CALGARY, ALBERTA--(Marketwire - Aug. 30, 2011) - Canadian Spirit Resources Inc. ("CSRI" or the "Corporation") (TSX VENTURE:SPI) (OTCBB:CSPUF) announces the release of its interim financial results and Management Discussion and Analysis ("MD&A") for the three and six month periods ended June 30, 2011.
The financial data presented herein is in accordance with International Financial Reporting Standards ("IFRS") and all amounts are presented in Canadian dollars, unless otherwise indicated. The unaudited interim financial statements for the three and six months ended June 30, 2011 include certain reconciliations between the previously used Canadian Generally Accepted Accounting Principles ("previous GAAP") and IFRS.
This news release summarizes information contained in the unaudited interim financial statements and MD&A for the three and six month periods ended June 30, 2011 and should not be considered a substitute for reading these documents, which are available on SEDAR at www.sedar.com or the Corporation's website at www.csri.ca, for full disclosure.
CSRI is a natural resources company focusing on the identification and development of opportunities in the unconventional gas sector of the energy industry.
HIGHLIGHTS
- Production revenue adds to cash resources.
- Active third quarter 2011 capital budget set at $9.1 million.
- Evaluation of liquids potential proceeds with drilling of 12-7 well.
- Montney acreage increases to over 26,000 net acres (40.8 net sections).
| FINANCIAL AND OPERATIONAL REVIEW | ||||||
| Selected Financial Information | ||||||
| For the six month periods ended or as at June 30 | 2011 | 2010 | ||||
| Natural gas sales | $ | 756,576 | $ | - | ||
| Operating netbacks | $ | 394,249 | $ | - | ||
| Net loss and comprehensive loss (after income taxes) | $ | (1,702,873 | ) | $ | (1,161,855 | ) |
| Loss per share (basic & diluted) | $ | (0.02 | ) | $ | (0.02 | ) |
| Net working capital | $ | 14,927,507 | $ | 11,057,845 | ||
| Total assets | $ | 76,304,148 | $ | 52,357,624 | ||
| Shareholders' capital | $ | 73,658,037 | $ | 50,579,490 | ||
| Common shares outstanding | 74,233,761 | 56,678,901 | ||||
| Gross capital expenditures | $ | 5,109,352 | $ | 4,867,952 |
Revenue and Royalties
The Montney Formation has provided the Corporation with its first natural gas production. Total revenue from the sale of natural gas during the three and six months ended June 30, 2011 was $349,563 and $756,576 respectively. The Corporation's horizontal drilling program generates up to $2.5 million in royalty credits per well as these wells qualify for the Government of British Columbia's Deep Well Royalty Credit program. As a result, the Corporation should not have to remit any crown royalties for the next two to three years. There was no revenue or royalties during the comparative 2010 periods.
| Production | |||||||||
| Three months ended June 30, | Six months ended June 30, | ||||||||
| 2011 | 2010 | 2011 | 2010 | ||||||
| Total production of natural gas (Mcf) | 99,193 | - | 219,956 | - | |||||
| Average production of natural gas | |||||||||
| Mcf/d | 1,095 | - | 1,478 | - | |||||
| boe/d | 183 | - | 246 | - | |||||
| Average sales price of natural gas | |||||||||
| $/Mcf | $ | 3.52 | $ | - | $ | 3.44 | $ | - | |
| $/boe | $ | 21.12 | $ | - | $ | 20.64 | $ | - | |
| BC Spectra Station 2 Benchmark price (1) | |||||||||
| $/Mcf | $ | 3.58 | N/A | $ | 3.51 | N/A | |||
Note:
(1) Source: NGX Natural Gas Exchange website (converted from $/GJ)
In January 2011, the Farrell Creek Montney Gas Plant commenced operations with natural gas currently being sold on a spot basis at BC Station 2 on the Spectra Energy Pipeline System. Production averaged 1,095 Mcf/d (183 boe/d) and 1,478 Mcf/d (246 boe/d) during the three and six months ended June 30, 2011 respectively, with the Corporation realizing an average price of $3.52 per Mcf ($21.12 per boe) and $3.44 per Mcf ($20.64 per boe) respectively.
Production was adversely impacted during the second quarter 2011 as the c-A48-I well was shut-in for a period of 45 days. This shut-in was due to remediating a wellhead washout plus gaining approval from the British Columbia Oil and Gas Commission for the corresponding sand management program.
