December 31
 
  2009 2008   % change   2009   2008 % change  
Financial ($)                    
Gross revenue 2,704,644 704,722   284   7,933,651   8,025,626 (1 )
Funds from operations 716,174 17,663   3,955   2,053,013   3,862,669 (47 )
  Basic and diluted per share 0.02 0.00   -   0.04   0.10 (60 )
                     
Net income (loss) 164,996 (476,916 ) 135   (2,132,662 ) 645,161 (431 )
  Basic and diluted per share 0.00 (0.01 ) 100   (0.05 ) 0.02 (350 )
Capital expenditures, net 2,964,933 7,497,578   (60 ) 4,543,314   12,177,646 (63 )
Net debt - -   -   8,564,162   6,129,213 40  
   
Operations                    
Daily production                    
  Crude oil (bbl) 352 72   389   305   147 108  
  Natural gas liquids (bbl) 12 12   -   12   14 (14 )
  Natural gas (mcf) 483 555   (13 ) 569   551 3  
Total daily production (boe @ 6:1) 444 176   152   412   253 63  
Netback per boe (6:1) ($) 30.45 19.82   54   25.03   53.78 (53 )

Overview

Fourth quarter 2009 production increased 152% to 444 boe per day from 176 barrels of oil per day ("boe/d") in the fourth quarter of 2008. This increase was primarily the result of the June 30, 2009 approval for Waterflood Project status and Good Production Practice (GPP) from the ERCB. With the approvals in place Exall built a pipeline and battery facility which allow for higher production rates from the 14-1 well. Additionally, water source and injection wells in the Marten Mountain area were completed and equipped and were operational during the quarter. Prior to the GPP approval, the 14-1 well was restricted to a daily allowable production rate of 148 (90 net) boe/d. With the GPP and waterflood in place the 14-1 well produced an average of 586 (387 net) boe/d during the month of December 2009.

Application for waterflood and GPP approval for the 2-12 well (previously identified as the 7-12 well) was submitted to the ERCB as an amendment to the current waterflood approval. The 2-12 well (which was shut in after reaching maximum initial production volumes allowed by the ERCB) was placed back on production at a restricted daily allowable rate of 145 (95 net) barrels of oil per day in October of 2009. Unrestricted production commence during the First Quarter of 2010 with the waterflood and GPP approval.

Results of Operations

Production for 2009 of 412 boe per day represents a 63% increase over 2008. Funds from operations for the year of $2.1 million or $0.04 per share were the result of the increased production, unfortunately the production results were impacted by significantly reduced commodity prices during the year (Exall's prices received were down 39% during 2009 averaging $52.82 per boe compared to $86.71 per boe in 2008). The net loss, as a result, for 2009 was $2,132,662 or $0.05 per share compared to a net income for 2008 of $645,161 or $0.02 per share.

Oil and gas exploration and development expenditures were $2,964,933 for the fourth quarter of 2009, $4,543,314 for the year and $7,497,578 and $12,177,646 for comparable periods in 2008. During 2009 the Company did not participate in drilling of any wells, as all capital expenditures were focused on completing and equipping the Marten Mountain / Mitsue wells for waterflood production. The Company acquired 3,680 gross (2,429 net) acres of undeveloped land in the Mitsue area. The Company has 14,851 acres (8,501 acres net) of undeveloped land in Canada.

Reserves

Exall received the results of an independent engineering evaluation of its oil and gas reserves conducted by AJM Petroleum Consultants Ltd. effective December 31, 2009. This evaluation was prepared in accordance with National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities (NI 51-101). This instrument, which was adopted by the Canadian Securities Administrators, sets out standards of disclosure for oil and gas activities and mandates the application of evaluation standards defined in the Society of Petroleum Evaluation Engineers (SPEE) Canadian Oil and Gas Evaluation Handbook (COGEH).

