Orleans Energy Ltd.

Orleans Energy Ltd.

August 13, 2009 16:33 ET

Orleans Energy Reports Second Quarter 2009 Results

CALGARY, ALBERTA--(Marketwire - Aug. 13, 2009) - Orleans Energy Ltd. ("Orleans" or the "Company") (TSX:OEX) today announced financial and operating results for the second quarter ended June 30, 2009. For the quarter, Orleans reported cash flow from operations of $2.33 million ($0.04 per fully diluted share) on revenue of $9.46 million and production of 3,848 barrels of oil equivalent per day. While the Company's financial results reflect a significant decline in gas prices, Orleans' operating results were strong, notwithstanding three weeks of production disruption of its Kaybob Montney field due to the scheduled turnaround of a midstream-operated gas plant. The table below summarizes the Company's key results achieved during the three month and six month periods ended June 30, 2009:

Highlights Three Months Ended June 30, Six Months Ended June 30,
(all amounts in Cdn
$ except share data)
(6:1 oil equivalent % %
conversion) 2009 2008 Change 2009 2008 Change
Petroleum and
natural gas
revenue (1) 9,462,683 24,673,526 (62) 22,442,915 43,709,697 (49)
Per share
- basic 0.18 0.54 (67) 0.44 1.03 (57)
- diluted 0.18 0.53 (66) 0.44 1.01 (56)
Cash flow from
operations (2) 2,325,736 13,565,038 (83) 6,251,623 22,947,752 (73)
Per share
- basic 0.04 0.30 (87) 0.12 0.54 (78)
- diluted 0.04 0.29 (86) 0.12 0.53 (77)
Operating netback
(3) ($/boe) 10.97 39.97 (73) 12.18 35.63 (66)
Corporate netback
(3) ($/boe) 6.64 37.08 (82) 8.61 32.31 (73)
Net earnings
(loss) (4) (6,432,436) 850,295 - (10,674,820)(2,731,924) 291
Per share
- basic (0.12) 0.02 - (0.21) (0.06) 250
- diluted (0.12) 0.02 - (0.21) (0.06) 250
Net debt (5)
- period end 47,421,934 20,326,679 133 47,421,934 20,326,679 133
Weighted average
basic shares 53,059,607 45,604,668 16 50,510,816 42,320,300 19
Weighted average
shares 53,059,607 46,575,328 14 50,510,816 42,320,300 17
Issued and
shares (6) 62,050,706 45,779,706 36 62,050,706 45,779,706 36

Operating Highlights
Average daily
Natural gas
(mcf/d) 18,881 19,377 (3) 19,465 18,724 4
(Oil & NGLs)
(bbls/d) 701 791 (11) 769 782 (2)
Oil equivalent
(boe/d) 3,848 4,020 (4) 4,013 3,902 3
Average sales price
(net hedging) (1):
Natural gas ($/mcf) 3.67 9.81 (63) 4.54 8.98 (49)
Liquids (Oil & NGLs)
($/bbl) 49.37 102.59 (52) 46.22 92.20 (50)
Oil equivalent
($/boe) 27.03 67.44 (60) 30.90 61.54 (50)
E&D capital
($) 11,117,989 6,804,641 63 29,351,329 21,781,456 35
Total capital
($) 11,609,527 6,830,371 70 30,466,288 23,037,037 32

Table Notes:

(1) Petroleum and natural gas revenue and pricing includes realized hedging
gains or losses from commodity contract settlements.
(2) Cash flow from operations does not have any standardized meaning
prescribed by Canadian generally accepted accounting principles
("GAAP"). Please refer to the Company's MD&A for definition of cash
flow from operations.
(3) Operating netback represents average sales price (includes realized
hedging gains or losses) less royalties, operating costs and
transportation expenses. Corporate netback represents Operating netback
less interest expense and general and administrative costs (excluding
non-cash stock-based compensation expense). These netback measures are
not recognized measures under Canadian GAAP.
(4) Net earnings (loss) includes: (i) non-cash income tax expense or
reductions and (ii) non-cash unrealized hedging gains or losses from
commodity contract settlements, and (iii) any bad debt expense. For
the three and six month periods ended June 30, 2009, the reported net
loss reflects a Provision for Non-recoverable Accounts Receivable of
$1.83 million associated with the previously disclosed SemCAMS
financial exposure.
(5) Net debt refers to outstanding bank debt adjusted for working capital
position (excludes current unrealized amounts pertaining to risk
management commodity contracts). Net debt is not a recognized measure
under Canadian GAAP.
(6) As of August 12, 2009, common shares outstanding are 62,050,706.

