Grand Banks Energy Corporation
TSX VENTURE : GBE

Grand Banks Energy Corporation

November 20, 2007 18:07 ET

Grand Banks Announces September 30, 2007 Results

CALGARY, ALBERTA--(Marketwire - Nov. 20, 2007) - Grand Banks Energy Corporation (TSX VENTURE:GBE) (the "Company" or "Grand Banks") is pleased to announce its financial and operating results for the three and nine month periods ended September 30, 2007. The detailed financial statements and management discussion and analysis for the periods are accessible on the internet at the website www.sedar.com.

Grand Banks' third quarter has seen significant growth in production and cash flow, both on an absolute and per share basis, and more importantly, drilling success has validated the quality of its reserve base, setting up multiple light oil development drilling locations on high-working interest operated lands located in Saskatchewan and Manitoba.



Three Months Ended Nine Months Ended
September 30, September 30,
% %
2007 2006 Change 2007 2006 Change
--------------------------------------------------
Average Sales Volumes:
Crude oil & liquids -
bbls/day 642 569 13 604 579 4
Natural gas - mcf/day 3,324 1,464 127 1,810 1,622 12
Sales volumes - boe/day
(6:1) 1,196 813 47 906 850 7

Financial Results (CDN
$000's)
Gross revenues $ 6,172 $ 4,469 38 $ 14,448 $ 13,189 10
Net income (loss) $ 686 $ 226 204 $ 694 $ (638) 209
Per share - basic 0.02 0.01 100 0.02 (0.02) 200
Per share - diluted 0.02 0.01 100 0.02 (0.02) 200
Funds flow from
operations(1) $ 3,289 $ 2,475 33 $ 7,260 $ 7,487 (3)
Per share - basic 0.10 0.08 25 0.22 0.25 (12)
Per share - diluted 0.10 0.08 25 0.22 0.24 (8)
Capital expenditures $ 8,990 $ 6,097 47 $ 20,428 $ 18,842 8
Working capital
(deficiency) $(14,280) $ (9,571) (49)
Flow-through obligations
(to year end) $ - $ 740 (100)
Total assets $ 56,204 $ 44,526 26
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(1) Funds flow from operations is a non-GAAP measure that represents net
income plus depletion, depreciation and accretion, stock-based
compensation, future taxes and other non-cash expenses.


Operations:

Grand Banks' Tower Creek 2-21-55-27 W5M Leduc gas discovery well commenced production during the last week of June, after the construction of a $14 million dehydration plant, and the completion of an 11 mile pipeline by a midstream company. Production levels for July and early August varied while commissioning operations at the new dehydration facilities and the scheduled summer maintenance program at the third party sour processing facilities were completed. The well has since produced steadily at gross raw rates of about 21 mmcf/d. Grand Banks' 20.17% share of the well's production, after shrinkage, is currently about 500 boe/d (sales). A recent rate transient analysis that was performed by an independent engineering firm validates the volumetric calculations that were originally done by Grand Banks' independent reserve evaluators to determine our reserves, and indicated that the Leduc reservoir contains at least 51 bcf of raw gas in place.

The second well at Tower Creek, a 4,500 meter Wabamun test located at 11-26-55-27-W5M, commenced drilling on June 16, 2007 and was junked and abandoned due to drilling problems after the expenditure of over $11.0 million (Grand Banks' share was 22.1277% or about $2.5 million). With the royalty changes recently announced by the Alberta government, it is almost certain that the 11-26 well, given mechanical and geologic risk, will not be economic to re-drill.

Since June, Grand Banks has drilled six horizontal development oil wells on its Sinclair Torquay light oil play located in Manitoba and eastern Saskatchewan. The average initial well productivity was about 75 bbls/d of oil per well. Royalty incentive programs in both Manitoba and Saskatchewan, together with high prices for this high quality light crude result in operating netbacks based upon current oil prices, of up to $70 per barrel. These factors help Grand Banks to recover its drilling capital in a timely way to re-invest in further development projects in Saskatchewan and Manitoba.

