Canadian Spirit Resources Inc.
TSX VENTURE : SPI
OTC Bulletin Board : CSPUF

Canadian Spirit Resources Inc.

May 16, 2011 06:00 ET

Canadian Spirit Resources Inc. Announces Initial Proved Plus Probable Reserves- Montney Formation

CALGARY, ALBERTA--(Marketwire - May 16, 2011) - Canadian Spirit Resources Inc. ("CSRI" or the "Corporation") (TSX VENTURE:SPI) (OTCBB:CSPUF) is pleased to announce the achievement of its first proved reserves in the Corporation's history. This milestone begins the process of converting the Corporation's very substantial natural gas resource base at Farrell Creek, B.C. (see news release dated April 7, 2011, the "Resource Assessment") into reserves as it executes its planned development program.

HIGHLIGHTS

  • Gross remaining proved plus probable Montney reserves of 57.1 billion cubic feet (Bcf)
  • Company share proved plus probable Montney reserves of 20 Bcf
  • Company share net present value of proved plus probable at C$13.5 million (10% discount rate)
  • CSRI Montney acreage increased to 25,345 net acres (39.6 net sections)

This first independent reserve evaluation covering the Montney Formation at Farrell Creek was prepared by Sproule Unconventional Limited ("Sproule") as at March 31, 2011 (the "Reserve Report"). The Reserve Report is based on a limited number of wells strategically designed to prove-up the Farrell Creek lands held by Canbriam Energy BC Partnership ("Canbriam") and CSRI over several years. The wells included in the Reserve Report represent 2% of the 900 gross wells estimated in the Resource Assessment to be required for full development of the Corporation's Farrell Creek lands.

The Corporation's Chief Executive Officer Don Gardner commented "Building on the December 31, 2010 Resource Assessment, this favorable Reserve Report illustrates the significant progress Canadian Spirit has achieved in proving-up the value of its Farrell Creek Montney property. Although limited in scope, the Reserve Report accurately reflects the Corporation's strategy of early stage evaluation followed by a realization of the demonstrated value prior to full scale development".

MONTNEY FORMATION RESERVES

Sproule was engaged to prepare an independent reserve evaluation effective as at March 31, 2011 of only the Montney Formation in accordance with National Instrument 51-101, Standards of Disclosure for Oil and Gas Activities. The evaluation is based on CSRI's corporate plan to drill and complete 18 Montney wells over several years to prove-up its Montney lands at Farrell Creek. This represents 2% of the 900 gross well locations identified in the December 31, 2010 Resource Assessment. Proceeding with full development will be contingent upon factors such as access to capital, economic and price conditions, infrastructure, and environmental and regulatory matters.

The Reserve Report was based on information provided by the Corporation and Sproule applied an industry standard 6% limestone porosity cut-off consistent with the December 31, 2010 Resource Assessment. The 900 drilling locations identified in the Resource Assessment was based at the time on approximately 29 net sections of the Corporation's Montney acreage which has since increased to 39.6 net sections. The calculated Net Present Values are reduced by the estimated C$3 million cost of adding an additional compressor unit to process increased production volumes associated with the probable reserves in the Reserve Report.

SUMMARY OF RESERVES AS AT MARCH 31, 2011
(Forecast Prices & Costs)
Natural Gas (1)Barrels of Oil Equivalent (5)
Gross (2
(MMcf
)
)
Net (3
(MMcf
)
)
Gross (2
(Mboe
)
)
Net (3
(Mboe
)
)
PROVED
Developed Producing1,5361,502256.0250.3
Undeveloped11,62910,4131,938.21,735.5
Total Proved13,16511,9152,194.11,985.8
PROBABLE6,8035,4031,133.8900.5
TOTAL PROVED PLUS PROBABLE (4)19,96717,3173,327.92,886.2
Notes:
(1)Estimates of Reserves of natural gas include associated and non-associated gas.
(2)"Gross Reserves" are the Corporation's working interest share of the remaining reserves, before deduction of any royalties.
(3)"Net Reserves" are the Corporation's working interest share of remaining reserves less all Crown royalties.
(4)May not add due to rounding.
(5)Barrels of Oil Equivalent (boe) have been calculated using a conversion rate of six thousand cubic feet of natural gas per barrel of oil (energy equivalent).
SUMMARY OF NET PRESENT VALUES AS AT MARCH 31, 2011
(Forecast Prices & Costs)
($ Thousands)
Discounted Rate0%5%8%10%12%
PROVED
Developed Producing5,8544,9394,5164,2734,057
Undeveloped17,3815,5301,587(295)(1,758)
Total Proved23,23510,4696,1033,9792,299
PROBABLE24,38214,50311,1819,5528,246
TOTAL PROVED PLUS PROBABLE(1)47,61724,97217,28413,53110,545
Note:
(1)Net present values are stated before deducting income taxes and future estimated site restoration costs and are reduced by estimated future abandonment costs and estimated capital for future development of the reserves.

