WestFire Energy Ltd.
TSX : WFE

WestFire Energy Ltd.

March 23, 2010 19:39 ET

WestFire Energy Ltd. Announces Fourth Quarter 2009 Results

CALGARY, ALBERTA--(Marketwire - March 23, 2010) - WestFire Energy Ltd. ("WestFire" or "the Company") (TSX:WFE) is pleased to announce its operating and financial results for the fourth quarter and year ended December 31, 2009. The fourth quarter results include the results of Exceed Energy Inc. ("Exceed") that was acquired on December 18, 2009.

HIGHLIGHTS

- The Company listed its shares on the Toronto Stock Exchange on December 24, 2009;

- Produced quarterly record of 1,678 barrels of oil equivalent per day ("boepd") for Q4/09 and an annual record of 1,480 boepd (an increase of 65% over 2008);

- Increased total proved reserves 80% to 5.4 million barrels of oil equivalent ("MMboe") and total proved plus probable reserves 91% to 9.8 MMboe;

- Replaced 970% of production with finding, development and acquisition costs ("FD&A") of $8.55 per barrel of oil equivalent ("boe") for total proved plus probable reserves excluding future development costs ("FDC");

- Realized a recycle ratio (operating netback divided by FD&A) based on total proved plus probable reserves of 2.9 in 2009 excluding FDC;

- Increased net undeveloped land 101% to 205,000 acres with approximately 50% of these lands focused on the highly prospective Viking light oil resource play located in Saskatchewan and Alberta;

- Increased net asset value 30% to $6.32 per share;

- Advanced development of our Viking light oil resource play, increasing year-end Viking oil reserves by 76% to 2.4 MMboe on a total proved basis and by 77% to 4.6 MMboe on a total proved plus probable basis; and

- Successfully drilled 11 (10.5 net) wells with an overall success rate of 91%.

The "Financial and Operating Highlights" table provides a summary of WestFire's results for the three and twelve month periods ended December 31, 2009 and 2008. Consolidated financial statements with management's discussion and analysis (MD&A) will be available on the company's website and on the SEDAR website.



FINANCIAL AND OPERATING HIGHLIGHTS

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Three Months Ended Years Ended
Financial December 31 December 31
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($'s except share and
production information) 2009 2008 2009 2008
Oil and gas revenues 6,957,239 5,967,421 20,229,364 21,324,168
Cash provided by operating
activities 2,513,442 3,868,556 6,510,517 9,825,248
Funds flow from
operations (1) 2,674,116 2,894,816 7,395,722 8,202,010
Per share - basic
and diluted(1) 0.10 0.18 0.31 0.63
Net income 11,829,466 933,979 6,636,399 3,641,629
Per share - basic and
diluted(1) 0.43 0.06 0.27 0.28
Bank debt - 7,491,273 - 7,491,273
Working capital deficiency(2) 3,378,876 4,341,062 3,378,876 4,341,062
Net debt(3) 3,378,876 11,832,335 3,378,876 11,832,335
Capital expenditures
(including non-cash) 32,997,653 14,078,688 49,078,598 77,888,861
Common shares outstanding -
basic 35,157,959 20,435,382 35,157,959 20,435,382
Common shares outstanding
-diluted 35,662,741 20,435,382 35,662,741 20,435,382
Weighted average shares- basic
and diluted 27,734,339 16,327,495 24,168,895 12,966,260
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Operating
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Average daily production
Oil and NGL (bbls per day) 669 567 536 427
Natural gas (Mcf per day) 6,054 5,328 5,666 2,831
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Barrels of oil equivalent (boe per
day) (4) 1,678 1,455 1,480 899
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Average selling prices(5)
Oil and NGL ($/bbl) 69.40 48.90 58.67 76.86
Natural gas ($/Mcf) 4.82 6.97 4.23 7.85
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Total ($/boe) (4) 45.07 44.59 37.44 64.84
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Netback ($/boe)
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Revenue 45.07 44.59 37.44 64.84
Realized derivative gains (losses) 0.17 8.91 4.93 (0.46)
Royalties (4.56) (7.91) (4.17) (12.91)
Operating expenses (17.11) (16.03) (18.23) (17.91)
Transportation expenses (1.28) (0.55) (1.17) (1.68)
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Netback 22.28 29.01 18.80 32.88
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(1) Non-GAAP (generally accepted accounting principles) measure.
(2) Working capital does not include the current portion of the future tax
asset.
(3) Net debt includes bank indebtedness and working capital
(4) Six thousand cubic feet of natural gas is equivalent to one barrel of
oil.
(5) The average selling prices reported are before realized derivatives
gains (losses) and transportation charges


