Buffalo Resources Corp.

Buffalo Resources Corp.

May 21, 2009 08:00 ET

Buffalo Resources Announces Q1 2009 Results and Provides Corporate Update

CALGARY, ALBERTA--(Marketwire - May 21, 2009) - Buffalo Resources Corp. ("Buffalo" or the "Company") (TSX VENTURE:BFR) is pleased to announce financial and operating results for the first quarter ended March 31, 2009.


- Production averaged 2,890 barrels of oil equivalent ("boe") per day.

- Positive cash flow from operations of $1.1 million or $0.01 per share.

- Capital expenditures for exploration and development activities of approximately $4.1 million.

- DD&A of $14.82 per boe, down from $16.71 per boe in 2008, reflecting exploration and development success.

- Formed a Special Committee of the Board of Directors to review strategic alternatives.

FINANCIAL ($000s except shares and per share amounts)
March 31, March 31,
Three months ended 2009 2008

Revenue 8,797 20,626
Cash flow from operations 1,135 8,726
Basic and diluted per share $0.01 $0.13
Net earnings (loss) (469) 1,898
Basic and diluted per share ($0.01) $0.03
Capital expenditures, net 4,058 8,763

March 31, December 31,
As at 2009 2008

Total indebtedness, net 54,807 51,842
Shareholders' equity 113,693 113,887
Total assets 207,327 206,835
Common shares outstanding (000s) 76,702 76,702

March 31, March 31,
Three months ended 2009 2008

Average daily production
Oil and NGLs (bbls/d) 1,411 1,966
Natural gas (mcf/d) 8,875 10,868
Barrels of oil equivalent (boe/d) 2,890 3,777
Average realized prices
Oil and NGLs ($/bbls) 36.20 69.90
Natural gas ($/mcf) 5.17 8.10
Barrels of oil equivalent ($/boe) 33.82 60.01
Field netback ($/boe) 9.16 31.11
Cash flow ($/boe) 4.36 25.41


Buffalo's average daily production of oil and natural gas was 2,890 boe/d for the first quarter of 2009. Gas production at Pincher Creek remains shut in awaiting start-up of the Shell Waterton gas plant. Shell has completed construction and is currently in the process of plant start-up. Buffalo now expects to resume production at Pincher Creek by mid June at a rate of between 700-800 boe/d. At Frog Lake, all wells requiring maintenance due to cold weather were left suspended awaiting the recovery of heavy oil prices which resulted in net shut-in production of approximately 50 boe/d. Start-up of production of approximately 120 boe/d net from two new wells at Cecil and Whitecourt was delayed until April 1, 2009 in order to qualify for the Alberta Government royalty incentive program.

Revenue was $8.8 million for the three months ended March 31, 2009. After record high oil prices in the summer of 2008, both oil and gas prices fell dramatically during the first quarter 2009. The price of Hardisty Heavy 12 degrees oil, which generally approximates the average selling price for Buffalo's oil, fell to a low of $23.21 per barrel in January 2009 and averaged $39.38 per barrel for the quarter. The Company's average realized selling price for oil and NGLs was $36.20 per barrel and for natural gas was $5.17 per mcf. Production was evenly weighted between oil and natural gas during the quarter resulting in an average selling price of $33.82 per boe.

As a consequence of the implementation of the Alberta New Royalty Framework on January 1, 2009, royalties increased from 22% of revenue for the first quarter of 2008 to 24% in the current period although average realized selling prices dropped by approximately 44%. Operating costs remained comparable with Q1 2008 on a boe basis with only a 7% increase per boe, mainly attributable to the continuing fixed costs at Pincher Creek while production remains shut in. Buffalo generated a field netback of $9.16 per boe in the quarter. Both general and administrative expense and interest expense were reduced from 2008 resulting in cash flow from operations of $1.1 million or $4.36 per boe for the three months ended March 31, 2009.

Depletion, depreciation and accretion decreased from $16.71 per boe in Q1 2008 to $14.82 per boe for the current quarter, reflecting the success of Buffalo's exploration and development program in 2008. A net loss of $0.5 million or $0.01 per share was realized for the three months ended March 31, 2009.


During the quarter, Buffalo drilled two (0.6 net) wells, one at Whitecourt in west central Alberta and one at Spirit River in the Peace River Arch. The Whitecourt well was drilled as an infill well. It production-tested at the highest gas rate of all wells drilled in the pool to date (2.5 Mmcf/d) and displayed minimal pressure depletion from offset producers. This indicates that further downspacing and infill drilling of the property is warranted. The well was tied in as a producing gas well and began producing in April 2009. In Spirit River, a farm-in commitment exploration well missed the target zone but encountered a secondary zone which is currently being evaluated for completion. Two wells, an oil well at Cecil and a gas well at Ferrybank, that had been previously drilled, were equipped and tied in during the quarter and began producing in April 2009. Also during the quarter, the Company completed a planned purchase of seismic data and as a result now has complete 3D coverage over the entire Pincher Creek field.


On May 15, 2009, Buffalo completed the acquisition of an additional interest in certain oil and natural gas assets located in the Pincher Creek, Killam, Viking, Woking and Kakwa areas of Alberta from two third parties. The total consideration for the acquired assets was $975,640, which included the issue of an aggregate of 909,091 common shares of Buffalo, at a deemed price of $0.55 per common share, to one of the vendors. Brian E. Bayley, a director of Buffalo, is also an officer, director and shareholder of each of the vendors. The principal terms of the acquisitions were agreed prior to Mr. Bayley joining the Buffalo board.


In February 2009, in response to the deteriorating oil and gas commodity price environment, the Company revised its 2009 capital program downward to $19.6 million. World oil prices are currently more than 30% higher than the average price for the first quarter 2009 and the price of heavy oil has benefitted disproportionately from a narrowing of the heavy oil price differential. In addition, oil and gas service costs have decreased in western Canada. In light of the marked improvement in operating fundamentals, Buffalo plans to commence drilling the first 30 wells of its Frog Lake drilling program in June 2009.

On March 26, 2009, the Company announced that its Board of Directors had appointed a Special Committee of independent directors with a mandate to consider strategic alternatives for the Company, which may include a sale, merger or other business combination involving Buffalo or the sale of some or all of the assets of the Company.

Buffalo's interim financial statements and Management's Discussion and Analysis for the three months ended March 31, 2009 are available on SEDAR (www.sedar.com) and on Buffalo's website at www.buffaloresources.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. The forward looking statements contained in this press release are made as of the date hereof and Buffalo disclaims any intention or obligation to update publicly or revise any forward looking statements or information, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws.

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 and after deducting asset retirement expenditures. The inclusion of 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.

Neither the TSX Venture Exchange nor its Regulation Services Provider (as the term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

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