Key Orleans' accomplishments during the second quarter of 2009 include the following:

Updated Bank Loan Facility

Effective May 6, 2009, diversified the Company's lending arrangements by entering into a committed, extendible revolving bank facility (the "Credit Facility") underwritten by a two-bank syndicate (collectively the "Lenders"). The successful graduation from the pre-existing demand facility to a committed syndicated facility endorses the quality of Orleans' asset base and the strength of its banking relationships in the midst of volatile and tightened credit markets. The maximum borrowing amount of the Credit Facility provided by the Lenders is set at $65 million, with borrowings available on a fully revolving basis through to April 29, 2010, at which time Orleans can request approval by the Lenders for an extension for an additional 364 day cycle or convert the outstanding bank indebtedness to a one-year term loan. As of August 12, 2009, $49.5 million or 76% was drawn against the Credit Facility.

Kaybob K3 Pipeline Project

On May 17, 2009 commissioned Orleans' wholly-owned 19 kilometre natural gas pipeline extending from the Company-operated 10-22-60-19W5 Compression Facility site to the Kaybob South #3 Gas Plant ("K3 Plant") located at 03-15-59-18W5. The 10 inch dry gas line, along with a four inch hydrocarbon liquids line, is capable of delivering up to 75 million cubic feet per day of gas at existing operating conditions, providing ample capacity and security for growth of Orleans' future gas volumes in Kaybob.

This strategic pipeline was built to ensure Orleans' current and future gas volumes in Kaybob will have unfettered access to processing capacity in the region. The Company now possesses optionality to transport and process hydrocarbon volumes to either the Kaybob Amalgamated Gas Plant ("KA Plant") or the K3 Plant, thereby minimizing downtime during plant turnarounds and unscheduled plant shutdowns. As previously disclosed, Orleans budgeted for approximately one month of production outage (May 2009) at its Kaybob property for a planned turnaround of the KA Plant. The KA Plant was completely shut-in with Orleans' production off-line commencing April 25, 2009. The Company's Kaybob production was brought back on-line upon start-up of the Kaybob K3 pipeline infrastructure on May 17, 2009, thereby mitigating the duration of the production disruption as the KA Plant was not fully re-commissioned until May 26, 2009.

Equity Financing

On June 30, 2009, closed a strategic bought-deal equity financing (the "Financing"). Pursuant to the Financing, Orleans issued 9,091,000 common shares at a price of $2.20 per common share for total gross proceeds of $20.0 million. The net proceeds of the Financing ($18.8 million) was initially used to reduce amounts owing under its Credit Facility, which will be subsequently redrawn and applied as needed to fund the Company's remaining budgeted capital expenditures for fiscal 2009. Specifically, this encompasses the drilling of two (1.75 net) Kaybob horizontal wells targeting the Montney reservoir and one (1.0 net) horizontal exploration prospect on Orleans' recently acquired lands. The Financing affords Orleans with flexibility to weather the current depressed gas price environment and market trough, while taking advantage of the drilling incentive credits introduced by the Alberta government in March 2009.

New Exploration Lands

Over the past year, Orleans has been actively posting and acquiring new Alberta Crown acreage blocks targeting similar Montney depositional environments as its prolific Kaybob prospects. The Company is utilizing its internally-developed Kaybob geological knowledge base to identify and target new Montney opportunities and prospects outside of Kaybob. To-date, Orleans has acquired 12,800 gross acres (20 sections) of 100% working interest Crown lands on two contiguous blocks immediately northwest of Kaybob within the Montney depositional fairway. The Company intends to spud its first horizontal gas well on these lands in the early part of the fourth quarter 2009.


During this time frame of volatile and depressed commodity prices, unstable equity markets and global economic turmoil, Orleans is positioning itself for ongoing and future success by focusing on its core assets, reducing operating expenses and preparing operated drilling programs for future "ramp-up" execution upon improved market and economic conditions. The Company has been steadily adding to its resource-oriented prospect inventory by acquiring key lands on internally-generated plays during a period of unprecedented low land sale prices. Orleans intends to commence drilling in the latter part of the third quarter 2009 at Kaybob. If natural gas prices continue to languish beyond 2009, Orleans has the financial flexibility to modify its capital investment programs accordingly to preserve the relative strength of its balance sheet.

