Turnkey E&P Inc.
TSX : TKY

Turnkey E&P Inc.

November 14, 2007 18:25 ET

Turnkey E&P Inc. Announces Third Quarter 2007 Results

CALGARY, ALBERTA--(Marketwire - Nov. 14, 2007) - Turnkey E&P Inc. ("Turnkey") (TSX:TKY), today announced its financial and operating results for the three and nine months ended September 30, 2007.

The figures presented below are expressed in thousands of U.S. dollars, except where otherwise stated.



Selected Consolidated Financial Information
Three and nine months ended September 30, 2007

Three Months Nine Months
Ended Ended
September 30, September 30,
----------------- -----------------
2007 2006 2007 2006
$ $ $ $
------- ------- ------- ------

Financial Results
Revenue 5,268 4,842 11,843 16,344
Operating expenses 4,264 4,245 11,143 15,166
Net loss (409) (620) (2,818) (2,437)
Loss per share - basic and diluted (0.02) (0.03) (0.12) (0.10)

September 30, December 31,
2007 2006
$ $
--------------- -------------

Financial Position
Cash and cash equivalents 27,996 47,519
Working capital 29,789 46,462
Long-term debt 199 Nil
Shareholders' equity 91,558 93,623


Bob Tessari, Turnkey's President and CEO, commented on the quarter's results, "We are pleased with the progress Turnkey achieved this quarter in both our Casing Drilling® and E&P divisions. Most importantly, the rigs are delivering positive cash flow and we have established initial production from our Clear Creek field. In addition, we have acquired acreage in South Texas for our second E&P project designed to capitalize on the application of Casing Drilling® technology through the use of our Casing Drilling® rigs. We fully anticipate that our financial results soon will begin to reflect our operational successes."

Operating and Financial Highlights

Turnkey reported a loss of $497 in the third quarter of 2007 compared to $620 in the same period in 2006.

The Company uses its drilling rigs to drill on its own oil and natural gas properties as well as providing contract drilling services to third party customers. Revenues from drilling on owned properties are eliminated in the consolidated financial statements.

Turnkey's drilling rig utilization in the third quarter of 2007 was 71 percent comprised of 202 days drilling for third party customers and 60 days drilling on its own properties. Two rigs were busy throughout the quarter drilling for third party companies on a dayrate basis while a third rig drilled for 20 days to complete a well drilled on a turnkey basis for a third party. On Company-owned properties, drilling was completed on the Patsy Cox #1 and commenced on the Patsy Cox #2. Both of these wells are in the Clear Creek Field in Beauregard Parish, Louisiana.

Casing Drilling® Division

Currently, all four rigs are 100 percent utilized on Casing Drilling® projects. Two of the rigs are working on dayrate contracts for third party operators. The dayrate contract for one of these rigs was extended during the third quarter for an additional one-year period with a rate increase of 17 percent. The rate increase was secured due to the high success rates that the operator has experienced over the last five years using Casing Drilling®. This contract extension and rate increase demonstrates the operator's desire to continue to deploy this new technology in difficult drilling environments.

The other two rigs are scheduled to drill three more wells in the Clear Creek area, two of which will be delineation wells offsetting the Company's W. Cox discovery well and the third is an offset to a third party discovery on a small acreage parcel that is surrounded by Turnkey-owned leases. Turnkey's lease holdings in the Clear Creek Field total approximately 5,700 acres. The Company also plans to drill its first well in the 2,800-acre Hurricane Creek Field farm-in acreage prior to year end.

