Buffalo Resources Corp.

Buffalo Resources Corp.

August 26, 2009 08:00 ET

Buffalo Resources Announces Q2 2009 Results

CALGARY, ALBERTA--(Marketwire - Aug. 26, 2009) - Buffalo Resources Corp. ("Buffalo") (TSX VENTURE:BFR) is pleased to report its financial results for the three and six months ended June 30, 2009.


- Cash flow from operations of $2.7 million ($0.04 per share) for the three months and $3.9 million ($0.05 per share) for the six months ended June 30, 2009.

- With average heavy oil differentials of $8.12 per barrel for the quarter, Buffalo realized $55.84 per barrel for oil and NGLs vs $36.20 in Q1 2009.

- A 19% reduction in operating costs to $14.64 per boe.

- Drilled 6 heavy oil wells at Frog Lake.

FINANCIAL ($000s except shares and per share amounts)

Three months ended Six months ended
June 30, June 30, June 30, June 30,
2009 2008 2009 2008

Revenue 9,203 24,540 18,000 45,166
Cash flow from operations 2,743 11,924 3,879 20,657
Basic and diluted per share $ 0.04 $ 0.17 $ 0.05 $ 0.29
Net earnings (loss) (9,981) 5,029 (10,450) 6,927
Basic and diluted per share $ (0.13) $ 0.07 $ (0.14) $ 0.10
Capital expenditures (dispositions) 2,882 (7,450) 6,939 1,313

June 30, December 31,
As at 2009 2008

Working capital (deficit) (54,434) (51,842)
Shareholders' equity 104,466 113,887
Total assets 197,839 206,835
Common shares outstanding (000s) 77,611 76,702


Three months ended Six months ended
June 30, June 30, June 30, June 30,
2009 2008 2009 2008

Average daily production
Oil and NGLs (bbls/d) 1,236 1,430 1,323 1,698
Natural gas (mcf/d) 8,865 10,861 8,870 10,864
Barrels of oil equivalent (boe/d) 2,714 3,241 2,801 3,509
Average realized prices
Oil and NGLs ($/bbls) 55.84 104.11 45.44 84.31
Natural gas ($/mcf) 3.58 10.94 4.37 9.52
Barrels of oil equivalent ($/boe) 37.27 83.22 35.50 70.73
Field netback ($/boe) 17.79 46.94 13.36 38.42
Cash flow ($/boe) 11.11 40.43 7.65 32.35


Average daily production decreased 16% from 3,241 boe/d for the three months ended June 30, 2008 to 2,714 for the current period. The reduced production of both oil and NGLs and of natural gas in 2009 relates mainly to the disposition of the Killam oil property on June 30, 2008 (approximately 386 boe/d) and the shut-in of the Pincher Creek gas property for the first half of 2009, awaiting start-up of the Shell Waterton gas plant (approximately 500 boe/d over the two quarters of 2008). The lack of drilling and workovers at Frog Lake since the beginning of the year was also reflected in the lower oil production. Buffalo's production continues to be evenly balanced between oil and natural gas, with oil and NGLs representing 46% of total sales volume in the quarter.

The combination of lower sales volumes and selling prices reduced gross revenue to $9.2 million for the three months ended June 30, 2009, a 62% decrease from the same period in 2008 when commodity prices were at record levels. The benchmark price of Edmonton par light oil averaged $66.19 per barrel in Q2 compared to $50.15 in Q1 2009, however this was still substantially less than the $126.74 per barrel during Q2 2008. Heavy oil differentials narrowed during the period and the published price of Hardisty Heavy 12 oil, which generally approximates the selling price for Buffalo's oil, averaged $58.07 per barrel for the quarter compared with $39.38 per barrel in Q1 2009. Buffalo's realized an average selling price for oil and NGLs of $55.84 per barrel. The daily spot selling price for natural gas at AECO-C continued to decline throughout the quarter and averaged $3.46 per MMBtu, a 30% decrease from the $4.94 per MMBtu average for Q1 2009 and a 66% decrease from the $10.20 per MMBtu average for Q2 2008. This commodity price decrease was reflected in Buffalo's average realized price of $3.58 per Mcf of natural gas sales.

Royalty expense was $1.2 million for the current quarter, a decrease of 78% compared with 2008. This amount includes $236,000 of favourable adjustments related to prior periods. Royalties as a percentage of revenue decreased to 13% of revenue, 16% net of favourable adjustments. This royalty percentage reflects lower commodity prices and that crown royalty payments under the Alberta New Royalty Framework, implemented on January 1, 2009, are reduced at lower commodity prices. At $3.6 million operating costs were 32% lower for the three months ended June 30, 2009 compared to 2008. This was partly the result of lower production, particularly at Pincher Creek where production remained shut-in throughout the current period. At $14.64 per boe for the current quarter, operating costs were 19% lower than in Q2 2008 and 12% lower than in Q1 2009. The lower cost per barrel was largely the result of replacing propane, used as fuel, with natural gas produced at Frog Lake, in addition to reductions in well servicing costs.

Net G&A expense was $1.2 million for the three months which is in line with the prior year. However, the reduction in production volume increased G&A per boe from $4.25 per boe in Q2 2008 to $4.81 in the current quarter. During the current period, Buffalo incurred non-recurring directors' and consulting fees related to the Company's review of strategic alternatives and increased legal fees associated with the defence of minor lawsuits.

At $2.7 million, the resultant cash flow from operations for the three months ended June 30, 2009 was a significant improvement over the amount of $1.1 million that was generated in Q1 2009 and placed the Company in a position to renew its drilling activities which had been curtailed by the lack of available funds in Q1.

A review of the carrying value of goodwill in light of the current adverse business environment and recent events within the Company resulted in an impairment charge in the amount of $9.0 million, which together with the charge for depletion, depreciation and accretion, produced a net loss for the quarter of $10.0 million.


During the quarter, Buffalo drilled six (1.5 net) wells at Frog Lake. These wells were all completed and equipped as producing heavy oil wells in July 2009. Three additional wells were equipped and placed on production in April 2009 as follows: a gas well at each of Whitecourt and Ferrybank and an oil well at Cecil, all in Alberta. Other capital expenditures included completion of fuel gas facilities at Frog Lake and the purchase of producing oil and gas properties and equipment at a cost of $916,000.


In July 2009, after 11 months of being shut-in while Shell Canada rebuilt its Waterton Gas Plant, production resumed at Buffalo's Pincher Creek property. Buffalo initially produced gas and liquids at a restricted rate of 1,135 boe/d but has since cut the production rate to 300 boe/d (estimated to be the break-even rate) pending an improvement in natural gas prices.

On August 18, 2009, Buffalo announced that it had entered into an arrangement agreement with Twin Butte Energy Ltd. ("Twin Butte") which provides for the combination of the two companies through the acquisition by Twin Butte of all of the outstanding common shares of Buffalo through the issuance of 0.7 Twin Butte common shares for each Buffalo common share. This arrangement requires the approval of Buffalo shareholders. It is anticipated that the shareholder meeting to vote on the transaction will take place in late October.

Also on August 18, 2009, Buffalo entered into a letter of intent for the purchase of all of the oil and gas interests of a joint venture partner for cash consideration of $7.7 million. Buffalo will increase its working interests in 14 wells, most of which are located in Frog Lake and Whitecourt, Alberta, and will add production of approximately 300 boe/d. This purchase is expected to close by September 15, 2009.

Buffalo is a 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 interim financial statements and Management's Discussion and Analysis for the six months ended June 30, 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 that 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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