Canadian Spirit Resources Inc.
TSX VENTURE : SPI
PINK SHEETS : CSPUF

Canadian Spirit Resources Inc.

November 26, 2010 19:10 ET

Canadian Spirit Resources Inc. Announces Third Quarter 2010 Financial Results

CALGARY, ALBERTA--(Marketwire - Nov. 26, 2010) - Canadian Spirit Resources Inc. ("CSRI" or the "Corporation") (TSX VENTURE:SPI) (PINK SHEETS:CSPUF) announces the release of its interim financial results and Management Discussion and Analysis for the three and nine month periods ended September 30, 2010. (all amounts in Canadian dollars)

CSRI is a natural resources company focusing on the identification and development of opportunities in the unconventional gas sector of the energy industry. Together with a well-capitalized joint venture partner, the Corporation's principal activity is evaluating the productive capability of its Montney play in Farrell Creek, British Columbia.

OPERATIONAL HIGHLIGHTS FROM THE THIRD QUARTER

Montney Formation



-- CSRI, together with its joint venture partner, Canbriam Energy BC
Partnership ("Canbriam" or the "Operator"), continues to advance the
2010 capital program in our Montney shale play.
-- The c-A48-I well was stimulated in 8 stages of the lower portion of the
Montney Formation. The initial production was 8 mmcf/d.
-- Two horizontal wells targeting the upper portion of the Montney were
drilled and cased from the c-18-I pad. The first well, c-18, was
stimulated in 8 stages with initial production of up to 4.7 mmcf/d. The
second well, c-A18, is expected to be stimulated by year-end following
remediation of a down-hole issue.
-- The vertical well at b-17-I was re-entered by the Operator who drilled
out a short length horizontal leg into the lower portion of the Montney.
This well was stimulated in 5 stages and is currently being flow tested.
-- An upper Montney horizontal well at the c-45-I pad has also been
recently drilled and cased. It is anticipated that this well will be
stimulated prior to year-end.
-- The 10 mmcf/d gas facility (and related gas gathering system) has
recently gained regulatory approval. Earth work has commenced with
commissioning of the facility expected to occur during January of 2011.


Gething Formation



-- The transfer agreement with Shell Canada Energy ("Shell") was signed on
October 15, 2010. CSRI is now the operator of the Gething project and
will retain 100% working interest in its 58 sections of shallow rights,
and obtain the gas facility, the additional wells and the related
infrastructure at no additional cost.
-- The Corporation is currently minimizing its expenditures on the Gething
project and is considering several options that include seeking a new
joint venture partner to further develop the Gething rights.


FINANCIAL HIGHLIGHTS



-- Finalized the exercise of 1.2 million warrants at $1.40 per warrant for
gross proceeds to the Corporation of $1.7 million.
-- Current cash and net working capital positions of $10.8 million
($0.20/share) and $8.6 million ($0.16/share) respectively.
-- No debt.
-- Filed preliminary short form prospectus for planned public offering on
November 22, 2010.

Financial Update

Selected Financial Data and Third
Quarter Results
For the nine month periods ended or as
at September 30 2010 2009
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Total revenue $ 45,383 $ 34,773
Net loss and comprehensive loss (after
income taxes) $ (1,551,159) $ (1,245,603)
Net loss and comprehensive loss per
share (basic & diluted) $ (0.03) $ (0.03)
Total current assets $ 13,055,137 $ 10,226,438
Total assets $ 57,560,669 $ 45,211,319
Total current liabilities $ 4,243,709 $ 90,012
Total long term liabilities $ 426,049 $ 250,279
Net working capital $ 8,811,428 $ 10,136,426
Net capital expenditures $ 8,986,728 $ 293,289


The Corporation recorded a net loss after taxes of $1,551,159 for the first nine months of 2010 compared to a net loss of $1,245,603 for the same period of 2009. Revenue during the first nine months of 2010 of $45,383 (2009: $34,773) represents interest on cash deposits and other miscellaneous income.

Long-term financial liabilities of $426,049, as at September 30, 2010 (2009: $250,279) represent the present value of future well and facility reclamation obligations. The increase as at September 30, 2010 is due to the Corporation's assumption of 100% of the reclamation and abandonment costs related to the Gething project upon the Corporation assuming operatorship.

The Corporation's (net) capital expenditures for the nine months ended September 30, 2010 relate to horizontal drilling and completion activity and the acquisition of additional land in the Montney Formation at Farrell Creek.

