Orleans Energy Ltd.
TSX : OEX

Orleans Energy Ltd.

November 12, 2009 16:30 ET

Orleans Energy Reports Third Quarter 2009 Results

CALGARY, ALBERTA--(Marketwire - Nov. 12, 2009) - Orleans Energy Ltd. ("Orleans" or the "Company") (TSX:OEX) today announced financial and operating results for the third quarter ended September 30, 2009. For the quarter, Orleans reported cash flow from operations of $3.19 million ($0.05 per fully diluted share) on revenue of $9.5 million and production of 3,848 barrels of oil equivalent per day. The table below summarizes the Company's key results achieved during the three month and nine month periods ended September 30, 2009:



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Financial Highlights Three Months Ended Sep. 30,
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(all amounts in Cdn $ except share data) %
(6:1 oil equivalent conversion) 2009 2008 Change
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Petroleum and natural gas revenue (1) 9,497,206 21,441,725 (56)
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Per share - basic 0.15 0.47 (68)
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- diluted 0.15 0.46 (67)
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Cash flow from operations (2) 3,194,954 11,000,286 (71)
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Per share - basic 0.05 0.24 (79)
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- diluted 0.05 0.24 (79)
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Operating netback (3) ($/boe) 12.66 30.80 (59)
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Corporate netback (3) ($/boe) 9.02 28.40 (68)
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Net earnings (loss) (4) (5,940,671) 2,469,892 -
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Per share - basic (0.10) 0.05 -
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- diluted (0.10) 0.05 -
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Net debt (5) - period end 47,730,426 39,385,806 21
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Weighted average basic shares 62,050,706 45,779,706 36
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Weighted average diluted shares 62,050,706 46,560,126 33
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Issued and outstanding shares (6) 62,050,706 45,779,706 36
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Operating Highlights
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Average daily production:
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Natural gas (mcf/d) 19,254 20,238 (5)
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Liquids (Oil & NGLs) (bbls/d) 639 837 (24)
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Oil equivalent (boe/d) 3,848 4,210 (9)
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Average sales price (net hedging) (1):
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Natural gas ($/mcf) 3.45 7.59 (55)
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Liquids (Oil & NGLs) ($/bbl) 57.61 94.94 (39)
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Oil equivalent ($/boe) 26.83 55.36 (52)
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E&D capital expenditures ($) 3,001,606 25,559,271 (88)
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Total capital expenditures ($) 3,648,280 25,874,293 (86)
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Financial Highlights Nine Months Ended Sep. 30,
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(all amounts in Cdn $ except share data) %
(6:1 oil equivalent conversion) 2009 2008 Change
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Petroleum and natural gas revenue (1) 31,940,121 65,151,422 (51)
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Per share - basic 0.59 1.50 (61)
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- diluted 0.59 1.47 (60)
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Cash flow from operations (2) 9,446,577 33,948,039 (72)
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Per share - basic 0.17 0.78 (78)
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- diluted 0.17 0.77 (78)
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Operating netback (3) ($/boe) 12.34 33.93 (64)
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Corporate netback (3) ($/boe) 8.74 30.93 (72)
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Net earnings (loss) (4) (16,615,491) (262,032) -
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Per share - basic (0.31) (0.01) -
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- diluted (0.31) (0.01) -
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Net debt (5) - period end 47,730,426 39,385,806 21
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Weighted average basic shares 54,399,717 43,481,853 25
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Weighted average diluted shares 54,399,717 43,481,853 25
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Issued and outstanding shares (6) 62,050,706 45,779,706 36
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Operating Highlights
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Average daily production:
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Natural gas (mcf/d) 19,394 19,232 1
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Liquids (Oil & NGLs) (bbls/d) 725 800 (9)
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Oil equivalent (boe/d) 3,958 4,006 (1)
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Average sales price (net hedging) (1):
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Natural gas ($/mcf) 4.18 8.49 (51)
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Liquids (Oil & NGLs) ($/bbl) 49.60 93.16 (47)
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Oil equivalent ($/boe) 29.56 59.36 (50)
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E&D capital expenditures ($) 32,352,936 47,880,726 (32)
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Total capital expenditures ($) 34,114,568 48,911,330 (30)
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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.
(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 November 12, 2009, common shares outstanding are 65,175,706.


Key undertakings during the third quarter of 2009 and recent events include the following:

Drilling Update

In October 2009, with its continuing initiative to further delineate and "de-risk" its Kaybob Montney land base, the Company drilled and cased two (1.75 net W.I.) horizontal gas wells on its western Kaybob land block. The first well (1.0 net W.I.) was recently completed with a multi-stage, gelled-hydrocarbon fracture stimulation and is currently undergoing a standard production flow test. The second Kaybob well (0.75 net W.I.) presently has a completion service rig on-site with the stimulation operation scheduled to occur on or about November 15, 2009. The results from both of these well completion and flow test operations will be made available upon conclusion of the second Kaybob well's production flow test.

Both of these Kaybob wells represent the initial application of horizontal drilling and multi-stage completion techniques on the respective sections of land. To-date, on its Kaybob acreage, Orleans has down-spaced drilled to three wells (including both vertical and horizontal wellbores) on only five of its sections of land. The Company has regulatory approval to drill five wells per section with no interwell distance restrictions across 25 (22.5 net) sections of land at Kaybob.

