The Buffalo Oil Corporation
TSX VENTURE : BFO

The Buffalo Oil Corporation

April 30, 2007 08:37 ET

Buffalo Oil Announces Q4 and Year End 2006 Results

CALGARY, ALBERTA--(CCNMatthews - April 30, 2007) - The Buffalo Oil Corporation (TSX VENTURE:BFO)("Buffalo") is pleased to announce 2006 fourth quarter and year end financial and operating results.

2006 HIGHLIGHTS

- Increased cash flow from operations by 160% to $ 8.3 million.

- Annual production increased from 539 boe/d in 2005 to 1,517 boe/d with a fourth quarter average of 2,046 boe/d.

- Proved plus probable reserves increased 200% to 5.2 million boe.

- A 70% increase in the net present value (10% before tax) of proved plus probable reserves to $54.1 million.

- Net asset value of $2.24 per fully diluted share at December 31, 2006 using the reserves value of $54.1 million and the book value of land, seismic and working capital.

- Finding, development and acquisition costs of $11.07 per boe on a proved plus probable reserves basis and $14.93 per boe on a proved reserves basis.

- Operating costs decreased from $15.61 per boe in 2005 to $14.49 per boe in 2006 and averaged $12.89 per boe for the fourth quarter.

- Drilled 38 (net 17.3) wells at 100% success rate.

- Completed the acquisition of Pocaterra Energy Inc., a natural gas focused company with 290 boe/d of production.



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FINANCIAL ($000s except shares and per share amounts)
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Period ended Three Months Year
December 31 2006 2005 % Change 2006 2005 % Change
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Revenue 7,404 3,654 103 22,625 8,499 166
Cash flow from
operations (1) 2,830 961 194 8,288 3,155 163
Basic per share $ 0.14 $ 0.08 73 $ 0.46 $ 0.26 81
Diluted per share $ 0.13 $ 0.07 98 $ 0.44 $ 0.24 86
Net earnings (loss) (342) (469) (27) 257 (392) (166)
Basic per share ($0.02) ($0.03) (51) $ 0.01 ($0.03) (148)
Diluted per share ($0.02) ($0.03) (53) $ 0.01 ($0.03) (145)
Capital
expenditures, net 19,763 2,876 587 31,387 11,300 178

As at December 31 2006 2005 % Change
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Working capital surplus (deficit) (6,321) (201) 3,051
Shareholders' equity 26,383 13,191 100
Total assets 45,954 21,150 117
Common Shares outstanding (000s) 21,676 14,263 52
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(1) Cash flow from operations represents earnings before depletion,
depreciation and accretion, stock-based compensation and future taxes.

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OPERATIONS
Period ended Three Months Year
December 31 2006 2005 % Change 2006 2005 % Change
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Average daily
production
Oil and NGLs (bbls/d) 1,657 781 112 1,257 363 247
Natural gas (mcf/d) 2,337 1,238 89 1,561 1,056 48
Barrels of oil
equivalent (1)
(boe/d) 2,046 988 107 1,517 539 182
Average realized
prices
Oil and NGLs ($/bbls) 38.56 31.08 24 40.91 37.52 9
Natural gas ($/mcf) 7.10 12.47 (43) 6.77 9.16 (26)
Barrels of oil
equivalent ($/boe) 39.33 40.22 (2) 40.85 43.23 (5)
Field netback ($/boe) 17.21 12.93 33 17.81 19.72 (10)
Cash flow ($/boe) 15.03 10.58 42 14.97 16.05 (7)
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(1) All references to barrels of oil equivalent (boe) are calculated by
converting natural gas to oil at a ratio of six thousand cubic feet to
one barrel of oil.


Q4 2006 OPERATIONS

Production volumes averaged 2,046 boe/d in the fourth quarter of 2006, a 107% increase compared to the fourth quarter of 2005 and a 33% increase over the production volume in the third quarter of 2006. At $7.4 million, revenue for the quarter was 103% higher than for the same period in 2005. Edmonton par light oil prices fell from their peak in the summer of 2006 to an average of $65.12 per barrel for the quarter and the price of heavy oil decreased accordingly. Buffalo realized $38.56 per barrel for its oil in the quarter compared with $31.08 per barrel in 2005. A warm fall season in 2006 resulted in natural gas prices not rebounding from the summer lows as had been anticipated and Buffalo realized a price of $7.10 per Mcf compared with $12.47 per Mcf in 2005. Consequently, the average price per boe was $39.33 in 2006 compared with $40.22 in 2005.

Royalties increased to 23% of revenue compared with 18% in 2005. This resulted from the higher productivity of the recently drilled wells compared with the mature wells that were producing in 2005, as well as the impact of gross overriding royalties payable on some of the newly drilled wells.

Operating costs totalled $2.4 million for the quarter. On a unit of production basis this represented a decrease from $19.99 per boe in the fourth quarter of 2005 to $12.89 in the current quarter. Buffalo acquired a large number of wells and facilities at Frog Lake at the end of the third quarter of 2005 and invested heavily in maintenance to bring the property up to standard during the fourth quarter of 2005. Operating costs also decreased per boe because the natural gas assets acquired through the Pocaterra purchase operate at lower cost and the steadily increasing production in 2006 has decreased the impact of fixed costs per unit.