The following table details the general and administrative expenses of the Corporation for the three and nine months ended September 30, 2010 and 2009:



Three months ended Nine months ended
September 30, September 30,
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2010 2009 2010 2009
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Consulting fees $ 28,306 $ 58,305 $ 90,125 $ 155,699
Salaries and benefits 260,955 250,338 832,715 704,734
Other general
administration 195,269 155,968 535,770 495,323
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484,530 464,611 1,458,610 1,355,756
Capitalized and other
costs (122,447) (122,529) (354,113) (330,981)
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362,083 342,082 1,104,497 1,024,775
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Stock-based compensation 109,682 41,312 620,947 223,697
Capitalized portion of
stock-based compensation (31,488) - (178,736) -
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78,194 41,312 442,211 223,697
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$ 440,277 $ 383,394 $ 1,546,708 $ 1,248,472
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Cash administrative expenses for the nine month periods ended September 30, 2010 and 2009, after capitalization of costs directly associated with exploration and development activity, were $1,104,497 and $1,024,775 respectively, an increase of 8%. The increase is partially due to general increases in staff salaries and benefits, but offset by a decrease in consulting services procured by the Corporation. The increase in other general administration expenses for the three months ended September 30, 2010 is attributable to an increase in professional fees for joint venture and general corporate matters by the Corporation's legal counsel, and for reviews of quarterly interim financial statements by the Corporation's external auditors. General and administrative overhead and other expenses capitalized as either intangible natural gas assets or share issue costs in the first nine months of 2010 were $354,113 compared to $330,981 in the first nine months of 2009, or an increase of 7%.

Stock-based compensation, prior to capitalization, for the first nine months of 2010 represents stock option expense of $620,947 (2009: $223,697). During the nine months ended September 30, 2010, the Corporation capitalized $178,736 (2009: $Nil) of stock-based compensation expense for those employees of the Corporation directly involved in exploration and development activities.

Natural gas capital expenditures for the three and nine months ended September 30, 2010 and 2009 are detailed in the following table:



Three months ended Nine months ended
September 30, September 30,
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2010 2009 2010 2009
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Lease acquisitions and
retentions $ 249,411 $ 28,650 $ 4,031,648 $ 81,954
Geological and
geophysical 3,361 71,345 6,527 126,730
Net (recovery of)
drilling and completion
costs 3,736,671 (195,505) 4,588,754 (253,239)
Capitalized overhead 121,847 121,929 352,313 329,181
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Total net natural gas
expenditures $ 4,111,290 $ 26,419 $ 8,979,242 $ 284,626
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Operations Update

Montney Formation

On March 19, 2008, the Corporation announced a joint venture and farmout agreement for its rights below the Cadomin/Nikanassin Formation (the "Deep Rights") with Canbriam, to evaluate certain of the Corporation's lands for Montney and other deep formation plays covering approximately 28,400 gross acres. Through the joint venture, Canbriam committed to an initial expenditure of up to $28.6 million for exploration of the Deep Rights including the drilling of at least two wells into the Montney Formation in exchange for a 65% working interest. Canbriam also had the option to increase its working interest in the Deep Rights from 65% to 70% in return for increasing its gross capital commitment to $50.0 million. Canbriam has now fulfilled their $28.6 million initial funding commitment and in October 2010, advised that they would not exercise the option to increase their working interest. CSRI is now responsible for funding its 35% working interest of the Montney program.

Since conducting evaluation tests on two vertical Montney wells on the eastern block of Farrell Creek in late 2008, Canbriam has focused its operations on the western portion of the Farrell Creek lands in close proximity to the Spectra Energy pipeline. Following a successful vertical well test into the lower portion of the Montney Formation at the b-17-I location, the joint venture drilled a horizontal well into the lower Montney at the c-A48-I location. This was the first known horizontal well targeting the lower Montney in the Farrell Creek area and the results significantly exceeded CSRI's expectations.

The c-A48-I well was stimulated in 8 stages of the lower portion of the Montney Formation. The initial production flow-tested at a rate of approximately 1 mmcf/d per stage. The positive results of this well are significant as it may be an indicator that the lower Montney Formation has the potential to increase ultimate resource estimates and to increase the total productivity of the play.

The joint venture has drilled and cased two upper Montney horizontal wells on the western block of the Montney lands at c-18-I/94-B-1 and c-A18-I/94-B-1 and re-entered the b-17-I/94-B-1 well to drill a short horizontal leg in the lower Montney.

At the end of October, Canbriam carried out a production test on the c-18-I well with initial flow rates of up to 4.7 mmcf/d. The well was stimulated in 8 stages and is currently shut-in to allow for analysis of a pressure build-up test. The operator has indicated that once they have evaluated all relevant technical data, they plan to re-enter the c-18-I well before year-end in an attempt to further optimize productivity.

The second upper Montney well, the c-A18-I, is expected to be fracture stimulated by year-end following remediation of a down-hole issue.

The b-17-I re-entry horizontal well was stimulated in 5 stages and is currently being flow tested. Results are expected by early December.

