Buffalo Resources Corp.

Buffalo Resources Corp.

November 18, 2008 08:00 ET

Buffalo Resources Announces Q3 2008 Results

CALGARY, ALBERTA--(Marketwire - Nov. 18, 2008) - Buffalo Resources Corp. (TSX VENTURE:BFR) is pleased to report record financial results for the nine months ended September 30, 2008.


- Cash flow of $28.7 million ($0.40 per share) for the nine months compared with $5.1 million ($0.11 per share) for the prior period, a 462% increase.

- Year to date net earnings of $9.5 million ($0.13 per share) compared with a $3.2 million loss in 2007.

- Production of 3,338 boe/d for the nine months versus 2,139 boe/d for the same period in 2007, a 56% increase.

- Net debt reduced to $43.5 million from $63.6 million at December 31, 2007.

- Purchased the remaining 25% working interest in the Pincher Creek field for $6.40 per proved plus probable boe of reserves ($7.31 per proved boe).

- Sold the Killam oil property for proceeds of $22.7 million or $56,000 per flowing barrel.

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

Three months ended Nine months ended
September August September August
30, 31, 30, 31,
2008 2007 2008 2007
Revenue 20,919 10,146 66,085 26,902
Cash flow from operations 8,049 404 28,706 5,139
Basic and diluted per share $ 0.11 $ 0.01 $ 0.40 $ 0.11
Net earnings (loss) 2,568 (2,264) 9,495 (3,161)
Basic and diluted per share $ 0.03 ($0.05) $ 0.13 ($0.07)
Capital expenditures (dispositions) 17,014 60,369 18,327 71,017

September 30, December 31,
As at 2008 2007

Working capital (deficit) (43,519) (63,628)
Shareholders' equity 114,251 94,461
Total assets 206,689 205,272
Common shares outstanding (000s) 76,702 65,702


Three months ended Nine months ended
September August September August
30, 31, 30, 31,
2008 2007 2008 2007
Average daily production
Oil and NGLs (bbls/d) 1,524 933 1,640 548
Natural gas (mcf/d) 8,867 10,246 10,194 9,548
Barrels of oil equivalent (boe/d) 3,002 2,641 3,338 2,139
Average realized prices
Oil and NGLs ($/bbls) 97.62 55.92 87.36 56.15
Natural gas ($/mcf) 8.38 5.67 9.19 6.84
Barrels of oil equivalent ($/boe) 75.74 41.76 72.24 45.90
Field netback ($/boe) 37.52 16.13 38.15 20.78
Cash flow ($/boe) 29.14 1.68 31.38 8.77


Buffalo produced an average of 3,002 boe/d of oil, NGLs and natural gas for the third quarter of 2008, a 14% increase over the comparative quarter in 2007. This production volume includes a negative adjustment of approximately 166 boe/d in respect of a well which has been determined to have "paid out" in a previous period and Buffalo's working interest has been adjusted to the payout date. This production level was also impacted by the sale of approximately 400 boe/d in June 2008 and the shut-in of production on August 13, 2008 at the Pincher Creek field which was producing approximately 500 boe/d, net to the Company, at that time. This shut-in occurred in connection with the planned construction of a new sour gas processing train at the Shell Waterton gas plant that processes all the Pincher Creek production. Shell's new facilities are expected to be operational in early 2009 and Buffalo expects to have its Pincher Creek field back on production by March 2009.

Revenue of $20.9 million was generated for the three months ended September 30, 2008, reflecting the strong commodity oil selling prices in the quarter. The price of Hardisty Heavy 12 degrees oil, which approximates the commodity selling price for the majority of Buffalo's oil, averaged $98.02 per barrel in Q3 2008. The Company realized an average selling price for oil and NGLs of $97.62 per barrel. The average selling price for natural gas was $8.38 per Mcf. In the current quarter, Buffalo's production was evenly weighted as between natural gas and oil and NGLs with the result that the average price realized per boe of production was $75.74. The Company did not hedge the selling prices of its production during 2008 and benefitted to the full extent from the strong prices realized during the spring and summer.

Royalty expense was only 19% of oil and gas sales revenue in the quarter. The Company has been successful in claiming a reduction in the Alberta Crown royalty rate on its Pincher Creek gas sales for the period since November 2007, resulting in the recording of a $760,000 reduction of royalty expense in the current quarter. This decreased royalty expense by $2.75 per boe or approximately 4% of oil and gas sales for the current three month period. Operating costs averaged $23.82 per boe for the period. The forced shut-in of the Pincher Creek field has provided the Company with the opportunity of completing a major maintenance turnaround of the battery and compression facilities at that property. Buffalo also completed an overhaul of its compressor at the Fort Saskatchewan property and a revamping of the battery at the Jenner property. These one-time activities accounted for $3.33 per boe of the operating costs in the current quarter. In addition, the reversal of production volumes and operating costs since the payout date in respect of a well which was determined to have "paid out" in a previous period had the effect of increasing the operating cost per boe by $5.71 for the three months. Excluding the impact of prior period and one time items, operating costs for the current quarter would have been $14.78 per boe. Including these and other prior period items that were reported in Q2 2008, operating costs for the nine months ended September 30, 2008 would have been $15.82 per boe.