Buffalo's operating netback increased from $12.93 in the fourth quarter of 2005 to $17.21 in the current period. Net G&A increased from $222,000 in 2005 to $673,000 in 2006, reflecting the recording of performance based expenses at the 2006 year-end. The Corporation generated cash flow from operations of $2.8 million or $0.13 per diluted share for the fourth quarter of 2006 compared with $961,000 or $0.07 per share for 2005. After inclusion of non cash items, a net loss of $342,000 (2005 - $469,000) was realized.

EXPLORATION AND DEVELOPMENT

The fourth quarter capital program included drilling 2 (net 0.6) exploratory wells in central Alberta, development drilling of 16 (net 4.8) wells in Frog Lake and southeast Saskatchewan, upgrading two oil batteries (one in southeast Saskatchewan and the newly acquired battery at Jenner) and shooting a 30 square kilometre 3D seismic data program at Cecil, Alberta.

CORPORATE

In the fourth quarter of 2006 the Corporation acquired Pocaterra for $7.1 million in cash and the issuance of 2.4 million shares. Pocaterra had working interests in wells producing natural gas, light oil and NGLs in central Alberta and medium/heavy oil at Jenner in southern Alberta. In December 2006 Buffalo completed a private placement of 550,000 common shares and 910,000 flow through common shares for gross proceeds of $3 million.

OUTLOOK

Buffalo entered 2007 with a significant production base and a substantial drilling inventory balanced between low risk development prospects intended to provide the Corporation with steady growth and higher risk prospects which hold the potential to significantly increase production. In the first quarter of 2007, heavy oil selling prices remained strong and will result in significantly improved cash flow from operations compared with the same period in 2006.

The Corporation's Board of Directors approved a capital budget of $16.5 million for 2007. This budget includes the drilling of 35 (net 18.1) wells. The capital program is targeted at further development of heavy oil and natural gas production in our Frog Lake core area as well as exploratory drilling in central Alberta and the Peace River Arch area of Alberta to expand production in those areas. These expenditures will be funded by cash flow from operations and the Corporation's bank loan facility. Production of oil and gas is forecast to average between 2,500 and 2,600 boe/d in 2007 with an expected exit rate in excess of 2,800 boe/d.

SUMMARY

Since Buffalo began trading as a public company in January 2005, production has grown 600% to its current level of 2,200 boe/d, cash flow is up 500% to $8.3 million and in excess of 160 drilling locations have been identified on undeveloped lands at Frog Lake. Operating fundamentals are strong and Buffalo is well positioned to seek out and take advantage of opportunities in the current environment.

Buffalo is an emerging Canadian junior oil and gas company engaged in the exploration, development and production of oil and gas reserves in the provinces of Alberta and Saskatchewan.

Buffalo's consolidated annual financial statements and Management's Discussion and Analysis for the year ended December 31, 2006 are available on SEDAR (www.sedar.com) and on Buffalo's website (www.buffalo-oil.com).

Certain information set forth in this press release contains forward looking statements. 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, reliance should not be placed on forward-looking statements. Buffalo's actual results, performance or achievements could differ materially 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 Buffalo will derive therefrom. Buffalo disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Barrels of oil equivalent (Boe's) may be misleading, particularly if used in isolation. A boe conversion ratio of 6 Mcf of gas = 1 Bbl of oil is based upon an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. The terms "cash flow from operations" and "field netback" are non-GAAP financial measures that do not have any standardized meaning prescribed by Canadian Generally Accepted Accounting Principles ("GAAP") and are therefore unlikely to be comparable to similar measures presented by other issuers. Both "cash flow from operations" and "field netback" provide useful information to investors and management since they are an indicator of the Corporation's profitability and ability to fund future capital expenditures which drives growth. Cash flow from operations is calculated as earnings (loss) before charges for depletion, depreciation and accretion, stock-based compensation and future income taxes. The inclusion of asset retirement expenditures and changes in non-cash operating working capital results in cash flow from operating activities. Field netback represents the profit margin from the sale of oil, natural gas and natural gas liquids and is calculated as revenues less royalties and operating expenses.

The TSX Venture Exchange has not reviewed and does not accept responsibility for the adequacy or accuracy of this press release.

Contact Information

  • The Buffalo Oil Corporation
    Trevor Penford
    President and C.F.O.
    (403) 252-2462
    Email: tpenford@buffalo-oil.com
    or
    The Buffalo Oil Corporation
    William (Bill) Trickett
    Chairman and C.E.O.
    (403) 252-2462
    Email: btrickett@buffalo-oil.com
    or
    The Buffalo Oil Corporation
    Suite 180, 1209 - 59th Avenue S.E.
    Calgary, Alberta T2H 2P6
    (403) 252-2462
    (403) 252-1399 (FAX)
    Website: www.buffalo-oil.com