The joint venture has recently drilled and cased a horizontal well in the upper Montney at the c-45-I/94-B-1 location. This is the third horizontal well in the upper Montney Formation and the fifth well in the west block of lands. Subject to the availability of fracture crews and equipment, the c-45-I well may be fracture stimulated and tested before year-end 2010.

Construction of the joint venture's gas processing facility (initial capacity 10 mmcf/d) and connection to the Spectra Energy sales pipeline has begun, with completion expected at the end of this year. Commissioning of the facility is expected to occur in early 2011 now that approvals for the gathering pipelines are in hand and construction has begun. The first wells planned to be connected to the facility are the c-A48-I and b-17-I lower Montney horizontal wells and the c-18-I and c-A18-I upper Montney horizontal wells.

During the past year, other operators' drilling and development activity has significantly de-risked the Montney Formation adjacent to the western portion of the Corporation's Farrell Creek lands. Talisman Energy Inc. ("Talisman") moved its adjacent Montney shale play into commercial production and expects to be producing 40-60 mmcf/d by year end with a capital investment of $350 million in the Farrell Creek area in 2010. Talisman has also announced that the capacity of their Farrell Creek Gas Plant has been increased to 120 mmcf/d during the third quarter 2010. Talisman recently announced that they are seeking a strategic joint venture partner to accelerate the projected multi-billion development of their Farrell Creek play.

In April 2010, Sproule Unconventional Limited ("Sproule") estimated the Corporation's total gross discovered and undiscovered resources to range from 3.6 trillion cubic feet to 8.4 trillion cubic feet of natural gas (over 47 sections) in the Montney Formation joint venture. This estimate was based on well data provided by CSRI and using limestone porosity cutoffs at 6% and 3% respectively. On average, this provided estimated resource figures from 77 bcf (using a 6% cutoff) to 178 bcf (using a 3% cutoff) per section in the Montney Formation.

Since the Sproule resource report, CSRI has purchased approximately 13 sections of 100% working interest lands and the joint venture has increased its Montney rights from 47 sections to 52 sections (gross). The Corporation currently has a total of 29 net sections (18,400 acres) of Montney rights in the Farrell Creek area.

Sproule has been requested to provide an update of the Montney resource report that includes our additional lands and a NI51-101 compliant reserve report for the year ended December 31, 2010. This resource and reserve report should be completed in late March 2011.

Canbriam approved plans for a capital investment of up to $49.0 million (gross) in the Farrell Creek Montney program for 2010. CSRI's share of capital expenditures on the Montney joint venture in 2010 is budgeted to be $14.5 million, of which $4.8 million was expended to September 30, 2010. The Montney joint venture is expected to achieve its first production, revenue and reserves by early 2011.

Gething Formation

On July 17, 2008 the Corporation announced that it had entered into a joint venture with Shell to advance the development of the identified unconventional natural gas resource in the Gething Formation (the "Shallow Rights") on a combined total of approximately 150 contiguous sections or 96,000 acres located in the Farrell Creek area. Shell's $50.0 million initial capital commitment included the acquisition of additional land, the drilling of five vertical wells and the construction of facilities to tie-in the Pilot Project. The pilot facility is scalable and currently has a capacity of up to 1.1 mmcf/d. Seven Gething wells were tied into the pilot facility and the facility produced its first gas in June 2009.

Sproule, in their 2009 year-end report dated April 2010, estimated the Corporation's total gross discovered and undiscovered petroleum initially-in-place (resources) in the Gething, Moosebar and Gates Formations to be 1.8 trillion cubic feet of natural gas. Based on well data provided by the Corporation, Sproule estimated a range of 21 to 34 bcf per section in the Gething Formation and a range of 6 to 8 bcf per section in the Moosebar and Gates Formations. Since the Sproule resource report, the Corporation has increased its net Shallow Rights land position to 58 sections (37,120 acres).

Pursuant to the joint venture agreement, Shell could elect until June 30, 2010 to move to the development stage of the Gething joint venture which would include the pooling of the Shell and CSRI lands and an additional capital investment by Shell. On June 18, 2010, Shell elected not to continue to the development stage and as a result shut-in the gas facility in early July 2010. As per the joint venture agreement, the Corporation is now the operator of the Gething project and will retain 100% working interest in its 58 sections of Shallow Rights, and obtain the gas facility, the additional wells and the related infrastructure at no additional cost. The pilot facility has been properly suspended and winterized. As a result of the joint venture work with Shell, CSRI was able to increase its understanding of the Gething Formation and expects to benefit from the future use of the facilities and infrastructure constructed by Shell at a cost of $32.0 million. The gas facility is expandable and may be used for other purposes in the immediate area. CSRI holds a right-of-first-refusal on Shell's surrounding 95 sections of Gething lands. The Corporation is currently minimizing its expenditures on the Gething project and is considering several options that include seeking a new joint venture partner to further develop the Gething Rights.

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

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.

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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