Highlights of the reserve report include:

  • Company working interest reserves are 1,151.6 Mboe total proved and 2,473.6 Mboe proved plus probable,
  • In 2009 development activity added 259.9 Mboe of total proved reserves and 1,168.7 Mboe of proved plus probable reserves,
  • Reserve replacement was 2.7 times total proved and 7.6 times proved plus probable,
  • The net present value of the proved plus probable reserves is $58.6 million, discounted at 10 %, forecast prices, before tax,
  • Reserve life index of 3.0 years total proved and 4.8 years proved plus probable based on the 2010 annual average production rate and year-end reserves.

Substantial additions to reserves in 2009 are attributed to successful operations in the Marten Mountain area of Mitsue, AB. Light oil and solution gas reserves in the prospect area account for 79 % of total proved and 86 % of proved plus probable reserves of the Company. Exall's operations for 2010 will focus largely on continued exploitation and development of this property.

Working Interest Reserves History
  Total Proved Proved Plus Probable
December 31 Reserves (MBOE) % Increase NPV ($000) @ 10% DCF % Increase Reserves (MBOE) % Increase MPV ($000) @ 10% DCF % Increase
                 
2006 254.5 - 5,332 - 432.3 - 8,314 -
2007 402.1 58 6,942 30 902.1 109 17,967 116
2008 751.3 87 15,917 129 1,352.1 50 27,814 55
2009 1,151.6 53 27,862 75 2,473.6 83 58,553 111

During Fiscal 2009 Exall added total proved reserves at $22.45 (including future development costs) and added total proved plus probable reserves at $15.36 per boe (including future development costs) for inception to date finding and development costs as at December 31, 2009 of $34.92 per boe on the total proved reserves and $19.59 per boe on the proved plus probable reserves including future development costs. Significant future development costs included the pipeline and facilities planned for the Marten Mountain area. Future drilling will utilize those facilities and along with the anticipated saving on drilling cost can be expected to reduce the per barrel finding and development costs substantially as the property is developed.

Outlook

The corporate objective for Exall during 2009 was the completion of one oil well, and one water injection well, which had been drilled in late 2008, the completion and commissioning of an oil production pipeline and battery facilities, and the approval of the waterflood project and Good Production Practice (GPP) status for the wells in the Marten Mountain area of Alberta. The oil well was completed and put on production in January of 2009. GPP approval was granted for the first well in July 2009 and the second in January 2010. Waterflood facilities were completed and placed on injection in September and the pipeline and battery facilities were completed in December of 2009 allowing the capture and sale of solution gas from the property. All facilities and approvals were finally in place and the project went on stream at full rates in February 2010. The proven reserves and production capability established by the wells are expected to increase the corporate cash flow and borrowing power sufficiently to fund further development of that key property, as well as other assets owned by the Company.

Exall had planned for the drilling of up to five wells along the extension of the Marten Mountain channel trend beginning in the fourth quarter of 2009. Currently, two of those wells have been drilled from a common wellbore and are undergoing production testing. A third well is being drilled and will be completed prior to breakup. Exall is also planning to complete a production pipeline tie-in from the wells to our existing pipeline and battery facilities and to upgrade the road access to the site prior to breakup. Due to drilling and regulatory delays two of the planned wells have been delayed until later in 2010.

Exall had planned to participate (8.7% WI) in the drilling of another horizontal infill well at Jayar, to be drilled in the fourth quarter of 2009. In light of the currently depressed gas price environment, the operator of the Jayar property has deferred the planned drilling schedule until late 2010, or until there has been some tangible improvement in the gas price forecast. Exall has an average 14.5 % working interest in future wells on the Jayar property.

The drilling of a development well in the Aitken Creek, British Columbia area, offsetting the original gas discovery well drilled in 2004, has also been deferred for the same reason. The Company has an average 22.5 % working interest in nine drilling spacing units in that area.

Exall is a light oil-weighted company with high operating margins. Starting from a modest production base of light oil and gas, the Company has shown itself capable of setting and achieving ambitious production and cash flow targets. This puts the Company in a favorable position to exploit existing opportunities and potentially take advantage of opportunities that arise.