Field operations and data processing have been completed on two 3D seismic programs covering 22 square miles of Grand Banks' acreage in the Sinclair area. The interpretation of this data has been completed and based upon that data and other information, Grand Banks has identified over 50 drilling locations on its 20,000 net acre land base. The application of horizontal drilling on the play has dramatically improved well productivity, and Grand Banks believes that additional enhancements are likely using new horizontal well fracturing methods that have been recently developed for the Bakken play in Saskatchewan. Grand Banks intends to test the new fracturing method on one or two of its wells in the near future.

Grand Banks is also preparing to drill a Midale horizontal well in the Kingsford area of south east Saskatchewan. Grand Banks has identified up to six net horizontal Midale drilling locations in this focus area. Grand Banks operates a pipeline connected battery that has excess capacity for the processing of additional crude oil volumes.

Finance and Budget:

Grand Banks had net debt (including working capital deficiency) of $14.3 million at the end of the third quarter. The Company currently has a $19.0 million line of credit with an Alberta financial institution. Grand Banks has commissioned an independent reserve evaluation that is expected to have preliminary results by early December. This report will be used to help determine a potential increase to our lending lines, in order to fund a 2008 capital spending program.

Alberta Royalty Review:

On October 25, 2007, the provincial government of Alberta announced changes to the existing royalty structure. This new oil and gas royalty regime is to take effect on January 1, 2009. The changes increase the royalties for conventional oil and natural gas, with sliding scale sensitivities to both commodity prices and well productivity rates. The Company is currently assessing the impact of the new royalty regime on future financial performance measures and the net present value of reserves. Based on current production levels and commodity prices, the Company would estimate an increase in royalties paid on Alberta producing properties of between 7% and 20% resulting in overall corporate royalties increasing by approximately 5%. The Company has also initiated the preparation of an updated independent reserve evaluation which will confirm the net present value of existing reserves taking into account the royalty changes. The reserve evaluation is expected to be completed in December.

Meanwhile, Grand Banks will now direct almost its entire budget to the drilling of wells in Saskatchewan and Manitoba.

Outlook:

Grand Banks' production in the third quarter averaged almost 1,200 boe/d, a record for the Company. Almost all of this production has resulted from drilling as opposed to acquisition. Our production is currently balanced about 55% light oil and 45% natural gas. The high netbacks from our light oil production resulted in strong Q3 operating netbacks of about $37 per boe. Our 2-21 Tower Creek Leduc gas discovery is producing steadily at a current gross raw rate of over 21 mmcf/d, making it one of the most prolific gas wells drilled in Western Canada in 2006.

Grand Banks has developed a very high quality, operated production base along with strategic infrastructure that will generate strong cash flow to help fund future growth. As the result of our production increases, and the high prices received for our light oil, our Q3, 2007 cash flow increased to $0.10 per share (basic) from $0.06 per share in Q2, and we expect further increases in Q4. The Company currently produces about 1,250 boe/d (with 50 boe/d shut in for a plant upgrade) and maintains its 2007 exit production target of 1,400 boe/d.

We believe that our shares are significantly undervalued at current prices and have no intentions to issue dilutive equity to fund our capital program. We also intend to maintain our debt at conservative levels to avoid over- extending our balance sheet. Our goal is to determine the optimum way to develop our extensive asset base in a way that creates a timely realization of value for our shareholders.

Grand Banks is listed on the TSX-Venture Exchange under the Symbol GBE.

FORWARD LOOKING STATEMENTS

This press release contains forward-looking statements including expectations of future production. 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.
BOEs 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.

The TSX Venture Exchange does not accept responsibility for the adequacy or accuracy of this release.

Contact Information

  • Grand Banks Energy Corporation
    E.C. (Ted) McFeely
    Chairman, President & CEO
    (403) 262-8666
    (403) 262-8796 (FAX)
    or
    Grand Banks Energy Corporation
    John Kalman
    Vice President, Finance & CFO
    (403) 262-8666
    (403) 262-8796 (FAX)
    or
    Grand Banks Energy Corporation
    1600, 444 - 5th Avenue S.W.
    Calgary, Alberta T2P 2T8