The Company is currently bidding additional wells to be drilled on a turnkey basis where the profit margins can be significantly greater than conventional dayrate contracts. Casing Drilling® can be more profitable because it can mitigate the risks associated with difficult drilling conditions such as loss of circulation and stuck drill pipe often encountered when drilling through partially depleted zones in a field. This technology can enable operators to drill and complete wells in areas previously thought to be noncommercial, developing new reserves for an operator. In addition, Casing Drilling® may eliminate one or more casing strings in a well saving the operator substantial money. With the new pump-in/reverse-out tools ("PIRO") that are currently being tested, additional efficiencies in both time and costs are expected to be gained over the wireline retrieval method. The company views these new PIRO tools as a major breakthrough that should lower the cost of Casing Drilling® and allow Turnkey to push the technology into higher profit margin wells.

Exploitation and Production Division

Clear Creek Field, Allen and Beauregard Parishes, Louisiana

The W. Cox # 1 well has been put on production as of October 29, 2007. The Company has elected to initially flow the well from the B-6 zone of the Cockfield formation at a reduced rate of 156 barrels of oil per day and 430 thousand cubic feet of gas per day and 10 barrels of water per day with 2,100 psi flowing tubing pressure on a 8/64" choke. The well initially tested 595 barrels of oil per day and 1.1 million cubic feet of gas per day and no water with 1,996 psi flowing tubing pressure on a 14/64" choke. Additional uphole recompletion opportunities remain behind pipe in the well.

Drilling is underway on the Patsy Cox #2 and the Temple Inland #1. A third well will also be drilled during the fourth quarter of this year. The Company expects to have results of all three wells by the end of the year.

Workover operations have commenced on the Patsy Cox # 1 well now that the Cox Central Production Facilities have been completed. As previously stated in the Second Quarter 2007 press release, the B-3 zone tested approximately 20 percent oil, but after completing the zone it produced 100 percent water. The Company believes the well has a poor cement job behind the casing and is currently being worked over to correct this problem. In addition, the B and A zones in the well need to be retested due to mechanical problems associated with the completion.

The Richard Doornbos #1 well is scheduled for completion next year after the Company completes its evaluation of a secondary and tertiary recovery feasibility study. Based on the past production history coupled with pressure data and the reservoir characteristics of the "A" reservoir, the Company believes that there are significant recoverable volumes of oil remaining in the reservoir. Cumulative production from the "A" reservoir has been approximately 12 million barrels of oil.

Hurricane Creek Field, Beauregard Parish, Louisiana

The company is scheduled to spud the first well in November 2007 and expects to have results by the end of the year.

Saldana Prospect, Zapata County, Texas

On October 18, 2007, the Company acquired a 100 percent working interest in a 1,249-acre lease. Three-D seismic data was also acquired covering approximately 22 square miles over the Saldana Prospect and adjoining acreage. This acreage is located in the Lobo/Wilcox trend where Casing Drilling® has proven to be effective in solving difficult drilling problems over the last five years resulting in substantial cost savings for operators. The Company plans to seek industry partner(s) prior to spudding the first well in the second quarter of 2008. The Company continues to be actively engaged in leasing activity in the area.

This release and Turnkey's website referenced in this release contain forward-looking statements including expectations of future production and components of cash flow and earnings. Investors are cautioned that assumptions used in the preparation of such information may prove to be incorrect. Events or circumstances may cause actual results to differ materially from those predicted, a result of numerous known and unknown risks, uncertainties, and other factors, many of which are beyond the control of Turnkey. These risks include, but are not limited to; the risks associated with the oil and gas industry, commodity prices and exchange rate changes. Industry related risks could include, but are not limited to; operational risks in exploration, development and production, delays or changes in plans, risks associated to the uncertainty of reserve estimates, health and safety risks including, without limitation, blowouts and spills, and the uncertainty of estimates and projections of production, costs and expenses. The risks outlined above should not be construed as exhaustive. Investors are cautioned not to place undue reliance on any forward-looking information. Turnkey undertakes no obligation to update or revise any forward-looking statements.

Casing Drilling® is a registered trademark of Tesco Corporation

Contact Information

  • Turnkey E&P Inc.
    R. M. (Bob) Tessari
    President and Chief Executive Officer
    (281) 248-8822