The Company's interim financial statements and associated Management's Discussion and Analysis ("MD&A") for the six months ended June 30, 2009 will be available on Orleans' website at www.orleansenergy.com located within "Investor Relations" under "Financial Reports". Additional, these documents will be filed, in due course, on the System for Electronic Document Analysis and Retrieval ("SEDAR"). These documents can be retrieved electronically from the SEDAR system by accessing Orleans' public filings under "Search for Public Company Documents" within the "Search Database" module at www.sedar.com.

Orleans Energy Ltd. is a Calgary, Alberta-based emerging crude oil and natural gas company, with common shares trading on the Toronto Stock Exchange under the symbol "OEX". Orleans is a team of dedicated, experienced professionals focused on the creation of shareholder value via acquisition, exploration and development of crude oil and natural gas assets in Alberta, Canada.

The information in this news release contains certain forward-looking statements. These statements relate to future events or our future performance. All statements other than statements of historical fact may be forward-looking statements. Forward-looking statements are often, but not always, identified by the use of words such as "seek", "anticipate", "plan", "continue", "estimate", "approximate", "expect", "may", "will", "project", "predict", "potential", "targeting", "intend", "could", "might", "should", "believe", "would" and similar expressions. These statements involve substantial known and unknown risks and uncertainties, certain of which are beyond the Company's control, including: the impact of general economic conditions; industry conditions; changes in laws and regulations including the adoption of new environmental laws and regulations and changes in how they are interpreted and enforced; fluctuations in commodity prices and foreign exchange and interest rates; stock market volatility and market valuations; volatility in market prices for oil and natural gas; liabilities inherent in oil and natural gas operations; uncertainties associated with estimating oil and natural gas reserves; competition for, among other things, capital, acquisitions, of reserves, undeveloped lands and skilled personnel; incorrect assessments of the value of acquisitions; changes in income tax laws or changes in tax laws and incentive programs relating to the oil and gas industry ; geological, technical, drilling and processing problems and other difficulties in producing petroleum reserves; and obtaining required approvals of regulatory authorities. The Company's 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 or, if any of them do, what benefits that the Company will derive from them. These statements are subject to certain risks and uncertainties and may be based on assumptions that could cause actual results to differ materially from those anticipated or implied in the forward-looking statements. The Company's forward-looking statements are expressly qualified in their entirety by this cautionary statement. Except as required by law, the Company undertakes no obligation to publicly update or revise any forward-looking statements.

In this news release, reserves and production data are commonly stated in barrels of oil equivalent ("boe") using a six to one conversion ratio when converting thousands of cubic feet of natural gas ("mcf") to barrels of oil ("bbl") and a one to one conversion ratio for natural gas liquids ("NGLs" or "ngls"). Such conversion may be misleading, particularly if used in isolation. A boe conversion ratio of 6 mcf: 1 bbl is based on energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

As an indicator of the Company's performance, the term cash flow from operations or operating cash flow contained within this news release should not be considered as an alternative to, or more meaningful than, cash flow from operating, financing or investing activities, as determined in accordance with Canadian generally accepted accounting principles ("GAAP"). This term does not have a standardized meaning, nor is it a financial measure, under GAAP. Cash flow from operations is widely accepted as a financial indicator of an exploration and production company's ability to generate cash which is used to internally fund exploration and development activities and to service debt. This measure is widely used by shareholders and investors in the valuation, comparison and investment recommendations of companies within the natural gas and crude oil exploration and production industry. Cash flow from operations, as disclosed within this news release, represents cash flow from operating activities before any asset retirement obligation cash expenditures and before changes in non-cash operating activities working capital. The Company presents cash flow from operations per share whereby per share amounts are calculated consistent with the calculation of earnings per share. Additionally, net debt refers to outstanding bank debt plus working capital deficit (excludes current unrealized amounts pertaining to risk management commodity contracts) plus long-term accounts receivables. Net debt is not a recognized measure under Canadian GAAP.

Any references in this news release to initial test production rates and/or "flush" production rates are useful in confirming the presence of hydrocarbons, however, such rates are not determinative of the rates at which such wells will commence production and decline thereafter. While encouraging, readers are cautioned not to place reliance on such rates in calculating the aggregate production for the Company.

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