The forecast of natural gas prices used in the reserve evaluation was Sproule's March 31, 2011 price forecast and is subject to Sproule's normal qualifications. The following is a relevant excerpt from that forecast as the Corporation currently sells its natural gas at BC Westcoast Station 2.

SPROULE NATURAL GAS PRICE FORECAST AS AT MARCH 31, 2011
YearHenry Hub
(US$/MMbtu
)AECO-C Spot
(C$/MMbtu
)BC Westcoast Station 2
(C$/MMbtu
)
20114.313.713.65
20124.884.294.23
20135.244.654.59
20146.525.955.89
20156.906.346.28

MONTNEY FORMATION RESOURCE ASSESSMENT

On April 7, 2011, the Corporation issued a news release disclosing the independent Resource Assessment prepared by Sproule as at December 31, 2010. The following information was included in the Resource Assessment and reference should be made to the definitions and qualifications contained in the April 7th news release. The Resource Assessment was prepared in accordance with definitions, standards and procedures contained in the Canadian Oil and Gas Evaluation Handbook.

SUMMARY OF ANNUAL CHANGES
GROSS AND COMPANY GROSS
NATURAL GAS INITIALLY-IN-PLACE ("GIIP")
Resource ClassificationGross GIIP
Bcf (Raw)
Company Gross GIIP
Bcf (Sales)
2009201020092010
DISCOVERED GIIP (1)1,3782,6544781,028
UNDISCOVERED GIIP (2)2,2432,3706481,294
Notes:
(1)There is no certainty that it will be commercially viable to produce any portion of this resource.
(2)There is no certainty that any portion of this resource will be discovered. If discovered, there is no certainty that it will be commercially viable to produce any portion of the resource.
SUMMARY OF NATURAL GAS RESOURCES WITHIN THE MONTNEY FORMATION
IN THE FARRELL CREEK AREA OF BRITISH COLUMBIA
Classification & CategoryCompany Gross* Natural Gas Initially-In-Place
Bcf (Raw
)Company Gross* Contingent Gas Resources
Bcf (Sales)(1
)Classification & CategoryCompany Gross* Natural Gas Initially-In-Place
Bcf (Raw
)Company Gross* Prospective Gas Resources
Bcf (Sales
)
DISCOVEREDUNDISCOVERED
Low Estimate25348Low Estimate1,294202
Best Estimate505134Best Estimate1,294274
High Estimate1,028577High Estimate1,294675
* Company working interest (operating or non-operating) share before deduction of royalties.
Note:
(1)As at December 31, 2010, the contingency that prevents the classification of Contingent Gas Resources as reserves is that reported volumes do not meet the economic requirement of reserves.

The Resource Assessment as at December 31, 2010 was based on approximately 29 net sections of Montney acreage. The addition of approximately 10 net sections of Montney land since year-end and planned drilling activity over the next year has the potential to materially increase the Undiscovered Natural Gas Initially-in-Place figures and the estimated number of well locations required for full development.

CSRI is a natural resources company focusing on the identification and development of opportunities in the unconventional gas sector of the energy industry.

On behalf of the Board of Directors,

CANADIAN SPIRIT RESOURCES INC.

"Don Gardner"

Chief Executive Officer & Secretary

The corporate information contained in this news release may contain forward-looking forecast information. The reader is cautioned that assumptions used in the preparation of such information, although considered reasonably accurate by CSRI at the time of preparation, may prove to be incorrect. The actual results achieved during the forecast period will vary from the information provided herein and the variations may be material. Consequently there is no representation by CSRI that actual results achieved during the forecast period will be the same in whole or in part as those forecast.

THE TSX VENTURE EXCHANGE HAS NEITHER APPROVED NOR DISAPPROVED THE INFORMATION CONTAINED HEREIN AND DOES NOT ACCEPT RESPONSIBILITY FOR THE ADEQUACY OR ACCURACY OF THIS RELEASE

Contact Information

  • Canadian Spirit Resources Inc.
    Phil Geiger
    (403) 539-5005
    (403) 262-4177 (FAX)
    phil.geiger@csri.ca

    Canadian Spirit Resources Inc.
    Don Gardner
    (403) 539-5005
    (403) 262-4177 (FAX)
    don.gardner@csri.ca

    Canadian Spirit Resources Inc.
    Adam Buchanan
    Investor Relations
    (403) 539-5005
    (403) 262-4177 (FAX)
    adam.buchanan@csri.ca