FairWest Energy Corporation
TSX : FEC

FairWest Energy Corporation

May 15, 2006 15:09 ET

FairWest Energy Corporation Announces a Corporate Update, Operating Results and Financial Results for First Quarter 2006

CALGARY, ALBERTA--(CCNMatthews - May 15, 2006) - FairWest Energy Corporation ("FairWest") (TSX:FEC) is pleased to provide a corporate update, operating results and financial results for the first quarter of 2006.

Corporate Update

During January 2006, FairWest arranged with a drilling contractor to secure drilling equipment in early March. Due to circumstances beyond our control, the equipment was not available until the end of March. The Company's plans to commence drilling were further deferred by the announcement of road bans that prevented access to our core operating areas. As a result, the exploration and development team focused their first quarter activities on interpreting the 42 square miles of 3D seismic data that was shot in December 2005, acquiring undeveloped land and preparing to commence drilling operations. These efforts have resulted in a sizable portfolio of drilling opportunities that will be drilled in the balance of the year.

As of today, the road bans have been lifted and drilling equipment is being delivered to our first drilling location in Antelope, Alberta. FairWest's board of directors has approved a 2006 capital budget of $4.7 million that will be concentrated in the Company's core operating areas of Antelope, Berry Creek and Provost, Alberta. FairWest expects to complete our 30 well (12 wells net) drilling program prior to freeze up at the end of November. The drilling program will start at Antelope where 8 wells (3 net) are planned. Once our Antelope drilling program is completed we will concentrate our drilling efforts in the Berry Creek and Provost areas.

The Energy Utilities Board has proposed regulations that would allow two Mannville gas wells per section. The new drilling regulations are designed to accommodate efficient exploitation of existing reservoirs and this legislation is applicable to our core areas. FairWest has several development drilling locations in the Berry Creek and Provost areas of Alberta that offset existing producing wells.

FairWest has identified wells in the Provost, Alberta and Burstall, Saskatchewan core areas that have the potential to produce at higher rates by using various production optimization methods. During the first quarter, the Company reviewed available production data and designed a production optimization program for the Provost area. The optimization program includes equipping wells with artificial lift and the addition of compression facilities, thereby allowing the wells to produce at their capability. FairWest expects that the completion of the production optimization program will add approximately 150 barrels of oil equivalent per day (BOE/D) of production.

In April, FairWest acquired an 80% working interest in 18 sections of land in Burstall, Saskatchewan for consideration of $1.05 million. The acquisition included 50 shallow gas wells and a gas plant with capacity of 1.0 million cubic feet per day ("MMCF/D"). The property is currently producing .20 MMCF/D (.16 MMCF/d net) and has increased our proven gas reserves by 1.2 billion cubic feet. We are the operator of this property and as such, have initiated production optimization on this property. Producing and prospective horizons include the Milk River, Medicine Hat and Viking formations. Immediately adjacent to the acquired lands, FairWest holds an average working interest of 9.2% in 340 producing wells and an extensive gathering and compression system connected to third party processing facilities.

Operational Results

The financial results for the three months ended March 31, 2006 were affected by our inability to commence drilling operations, a reduction in commodity prices, and production optimization issues. The average natural gas price for the three-month period ended March 31, 2006 was $7.90 per mcf compared to $11.88 per mcf for the three-month period ended December 31, 2005 and the oil and NGL price decreased to $55.98 from $66.77 during the same period. Oil prices have increased significantly since the end of the first quarter. The price of natural gas has been primarily affected by a reduced demand during a mild winter and available supplies of natural gas from excess winter natural gas storage and new drilling. We expect that production declines, demand for winter storage volumes and summer cooling requirements will result in an increase in natural gas prices.

Oil and natural gas production for the three months ended March 31, 2006 decreased to 250 BOE/D compared to 273 BOE/D for the three months ended December 31, 2005. Natural gas production in the three months period ended March 31, 2006 decreased to 1.16 MMCF/D from 1.30 MMCF /D for the three months ended December 31, 2005. Oil and natural gas liquids production in the first quarter of 2006 was equivalent to the production levels achieved in the fourth quarter of 2005. Production levels will be increased once our production optimization program is completed.

At March 31, 2006, FairWest held working interests in 92,484 gross acres (28,285 net acres) of land. Of this amount 51,211 gross acres (12.073 net acres) was developed and 41,273 gross acres (16,212 net acres) was undeveloped. The undeveloped land is concentrated in FairWest's core operating areas. Since the end of March, FairWest has acquired additional crown land in Antelope and Berry Creek and has acquired freehold interests in the Provost area. Our current undeveloped lands together with farmin arrangements that are in place is sufficient for our 2006 drilling program.