At Waskahigan, to the northwest of Kaybob in West Central Alberta, the Company plans to test a Montney concept and spud the first well (1.0 net W.I.) on its eighteen (18) section contiguous land base by the end of November 2009. Orleans' geological mapping, supported through existing wellbore log and core sample analysis, suggests this area is geologically similar and located within the same depositional environment as the Company's Kaybob Montney property. A second, independent Montney test (1.0 net W.I.) at Waskahigan is expected to be drilled by Orleans immediately subsequent to the drilling of the first aforementioned location.

Minor Property Disposition

On October 30, 2009 Orleans closed the disposition of its non-core Medicine River natural gas property for $2.26 million, adjusted for closing adjustments (the "Med River Disposition"). The Med River Disposition included approximately 75 boe per day of production, estimated proved reserves of 114.1 thousand boe and proved plus probable reserves of 204.5 thousand boe, and 529 net acres of undeveloped acreage.

Updated Bank Loan Facility

A recent semi-annual re-determination of the borrowing base associated with Orleans' committed, extendible revolving bank facility (the "Credit Facility") underwritten by a two-bank syndicate (the "Lenders"), resulted in the Lenders establishing an updated borrowing base amount of $60 million, effective November 4, 2009. This new borrowing base amount represents an approximate 8% decrease from the preceding credit limit amount of $65 million. Despite Orleans realizing additions to its proved reserves base in 2009, the borrowing base re-determination was affected by the disposition of proved reserves associated with the Med River Disposition and the Lenders' significantly lower commodity price forecast, which is one of the primary components in borrowing base determination for banks.

This updated borrowing base of $60 million is the maximum borrowing amount of the Credit Facility provided by the Lenders, 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 November 12, 2009, after giving effect to the closed equity financing discussed hereafter, approximately $36 million or 60% was drawn against the existing line of credit.

Bought-Deal Equity Financing

On November 12, 2009 the Company closed a $10.0 million "bought-deal" equity flow-through financing, facilitating financial flexibility and enabling Orleans to accelerate horizontal and vertical drilling operations on multiple, Montney exploration prospects on two independent, contiguous land blocks encompassing twenty-four (24) sections of land in the Greater Waskahigan area in West Central Alberta.

Commodity Hedging Update

Notwithstanding the general improvement in market sentiment over the past few months, natural gas fundamentals continue to exhibit weak characteristics given very high storage inventories and recession-reduced demand. Natural gas price volatility is expected to be prevalent for the foreseeable future as markets continue to struggle to gauge the timing and strength of the global economic recovery. As a means to mitigate this price volatility and protect valuable cash flow necessary for capital re-investment purposes, in the third quarter the Company entered into the following natural gas hedge contracts:



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Daily
notional
Commodity Type Term Reference Volume Index Price
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NatGas Swap Nov. 1, 2009 - Dec. 31, 2009 7,000 GJs AECO-C C$3.89 /GJ
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NatGas Swap Jan. 1, 2010 - Dec. 31, 2010 7,000 GJs AECO-C C$5.00 /GJ
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Outlook

With the ongoing volatility and instability in the global economy and capital markets, Orleans will continue to be financially prudent. The Company is confident that as a result of the significant reduction in North American drilling programs throughout 2009, combined with a consistent, albeit slow, improvement in the global economy, demand for commodities should increase and commodity prices should strengthen into 2010.

Orleans has positioned itself very well throughout this period of uncertainty by paring back its drilling program and maintaining a watchful eye on the balance sheet. At the same time, the Company has grown a strategic, unconventional resource-style land base and drilling inventory, reduced operating and processing costs in its core Kaybob area and increased operational flexibility and control within this area. The second quarter 2009 construction and operational start-up of Orleans' 100% owned, 19 kilometre, ten inch pipeline in Kaybob was fully operational throughout the third quarter of 2009, providing the Company with access to significantly lower processing and transportation fees and improved processing and transportation stability of its gas production volumes.

Orleans' focus on internally-generating prospects and building its land base throughout 2009 in the Greater Waskahigan area, has resulted in the acquisition of 24 (24.0 net) sections of Crown land, concentrated on two Kaybob-style, liquids-rich Montney resource gas plays.

As a result of the bought-deal equity financing which closed today and the sale of non-core assets, Orleans is poised to "unlock" and capture significant shareholder value over the upcoming winter drilling season. The Company is set to commence drilling operations on its new Waskahigan acreage with the first of two horizontal wells slated to spud by the end of November, with results anticipated in early 2010. Additionally, bolstered by the benefits of the government drilling incentive credits and reduced royalty rates, Orleans' Kaybob Montney inventory presents one of the most economic prospects in the Western Canadian Sedimentary Basin.

With respect to providing capital spending, production and financial guidance for 2010, Orleans is currently engaged in its budgeting phase and will look to provide such guidance in early 2010.

The Company's interim financial statements and associated Management's Discussion and Analysis ("MD&A") for the nine months ended September 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 and/or final 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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