REVIEW OF OPERATIONS

WestFire increased both reserves and production in 2009 through a balanced approach of relatively low-risk Viking light oil horizontal drilling and selective acquisitions. This growth demonstrates the ongoing success of the Company's business plan. WestFire has built a large base of opportunities on the emerging Viking light oil resource play in the Redwater, Alberta and West Central Saskatchewan areas. During 2009, WestFire drilled and completed eight (7.5 net) horizontal wells with multi-stage fracs in the Viking. In addition, three (3.0 net) wells were drilled at Bashaw, Alberta resulting in two gas wells and one dry hole for an overall program success ratio of 91%. Looking ahead, WestFire intends to continue with its development drilling oriented approach to fuel its growth.

During 2009, WestFire continued to pursue its acquisition strategy by completing one corporate acquisition and two asset acquisitions. Both asset acquisitions were from companies in receivership, while the corporate acquisition of Exceed provided a vehicle through which WestFire obtained a public listing. The asset acquisitions provide significant development potential, while the Exceed acquisition allowed WestFire to consolidate its ownership at Bashaw, Alberta which is the Company's primary gas producing area.

WestFire currently has four core operating areas which are Redwater, Bashaw and Lloydminster in Alberta and West Central Saskatchewan. The Company's primary focus remains firmly fixed on developing its shallow, low-risk Viking light oil horizontal resource play at Redwater, Alberta and West Central Saskatchewan. The Bashaw multi-zone Mannville liquids-rich natural gas and Lloydminster Lloyd/Sparky heavy oil horizontal projects have evolved into self-sustaining, cash flow generating assets which assist in funding the Viking development.

Consistent with our previous guidance, our capital budget for 2010 is $40 million which is designed to generate an average production rate of 2,500 boepd.

FINANCIAL UPDATE

WestFire's financial performance strengthened in the fourth quarter of 2009. Funds flow from operations reached $2.7 million ($0.10 per basic and diluted share) as average production for the quarter climbed to 1,678 boepd, a 21% increase over the third quarter of 2009. Countering this growth in production was a 23% decrease in netbacks from the previous year as product prices weakened and realized hedging gains decreased.

Capital expenditures for the quarter of $33.0 million related mainly to the company's acquisition of assets from Action Energy Inc. and Exceed Energy Inc. for $24.6 million, net of tax. In addition, WestFire spent $8.3 million in the fourth quarter on drilling, completions, well equipment and land. Net debt was reduced from the third quarter primarily due to a $45 million equity financing to fund the acquisitions. At year-end 2009 the company's financial position remained strong with $20 million of available credit facilities and no bank debt. The Company has initiated discussions with its banker to increase this credit facility.

CAPITAL PROGRAM EFFICIENCY

The efficiency of the Company's capital program for the year ended December 31, 2009 and 2008 is summarized below:



Two Year Average
2009 2008 2008-2009
Proved + Proved + Proved +
(M$) Proved Probable Proved Probable Proved Probable
Development
expenditures(1) 18,612 18,612 20,060 20,060 38,672 38,672
Change in future
development capital (FDC) 23,403 50,124 4,797 25,098 28,200 75,222
All in development
capital(1) 42,015 68,736 24,857 45,185 66,872 113,921
Acquisitions(2) 26,189 26,189 51,390 51,390 77,579 77,579
All In Total
Capital(1)(2)(3) 68,204 94,925 76,247 96,548 144,451 191,473
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Reserves Additions (Mboe)
-Development 1,170 2,479 638 853 1,808 3,332
-Acquisitions (net of
dispositions) 1,570 2,958 2,462 4,297 4,032 7,255
-Total Additions
(including revisions) 2,922 5,241 3,173 5,211 6,095 10,452
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Finding & Developing Costs
($/boe) (Excluding FDC)
-Development(1) 15.91 7.51 31.44 23.52 21.39 11.61
-Acquisitions(2) 16.68 8.85 20.87 11.96 19.24 10.69
-Total FD&A(3) (including
revisions) 15.33 8.55 22.52 13.71 19.07 11.12
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Finding & Developing Costs
($/boe) (Including FDC)
-Development(1) 35.91 27.73 38.96 52.97 36.99 34.19
-Acquisitions (net of
dispositions) (2) 16.68 8.85 20.87 11.96 19.24 10.69
-Total FD&A(3) (including
revisions) 23.34 18.11 24.03 18.52 23.70 18.32
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Recycle Ratio based on
Dec. 2009 average
netbacks
-Total Recycle Ratio
(excluding FDC)(4) 1.6 2.9 1.5 2.4 1.5 2.6
-Total Recycle Ratio
(including FDC) (4) 1.1 1.4 1.4 1.8 1.2 1.6
Production Replacement
Ratio(5) 4.4 8.7 8.6 14.8 6.5 11.8
Reserves Life Index based
on Dec. 2009 average
production (years)(6) 7.7 14.2 5.7 9.9
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(1) The aggregate of the exploration and development costs incurred in the
most recent financial year and the change during that year in estimated
future development costs generally will not reflect total finding and
development costs related to reserve additions for that year.

(2) The acquisition costs related to corporate acquisitions reflects the
consideration paid for the shares acquired plus the net debt assumed,
both valued at closing and does not reflect the fair market value
allocated to the acquired oil and gas assets under Generally Accepted
Accounting Principles.

(3) Calculation includes reserve revisions and changes in future development
costs. WestFire also calculates finding, development and acquisition
("FD&A") costs which incorporate both the costs and associated reserve
additions related to acquisitions net of any dispositions during the
year. Since acquisitions can have a significant impact on WestFire's
annual reserve replacement costs, the Company believes the FD&A costs
provide a more meaningful portrayal of WestFire's cost structure.

(4) Operating netback is calculated as revenue minus royalties, operating
expenses, and transportation expenses. Operating netback is specific to
a point in time and therefore will be unique to the year stated.

(5) Production replacement ratio is calculated as total reserves added in
the year divided by production for the same year.

(6) Reserves life index is the ratio of current year's reserves divided by
the annual production rate.


NET ASSET VALUE

The following table provides a calculation of WestFire's estimated net asset value and net asset value per share based on the estimated future net revenues after tax associated with WestFire's proved plus probable reserves discounted at 8% as presented in the GLJ Report.



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At December 31, 2009 ($ thousands except as noted)
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Present value of P&NG reserves, discounted at
8% after tax $191,434
Undeveloped land(1) 36,421
Working capital deficiency net of current
portion of future tax asset (3,378)
Proceeds from exercise of stock options 9,782
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Net asset value $234,259
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Diluted common shares outstanding (000s) 37,070
Net asset value per share ($/Share) $6.32
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(1) Independent Land Evaluations Inc. evaluation.