A summary of operational highlights follows:

For the periods ended
------------------------------------------------------------------------
December September February
March 31, 31, 30, May 31, 28,
2006 2005 2005 2005 2005
(3 Months) (3 Months) (4 Months) (3 Months) (3 Months)
------------------------------------------------------------------------
Natural gas
Natural gas
sales ($) 824,820 1,419,243 1,472,318 584,790 275,014
Volume - mcf 104,369 119,421 162,504 83,541 43,231
Volume -
mcf/day 1,160 1,298 1,322 908 480
$/mcf 7.90 11.88 9.06 7.00 6.36
Oil and NGLs
Oil and NGL
sales ($) 287,424 351,229 550,072 228,790 125,501
Volume - bbl 5,134 5,260 8,662 4,267 2,693
Volume -
bbl/day 57 57 71 46 30
$/bbl 55.98 66.77 63.50 53.62 46.60
Barrel of oil
equivalent
Total sales
($) 1,112,244 1,770,472 2,022,390 813,580 400,515
Volume - boe 22,529 25,164 35,746 18,193 9,898
Volume -
boe/day 250 273 293 198 110
$/boe 49.37 70.36 56.58 44.72 40.46
------------------------------------------------------------------------
------------------------------------------------------------------------


Financial Results

In March and April 2006, FairWest sold 2,166,667 flow-through common shares for proceeds of $1.3 million. The Directors of FairWest purchased 30.7% of the private placement. The proceeds will be expended on FairWest's 2006 exploration drilling program.

FairWest has identified $4.0 million of non-core properties that it expects to sell by the end of the second quarter. To date the company has sold one property for $170,000 and has received offers for two other properties. The proceeds from the sale of these properties will be used to fund a portion of our planned 2006 exploration and development drilling program.

At March 31, 2006 FairWest had a $5.0 million revolving demand loan with the National Bank of Canada. Commencing April 30, 2006, the availability under Credit Facility A reduces by $250,000 per month. The National Bank has agreed to review FairWest's credit facilities once the results of FairWest's production optimization program are known. As well FairWest intends to approach the National Bank for a review of FairWest's credit facilities once our Antelope drilling results are known.

In July 2005 the National Bank provided FairWest with a Credit Facility B acquisition loan of $2.0 million. In March 2006 FairWest drew $1,064,700 on Credit Facility B to make the Burstall, Saskatchewan acquisition. Repayments of $100,000 per month are to commence on May 31, 2006.

In July 2005, FairWest determined that there were a number of potential deficiencies in the title to oil and gas assets held by Supreme Energy Inc. As a result, $2,329,523 of the purchase price, in the form of a promissory note and common shares, due to the Supreme shareholders was held in escrow. On March 24, 2006, $507,345 of the promissory note was cancelled and the remaining portion of $440,093 together with accrued interest was paid to the Supreme shareholders. Similarly, 1,158,751 escrowed common shares valued at $789,831were cancelled and the remaining 868,888 common shares were subsequently released to the Supreme shareholders. The final purchase price adjustment was $1,297,176.



A historical summary of financial highlights follows:

For the periods ended
------------------------------------------------------------------------
December September February
March 31, 31, 30, May 31, 28,
2006 2005 2005 2005 2005
(3 Months) (3 Months) (4 Months) (3 Months) (3 Months)
------------------------------------------------------------------------
$ $ $ $ $
Revenue
Petroleum
and natural
gas sales,
net of
royalties 802,586 1,271,104 1,529,763 660,580 326,874
Other income 347,894 90,670 228,134 60,881 37,044
------------------------------------------------------------------------
Total revenue 1,150,480 1,361,774 1,757,897 721,461 363,918
------------------------------------------------------------------------
Expenses
Depletion,
depreciation
and
amortization 722,127 1,990,905 1,011,077 388,566 135,300
Operating
costs 315,547 297,130 350,742 137,108 120,655
Interest and
bank charges 39,538 87,113 91,414 91 617
General and
administrative
expense 317,326 316,925 251,944 137,286 181,841
Part XII.6 tax 32,421 62,574 - - -
Future income
tax
(recovery) (1,866,461) 1,762,799 (1,509,199) - (914,000)
------------------------------------------------------------------------
Total
expenses (439,502) 4,517,446 195,978 663,051 (475,587)
------------------------------------------------------------------------
Net
income/loss $1,589,982 $(3,155,672) $1,561,919 $58,410 $839,505
------------------------------------------------------------------------
------------------------------------------------------------------------

Funds flow
from
operations 97,754 577,257 861,107 446,976 60,805
Capital
expenditures 465,684 3,350,772 24,451,612 2,633,762 1,268,724

Share Data # # # # #
Common shares
outstanding 53,848,687 53,088,228 48,128,228 21,542,231 19,458,601
Warrants 3,000,000 2,420,000 1,100,000 - -
Options 374,116 378,579 378,579 - -
Weighted
common
shares
- basic 54,127,886 48,182,141 36,804,223 19,888,915 18,157,467
Weighted
common
shares
- diluted 54,205,305 48,182,141 37,840,936 20,388,915 18,157,467


Outlook

Based on our current production, expected results from our production optimization program and our capital program we are forecasting that our production will average between 425 to 475 BOE/D for the year. Based on the same criteria, our plan is to exit December 31, 2006 at 1,000 BOE/D. Drilling and completion results and matters that are beyond our control will affect these estimates.

I wish to thank all of our employees, consultants and directors for their dedication and commitment to FairWest as it journeys toward our exit rate of 1,000 BOE/D.

Contact Information

  • FairWest Energy Corporation
    James G. Gettis
    President and Chief Executive Officer
    (403) 264-4949
    (403) 269-1761 (FAX)
    or
    FairWest Energy Corporation
    Marion D. Mackie
    Chief Financial Officer
    (403) 264-4949
    (403) 269-1761 (FAX)