Production levels are expected to increase late in the third quarter 2011 with the tie-in of the c-45-I well and the completion and tie-in of the c-B18-I well which is currently being fracture stimulated.
| Operating Netbacks | ||||||||||||
| For the three month period ended June 30, 2011 | $ | % | $/Mcf | $/boe | ||||||||
| Natural gas sales | $ | 349,563 | $ | 3.52 | $ | 21.12 | ||||||
| Royalties | (120,980 | ) | 34.6 | % | (1.22 | ) | (7.32 | ) | ||||
| Net revenue | 228,583 | 2.30 | 13.80 | |||||||||
| Royalty credits applied | 120,980 | 1.22 | 7.32 | |||||||||
| Operating and production costs | (310,483 | ) | (3.13 | ) | (18.80 | ) | ||||||
| Transportation costs | (9,462 | ) | (0.10 | ) | (0.57 | ) | ||||||
| Operating netbacks | $ | 29,618 | $ | 0.29 | $ | 1.75 | ||||||
| For the six month period ended June 30, 2011 | $ | % | $/Mcf | $/boe | ||||||||
| Natural gas sales | $ | 756,576 | $ | 3.44 | $ | 20.64 | ||||||
| Royalties | (125,352 | ) | 16.6 | % | (0.57 | ) | (3.42 | ) | ||||
| Net revenue | 631,224 | 2.87 | 17.22 | |||||||||
| Royalty credits applied | 120,980 | 0.55 | 3.30 | |||||||||
| Operating and production costs | (346,989 | ) | (1.58 | ) | (9.47 | ) | ||||||
| Transportation costs | (10,966 | ) | (0.05 | ) | (0.30 | ) | ||||||
| Operating netbacks | $ | 394,249 | $ | 1.79 | $ | 10.75 | ||||||
After net royalties, operating costs and transportation, operating netbacks were $0.29 per Mcf ($4.75 per boe) and $1.79 per Mcf ($10.75 per boe) for the three and six months ended June 30, 2011 respectively. Operating costs recorded in the second quarter 2011 reflect timing differences for the billing of certain costs from the joint venture partner. Therefore, operating costs and as a result netbacks, for the first six months of 2011 are considered to be a better representation of future costs and netbacks.
| General and Administrative Expenses | ||||||||||||
| Three months ended June 30, | Six months ended June 30, | |||||||||||
| 2011 | 2010 | 2011 | 2010 | |||||||||
| Consulting fees | $ | 23,554 | $ | 43,757 | $ | 107,672 | $ | 61,821 | ||||
| Salaries and benefits | 299,121 | 271,497 | 595,429 | 571,759 | ||||||||
| Other general administration | 275,386 | 178,061 | 499,994 | 340,501 | ||||||||
| 598,061 | 493,315 | 1,203,095 | 974,081 | |||||||||
| Capitalized and other costs | (118,215 | ) | (113,474 | ) | (246,687 | ) | (231,666 | ) | ||||
| 479,846 | 379,841 | 956,408 | 742,415 | |||||||||
| Stock-based compensation | 192,002 | 181,760 | 501,003 | 547,327 | ||||||||
| Capitalized portion of stock-based compensation | (41,148 | ) | (42,011 | ) | (108,753 | ) | (147,248 | ) | ||||
| 150,854 | 139,749 | 392,250 | 400,079 | |||||||||
| $ | 630,700 | $ | 519,590 | $ | 1,348,658 | $ | 1,142,494 | |||||
In 2011 the Corporation continued the consulting contracts with an investment advisor, a land consultant, a computer network maintenance company and an external IFRS consulting firm. During the first six months of 2011, the Corporation also entered into consulting arrangements with a staffing recruitment firm and an executive compensation firm, resulting in an increase of 90% in consulting fees, after capitalization, from $45,994 for the first half 2010 to $87,465 for the first half 2011. Consulting fees for the second quarter 2011 decreased by 46% compared to the second quarter 2010 due to additional reservoir engineering consulting fees in 2010 related to the timing of a resource assessment update.
Salaries and benefits, after capitalization, of $382,813 for the six months ended June 30, 2011 increased by 4% compared with 2010 ($368,567) principally due to the hiring of an additional employee in March 2011, but partially offset by efficiencies gained in the Corporation's group health benefits plan.