CORPORATE OVERVIEW

WestFire is a publicly traded junior resource player in western Canada with one of the largest land positions on the emerging Viking light oil resource play in Redwater, Alberta and West Central Saskatchewan. Over the past two years, the Company has successfully executed its business plan and now has the following key attributes:

High Quality Production:

2010 guidance of 2,500 boepd average (greater than 50 percent oil) and 2,900 boepd exit (greater than 60% oil)

Significant Upside Potential:

Greater than 400 potential horizontal Viking oil development locations not booked in the reserve report on a total of 183 (161 net) sections on the Viking trend representing numerous years of drilling inventory

Additional Diversified Oil Upside Potential:

Greater than 35 development locations at Lloydminster, Peco and Teepee Creek in addition to further optimization potential

Additional Liquids-rich Gas Upside Potential:

Bashaw has wholly-owned gas processing facilities, greater than 10 development locations and access to an undeveloped land position of 75 (68 net) sections

Net Debt:

$3,378,876 of working capital deficiency with zero drawn on our $20 million bank line at December 31, 2009

Shares Outstanding:

35.2 million (basic)

37.1 million (diluted)

WestFire is in its first year of operations as a public entity and is in a strong position to deliver per share growth with an excellent balance sheet, high netback production, significant development drilling inventory and a dedicated board of directors and operating team executing a proven strategy.

CAUTIONARY STATEMENTS

Reserves and Operational Information

The reserves data set forth in this press release is based upon an independent reserve assessment and evaluation prepared by GLJ with an effective date of December 31, 2009 and dated March 4, 2010 and summarizes the Company's crude oil, natural gas liquids and natural gas reserves and the net present values before income taxes of future net revenue for the Company's reserves using forecast prices and costs based on the GLJ Report. The GLJ Report has been prepared in accordance with the standards contained in the COGE Handbook and the reserve definitions contained in NI 51-101.

All evaluations of future net cash flows are stated prior to any provisions for interest costs or general and administrative costs and after the deduction of estimated future capital expenditures for wells to which reserves have been assigned. It should not be assumed that the estimates of future net revenues presented in the tables in this press release represent the fair market value of the reserves. There is no assurance that the forecast prices and cost assumptions will be attained and variances could be material. The recovery and reserve estimates of our crude oil, natural gas liquids and natural gas reserves provided herein are estimates only and there is no guarantee that the estimated reserves will be recovered. Actual crude oil, natural gas and natural gas liquids reserves may be greater than or less than the estimates provided herein.

The reserve data provided in this release only represents a summary of the disclosure required under NI 51-101. Additional disclosure will be provided in the Company's Annual Information Form filed at www.sedar.com on or before March 31, 2010.

Unaudited financial information

Certain financial and operating information included in this press release for the quarter and year ended December 31, 2009, such as finding and development costs, FD&A costs, operating netback and net asset value, are based on estimated unaudited financial results for the quarter and year then ended, and are subject to the same limitations as discussed under "Forward-looking information and statements" set out below. These estimated amounts may change upon the completion of audited financial statements for the year ended December 31, 2009 and changes could be material.

In relation to the disclosure of net asset value ("NAV"), the NAV table shows what is normally referred to as a "produce-out" NAV calculation under which the current value of the Company's reserves would be produced at forecast future prices and costs and do not necessarily represent a "going concern" value of the Company. The value is a snapshot in time and is based on various assumptions including commodity prices and foreign exchange rates that vary over time. It should not be assumed that the future net revenues estimated by GLJ represent the fair market value of the reserves, nor should it be assumed that WestFire's internally estimated value of its undeveloped land holdings represent the fair market value of the lands.

Non-GAAP Measures Advisory

The above information includes non-GAAP measures not defined under generally accepted accounting principles ("GAAP"), including operating netback, recycle ratio, reserve replacement ratio and reserve life index. Non-GAAP measures do not have any standardized meaning prescribed by GAAP and are therefore unlikely to be comparable to similar measures presented by other issuers. Operating netback is calculated as revenue minus royalties, operating expenses, transportation expenses, and taxes. Operating netback is specific to a point in time. Recycle ratio is calculated as operating netback divided by the finding, development and acquisition (FD&A) costs. Recycle ratio is included for investors and operators as a measure of capital efficiency. Production replacement ratio is calculated as operating netback divided by FD&A costs. Reserve life index is the ratio of reserves divided by the current annual production rate. Reserves life index is included for investors and operators as a measure of the company's sustainability.