The Company generated cash flow from operations of $8.0 million or $29.14 per boe for the three months ended September 30, 2008. DD&A decreased to $14.22 per boe for the quarter. This decrease is the result of the cost effective purchase of the remaining 25% interest in the Pincher Creek property which was acquired at a price of $7.31 per barrel of proved reserves. Consequently, Buffalo enjoyed net income of $2.6 million or $0.03 per share for the three months ended September 30, 2008.


During the quarter, Buffalo invested $3.7 million into drilling, completions and equipping wells, $1.7 million into production facilities, $2.6 million into seismic data and $1.3 million into land.

Buffalo purchased the remaining interest in the Pincher Creek assets at a cost of $7.6 million. This will allow the Company to take full control of the property and to pursue other potential partners who can provide technical knowledge and experience to enhance the further development of this highly technical play. The ten well drilling program at Frog Lake which had been initiated in June, was completed during the quarter. Nine of the wells were completed, equipped and placed on production as pumping oil wells and the tenth well was abandoned. In September, a five well drilling program was commenced at Whitecourt, Alberta. One of the wells has been completed, equipped and tied-in as a producing gas well and is currently on production at a rate of approximately 2 MMcf/d. The remaining four wells are scheduled to be tied-in before year-end. A horizontal well was drilled for production from the Midale zone at Alameda, Saskatchewan in September. The well has been placed on production and is currently producing approximately 70 barrels of oil per day. During the shut-in of Shell Canada's Waterton gas plant, new compression related facilities were installed at the Company's Pincher Creek property at a cost of $905,000.


On July 4, 2008, Buffalo entered into a drilling joint venture with financial partners. Buffalo and the JV partners will each contribute $15 million to drill wells on certain of Buffalo's existing properties. The partners are farming-in on Buffalo's interest and will pay 50% of the costs of the wells to earn a 50% interest before payout in the wells and a 30% interest after payout.


Early in 2008 the Company forecast a 2008 production exit rate between 4,800 and 5,200 boe/d. Buffalo produced an average of 3,002 boe/d for the third quarter and anticipates exiting 2008 with production between 3,200 and 3,500 boe/d. Contrary to Buffalo's initial understanding, construction of a new sour gas processing train at the Shell Waterton gas plant which processes the Company's gas from the Pincher Creek property has been extended into 2009 and approximately 500 boe/d of production will be shut-in. In December 2007, Buffalo applied for downspacing of producing wells at Frog Lake. Approval of the application has not yet been granted resulting in the majority of Buffalo's 2008 drilling at Frog Lake being deferred until 2009.

Before year-end, Buffalo plans to drill four development wells at Frog Lake, three exploration wells in the Peace River Arch and another horizontal well at Alameda, Saskatchewan. A further seismic acquisition program will be undertaken at Expanse in the Peace River Arch before year-end.

Commodity prices, particularly oil, have retreated from the highs enjoyed in the spring and summer of 2008. For the month of October 2008, Edmonton light oil averaged $86.20 per barrel and the heavy oil differential was approximately $18.00 per barrel. In November, oil prices have fallen further. This commodity price environment will create challenges for oil and gas producers and will require prudent fiscal management and utilization of resources. Amongst other actions, Buffalo will manage its debt position by applying increased rigour in the selection and conduct of capital projects.

Buffalo's interim financial statements and Management's Discussion and Analysis for the nine months ended September 30, 2008 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. More particularly, this press release contains statements concerning Buffalo's projected exit rates of production of oil and natural gas for the 2008 financial year and of anticipated capital expenditures and cash flow from operations for 2009. The forward-looking statements are based on certain key assumptions made by Buffalo, including expectations and assumptions concerning prevailing commodity prices and exchange rates, availability of labour and cost of labour and services, the timing of receipt of regulatory approvals, the performance of existing wells the success in drilling new wells, the performance of new wells and the sufficiency of budgeted capital expenditures in carrying out Buffalo's planned activities.

Although Buffalo believes that the expectations and assumptions on which the forward-looking statements are based are reasonable, undue reliance should not be placed on the forward-looking statements because Buffalo can give no assurance that they will prove to be correct. Since forward-looking statements address future events and conditions, by their very nature they involve inherent risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors and risks. These include, but are not limited to, the risks associated with the oil and gas industry in general (e.g., operational risks in development, exploration and production; delays or changes in plans with respect to exploration or development projects or capital expenditures; the uncertainty of reserve estimates; the uncertainty of estimates and projections relating to production, costs and expenses, and health, safety and environmental risks), commodity price and exchange rate fluctuations and uncertainties resulting from potential delays or changes in plans with respect to exploration or development projects or capital expenditures. These risks are set out in more detail in Buffalo's annual information form for the year ended December 31, 2007, which can be accessed at www.sedar.com.

The forward-looking statements contained in this press release are made as of the date hereof and Buffalo undertakes no 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 TSX Venture Exchange has not reviewed and does not accept responsibility for the adequacy or accuracy of this press release.

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