A major challenge over the past year has been operating during times of low prices with continued high operating costs, including the imposition of the New Royalty Framework in Alberta. The improvement in oil prices has moderated this challenge, however, the control of drilling and facilities costs has been a challenge in the past year although the current economic environment have brought those costs to more reasonable levels. The programs introduced by the Government of Alberta, including Transitional Royalty rates and drilling incentives, with the objective of alleviating the excessive royalty burden of the New Royalty Framework ("NRF") to spur drilling have improved the economics of drilling activity; however, we believed that permanent changes were required in the long term to re-establish the "Alberta Advantage." It would appear that the Government of Alberta has heard the call to action and in spite of varied public opinion, have made some significant "permanent" changes to the New Royalty Framework. The Modified Royalty Framework ("MRF") has several features which will directly affect the future of Exall. The most significant of the changes to Exall are:

  1. The reduction of maximum royalty rate paid on high-rate oil wells from 50% to 40% starting in January 2011. Although delayed until next year and still higher than the pre-NRF maximum rate of 35%, this change will have a direct impact on the cash flow of Exall. The two Marten Mountain wells currently producing on GPP have been subject to the maximum royalty rate since they went on production. The 10% reduction at $80 per barrel adds $8 to the operating netback, currently about $35 per barrel, bringing it to $43 per barrel. This is an increase in cash flow of $12,000 per day (net $8,000 per day to Exall or $2.9 million per year).
  2. Continuation of the 5% cap on royalties for the first year or first 50 thousand barrels of oil as a permanent program. Although this program was already in place, the Government has now made assurances that this will be a permanent feature in the Modified Royalty Framework.
  3. Continuation of the Drilling Credits of $200 per meter to the end of its proposed term at April 1, 2011. Again, this was already in place but we now have the certainty for the planning of the next winter season drilling program.

Current Production Status

Completion of the waterflood approval and facilities construction phase has precipitated a jump in production rates and cash flow for the Company starting in January, 2010. With the continued drilling success Exall has managed to finance activities through cash flow, increased debt and limited equity issues. The new Modified Royalty Framework provides the necessary incentive to continue to aggressively exploit the high-productivity light, sweet oil assets the Company holds in the Marten Mountain property.

About Exall

Exall is a junior oil and gas company active in its business of oil and gas exploration, development and production from its properties in Alberta, British Columbia and Texas. Exall Energy is currently developing the new Mitsue area "Marten Mountain" discovery in north-central Alberta.

Exall Energy currently has 51,142,745 common shares outstanding. The Company's common shares are listed on the Toronto Stock Exchange under the trading symbol EE.

Reader Advisory

This news release contains forward-looking statements, which are subject to certain risks, uncertainties and assumptions, including those relating to results of operations and financial condition, capital spending, financing sources, commodity prices and costs of production. By their nature, forward-looking statements are subject to numerous risks and uncertainties that could significantly affect anticipated results in the future and, accordingly, actual results may differ materially from those predicted. A number of factors could cause actual results to differ materially from the results discussed in such statements, and there is no assurance that actual results will be consistent with them. Such factors include fluctuating commodity prices, capital spending and costs of production, and other factors described in the Company's most recent Annual Information Form under the heading "Risk Factors" which has been filed electronically by means of the System for Electronic Document Analysis and Retrieval ("SEDAR") located at www.sedar.com. Such forward-looking statements are made as at the date of this news release, and the Company assumes no obligation to update or revise them, either publicly or otherwise, to reflect new events, information or circumstances, except as may be required under applicable securities law.

For the purposes of calculating unit costs, natural gas has been converted to a barrel of oil equivalent (boe) using 6,000 cubic feet equal to one barrel (6:1), unless otherwise stated. The boe conversion ratio of 6 mcf: 1 bbl is based on an energy equivalency conversion method and does not represent a value equivalency; therefore boe may be misleading if used in isolation. This conversion conforms to the Canadian Securities Regulators' National Instrument 51-101 – Standards of Disclosure for Oil and Gas Activities.

Contact Information

  • Exall Energy Corporation
    Frank S. Rebeyka
    Vice Chairman & CEO
    403-815-6637
    or
    Exall Energy Corporation
    Roger N. Dueck
    President & COO
    403-237-7820 x 223
    (403) 262-4723 (FAX)
    info@exall.com
    www.exall.com