Forward-looking information and statements

This news release contains certain forward-looking information and statements within the meaning of applicable securities laws. The use of any of the words "expect", "anticipate", "continue", "estimate", "may", "will", "project", "should", "believe", "plans", "intends" and similar expressions are intended to identify forward-looking information or statements. In particular, but without limiting the forgoing, this news release contains forward-looking information and statements pertaining to the following: the volumes and estimated value of WestFire's oil and gas reserves; the life of WestFire's reserves; the volume and product mix of WestFire's oil and gas production; future oil and natural gas prices; future results from operations and operating metrics; future costs, expenses and royalty rates; future interest costs and the exchange rate between the $US and $Cdn.

The recovery and reserve estimates of WestFire's reserves provided herein are estimates only and there is no guarantee that the estimated reserves will be recovered. In addition, forward-looking statements or information are based on a number of material factors, expectations or assumptions of WestFire which have been used to develop such statements and information but which may prove to be incorrect. Although WestFire believes that the expectations reflected in such forward-looking statements or information are reasonable, undue reliance should not be placed on forward-looking statements because WestFire can give no assurance that such expectations will prove to be correct. In addition to other factors and assumptions which may be identified herein, assumptions have been made regarding, among other things: results from drilling and development activities consistent with past operations; the continued and timely development of infrastructure in areas of new production; continued availability of debt and equity financing and cash flow to fund WestFire's current and future plans and expenditures; the impact of increasing competition; the general stability of the economic and political environment in which WestFire operates; the timely receipt of any required regulatory approvals; the ability of WestFire to obtain qualified staff, equipment and services in a timely and cost efficient manner; drilling results; the ability of the operator of the projects in which WestFire has an interest in to operate the field in a safe, efficient and effective manner; the ability of WestFire to obtain financing on acceptable terms; field production rates and decline rates; the ability to replace and expand oil and natural gas reserves through acquisition, development and exploration; the timing and cost of pipeline, storage and facility construction and expansion and the ability of WestFire to secure adequate product transportation; future commodity prices; currency, exchange and interest rates; regulatory framework regarding royalties, taxes and environmental matters in the jurisdictions in which WestFire operates; and the ability of WestFire to successfully market its oil and natural gas products.

The forward-looking information and statements included in this news release are not guarantees of future performance and should not be unduly relied upon. Such information and statement, including the assumptions made in respect thereof, involve known and unknown risks, uncertainties and other factors that may cause actual results or events to defer materially from those anticipated in such forward-looking information or statements including, without limitation: changes in commodity prices; changes in the demand for or supply of WestFire's products; unanticipated operating results or production declines; changes in tax or environmental laws, royalty rates or other regulatory matters; changes in development plans of WestFire or by third party operators of WestFire's properties, increased debt levels or debt service requirements; inaccurate estimation of WestFire's oil and gas reserve and resource volumes; limited, unfavourable or a lack of access to capital markets; increased costs; a lack of adequate insurance coverage; the impact of competitors; and certain other risks detailed from time-to-time in WestFire's public disclosure documents, (including, without limitation, those risks identified in this news release and WestFire's Annual Information Form to be filed on SEDAR on or before March 31, 2010).

The forward-looking information and statements contained in this news release speak only as of the date of this news release, and WestFire does not assume any obligation to publicly update or revise any of the included forward-looking statements or information, whether as a result of new information, future events or otherwise, except as may be expressly required by applicable securities laws.

BOE Equivalent

Barrel of oil equivalents or 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 Toronto Stock Exchange has neither approved nor disapproved the information contained herein.

Contact Information

  • WestFire Energy Ltd.
    Lowell Jackson
    President and CEO
    (403) 718-3601
    (403) 261-9658 (FAX)
    or
    WestFire Energy Ltd.
    Stephen Burtt
    Vice President Finance and CFO
    (403) 718-3603
    (403) 261-9658 (FAX)