Serrano Energy Ltd.

November 06, 2009 16:40 ET

Serrano Energy Announces Strategic, Alternatives Process and Updated Reserve Information

CALGARY, ALBERTA--(Marketwire - Nov. 6, 2009) -

NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES OF AMERICA.

Serrano Energy Ltd. ("Serrano" or the "Company") is pleased to announce the following:

Strategic alternatives process

Serrano announces that the Board of Directors has initiated a process to evaluate various strategic alternatives for the Company. These alternatives may include a sale, merger, major asset disposition, major financing, or any other alternative to assist in unlocking additional value for the benefit for all shareholders.

Serrano has retained Cormark Securities Inc. to act as its exclusive financial advisor to assist in the review process.

The Company does not expect to update its progress with respect to the review of the alternatives until the Board of Directors authorizes any transaction or if required by applicable disclosure requirements. There can be no assurance that any transaction will occur or, if one is undertaken, any certainty with regard to its terms or timing.

Summary of Present Values of Future Net Revenue

In conjunction with the strategic alternatives review, the Company had its independent reserve engineer GLJ Petroleum Consultants ("GLJ") complete a mid-year reserve report in accordance with National Instrument 51-101, effective September 1, 2009 with GLJ's published forecast prices and costs as at October 1, 2009 as follows:



Heavy Oil
Gross
(Mbbl)
-------------
Proved
Developed Producing 1,014
Developed Non-Producing 299
Undeveloped 253
-------------
Total Proved 1,566
Probable 1,492
-------------
Total Proved Plus Probable 3,058
-------------


The estimated future net revenues are stated before deducting future estimated site restoration costs and reduced for estimated future well abandonment costs, the Saskatchewan capital tax and estimated capital for future development associated with the reserves. Estimated values disclosed do not necessarily represent fair market value.



Before Income Taxes - Discounted at %/year
(Thousands of Dollars)
Reserves Category 0 10 15
--------------------------------------------
Proved
Developed Producing 35,074 28,305 25,998
Developed Non-Producing 10,836 7,631 6,650
Undeveloped 6,211 5,071 4,624
--------------------------------------------
Total Proved 52,121 41,007 37,272
Probable 49,041 32,851 27,953
--------------------------------------------
Total Proved Plus Probable 101,162 73,858 65,225
--------------------------------------------


GLJ assigned 105,000 boe's (PV10% value of $1.89 million) to the possible reserve category as at September 1, 2009 which have subsequently been converted to the proved and probable reserve categories as a result of workovers performed subsequent to the reserve report effective date.

In the reserve report, the net total future capital required to bring undeveloped proved and probable reserves onto production is estimated to be $11.6 million, an incremental $7.1 million increase from January 1, 2009, over the life of the reserves.

Blackrod Contingent Resource Estimate

Serrano also had GLJ prepare a resource valuation on the Company's 20% working interest in the Blackrod SAGD project in accordance with the Canadian Oil and Gas Evaluation Handbook criteria on the original oil-in-place and resource assignments. The effective date of the report is September 1, 2009 with GLJ's published forecast prices and costs as at October 1, 2009 with the estimates of values inclusive of approximately $70 million of future net capital to Serrano as noted below. The Company has not booked any proved plus probable reserves at Blackrod.



Low Estimate Best Estimate High Estimate
Contingent Resource Contingent Resource Contingent Resource
---------------------------------------------------------------
Marketable
Heavy Oil
Reserves
(Millions of
barrels)
Gross Lease 252,977 365,742 512,820
Total Company
Interest 50,595 73,148 102,564
Net After
Royalty 42,342 59,771 82,035

Net present
value (Millions
of dollars)
Undiscounted 998,074 1,784,048 2,651,574
Discounted
at 10% 54,530 115,395 214,066


The term "Contingent Resources" is taken from the Canadian Oil and Gas Evaluation Handbook. The volumes listed in the above table refer to potentially recoverable volumes of bitumen resources. The contingencies that prevent these bitumen resources from being classified as reserves include but are not limited to; regulatory approval, completed feasibility studies and company commitment. There is no certainty that it will be commercially viable to produce any portion of the Blackrod resources.

Reserves subcommittee of the Board of Directors

The reserves subcommittee is comprised of Board members appointed by the Board of Directors of Serrano, and are responsible to the Board to oversee and monitor the process for calculating the reserves and the procedures for compliance with applicable legislation and conformity with industry standards and disclosure of information. It reviews, reports, and when appropriate, makes recommendations to the board on Serrano's policies and procedures related to its reserve estimates. The GLJ reports were reviewed by the reserves subcommittee and approved by the Board of Directors on November 5, 2009.

Mr. Bennett, President and CEO commented "Since inception, Serrano has strived to develop a solid heavy oil production base, increase the Company's prospect inventory and undeveloped land base in order to provide a strong organic growth component for the Serrano shareholders in addition to our 20% interest in a world class SAGD project at Blackrod. 2009 has been a challenging year but based on the aforementioned results the Serrano team has exceeded all expectations and positioned the Company to produce positive returns for our shareholders."

For further information relating to the strategic alternatives process, see contact information.

Cautionary Statements

Certain information set forth in this document, including management's assessment of future plans and operations, contains forward-looking statements. By their nature, forward-looking statements are subject to numerous risks and uncertainties, some of which are beyond this party's control, including the impact of general economic conditions, industry conditions, volatility of commodity prices, currency fluctuations, imprecision of reserve estimates, environmental risks, competition from other industry participants, the lack of availability of qualified personnel or management, stock market volatility and ability to access sufficient capital from internal and external sources. Readers are cautioned that the assumptions used in the preparation of such information, although considered reasonable at the time of preparation, may prove to be imprecise and, as such, undue reliance should not be placed on forward-looking statements. Actual results, performance or achievement could differ from those expressed in, or implied by, these forward-looking statements, and accordingly, no assurance can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do so, what benefits will be derived there from. Serrano disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise except as required in accordance with applicable securities laws.

The Company has also used certain measures of financial reporting that are commonly used as benchmarks within the oil and natural gas production industry. The measures discussed are widely accepted measures of performance and value within the industry, and are used by investors and analysts to compare and evaluate oil and natural gas exploration and producing entities. Most notably, these measures include operating netback and funds flow from operations. Operating netback is a benchmark used in the crude oil and natural gas industry to measure the contribution of oil and natural gas sales subsequent to the deduction of royalties, operating and transportation costs. Funds flow from operations is before changes in non-cash working capital but adjusted for site restoration expenditures, and is used to analyze operations, performance and liquidity. These measures are not defined under GAAP and should not be considered in isolation or as an alternative to conventional GAAP measures. These measures and their underlying calculations are not necessarily comparable to a similarly titled measure of another entity.

Per barrel of oil equivalent amounts have been calculated using a conversion of six thousand cubic feet of natural gas to one barrel of oil equivalent (6:1). (Barrel of oil equivalents (boe) may be misleading, particularly if used in isolation. A boe conversion ratio of 6mcf:1bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.)

Contact Information

  • Cormark Securities Inc.
    Ryan Shay
    Managing Director, Investment Banking
    (403) 750-7202
    rshay@cormark.com
    or
    Cormark Securities Inc.
    Gregg Delcourt
    Vice President, Investment Banking
    (403) 750-7217
    gdelcourt@cormark.com
    or
    Serrano Energy Ltd.
    J.W. Grant Robertson
    Vice-President Business Development
    (403) 231-1230
    nevcrow2@telus.net
    or
    Serrano Energy Ltd.
    Michal J. Holub
    Vice President Finance and CFO
    (403) 262-5256
    nevcrow9@telus.net