The increase in other general administration expenses was largely attributable to increased professional fees including legal, audit and engineering. Professional fees for the first six months of 2011 are comprised of legal counsel fees for joint venture matters, audit related fees for the first and second quarter 2011 interim financial statement reviews, reservoir engineer fees for the first quarter 2011 Reserve Report, and 2011 annual audit and reservoir engineer reserve report fee accruals, none of which were accrued for in the first six months of 2010.
During the six months ended June 30, 2011, the Corporation capitalized a total of $246,087 (2010: $230,466) of general and administration expenses, including salaries and benefits, directly related to exploration and development activities. These amounts are included as part of either Exploration and Evaluation Assets, or Property, Plant and Equipment as recorded by the Corporation. Other costs capitalized during the six months ended June 30, 2011 of $600 (2010: $1,200) relate to consulting fees incurred as equity instruments issue costs, and are recorded by the Corporation as a reduction of shareholders' capital. For the six months ended June 30, 2011 the Corporation also capitalized $108,753 (2010: $147,248) of share-based compensation expense for those employees of the Corporation directly involved in exploration and development activities.
Due to a minimal level of stock options granted as well as a decrease in the market price of the Corporation's shares, share-based compensation, after capitalization, decreased by 2% to $392,250 for the six months ended June 30, 2011, from $400,079 for the comparative prior period.
Capital Expenditures, Liquidity and Capital Resources
The Corporation's gross capital expenditures on natural gas operations for the three and six months ended June 30, 2011 and 2010 are detailed in the following table:
| Three months ended June 30, | Six months ended June 30, | |||||||
| 2011 | 2010 | 2011 | 2010 | |||||
| Lease acquisitions and retentions | $ | 856,795 | $ | 3,719,572 | $ | 1,578,439 | $ | 3,782,237 |
| Geological and geophysical | - | - | - | - | ||||
| Net expenditure on drilling and completion costs | 1,444,047 | 21,248 | 3,284,826 | 708,001 | ||||
| Capitalized overhead | 50,610 | 154,885 | 246,087 | 377,714 | ||||
| Total natural gas expenditures | $ | 2,351,452 | $ | 3,895,705 | $ | 5,109,352 | $ | 4,867,952 |
The Corporation's capital budget is reviewed and approved by the Board of Directors on a quarterly basis. The Corporation's Board of Directors has approved a total forecasted capital expenditure in 2011 of up to $16.2 million, including an estimated $0.5 million for capitalized overhead. The capital budget through the third quarter 2011 has been approved for a total of up to $13.9 million, including $0.4 million for capitalized overhead.
For the six months ended June 30, 2011, gross capital expenditures, including land acquisitions but before the application of British Columbia government incentive Summer Drilling and Deep Royalty Credits of $1.9 million, totaled $5.1 million (2010: $4.9 million), compared to a budgeted capital expenditure of $4.8 million (2010: $3.9 million). Land acquisitions during the six month period ended June 30, 2011 added approximately 11 net sections to the Corporation's Montney land position which now totals 40.8 net sections in the Farrell Creek area.
Cash administration expenses (general and administrative expenses excluding share-based compensation) for 2011 are expected to total $2.6 million (2010: $2.1 million), before capitalization of exploration and development related overhead. Revenue from interest on cash balances is budgeted at $0.1 million for the 2011 year. The Corporation has budgeted for operating netbacks from the Farrell Creek Montney operations of $2.1 million during 2011.
At June 30, 2011, the Corporation had a net working capital balance of $14.9 million, consisting of cash in the amount of $15.0 million, term deposits of $1.2 million, accounts receivable and prepaids of $0.2 million, and net of accounts payable and other accrued liabilities of $1.5 million. The accounts payable and other accrued liabilities balance at June 30, 2011 relates primarily to horizontal drilling and completion activity in the Montney Project at Farrell Creek in conjunction with the Corporation's joint venture partner, Canbriam. The Corporation has no bank indebtedness and has no credit agreements to borrow money in place at this time.
INTERNATIONAL FINANCIAL REPORTING STANDARDS
In February 2008, the Accounting Standards Board of the Canadian Institute of Chartered Accountants confirmed that IFRS would replace previous GAAP commencing in 2011 for profit-oriented Canadian publicly accountable enterprises effective January 1, 2011. As such, the Corporation has reported its second quarter 2011 results and 2010 comparative information in accordance with IFRS. The adoption of IFRS has not had a material impact on the Corporation's operations.
Information regarding CSRI is available on SEDAR at www.sedar.com or the Corporation's website at www.csri.ca.
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:
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
www.csri.ca