CanArgo Energy Corporation

CanArgo Energy Corporation

March 01, 2005 04:18 ET

CanArgo Announces Preliminary 2004 Year End Results


NEWS RELEASE TRANSMITTED BY CCNMatthews

FOR: CANARGO ENERGY CORPORATION

AMEX, OSLO STOCK EXCHANGE SYMBOL: CNR

MARCH 1, 2005 - 04:18 ET

CanArgo Announces Preliminary 2004 Year End Results

OSLO, NORWAY and NEW YORK, NEW YORK--(CCNMatthews - March 1, 2005) -
CanArgo Energy Corporation (AMEX:CNR)(OSE:CNR) today announced its
preliminary results for the year ended December 31, 2004.

Operating Revenues from Continuing Operations increased by 18% to
$9,574,520 (2003: $8,104,780). Of this oil and gas sales were
$9,574,520, an increase of 21% (2003: $7,881,172). The increase in
revenue was attributable mainly to higher oil prices.

Summary of Operations:

Year-end 2004 gross total proved reserves at the Ninotsminda Field were
6.3 million barrels of oil and 2.6 billion standard cubic feet of
natural gas.

No reserves have been booked for the Samgori Field, as the nature of the
acquisition agreement requires a certain minimum work program to be
carried out in order to secure the reserves. As at the end of 2004, this
work program had not been carried out and as such management believe it
is inappropriate to book reserves for Samgori at this time. In the
meantime, CanArgo continues to benefit from a net 37.5% share of
production from the Field.

The N22H horizontal well on the Ninotsminda Field, the first well in the
planned 15-well Under Balanced Coil Tubing Drilling ('UBCTD') program
with Weatherford International, has progressed slowly due to "teething"
problems in the coiled tubing drilling process. Nevertheless, the well
is now drilled and testing is underway. The initial delays were due to
mechanical and electrical problems with the equipment but after these
were rectified drilling progressed satisfactorily. As a result of
modifications to the equipment and additional equipment being mobilised,
it is not expected that such delays will be encountered again on the
subsequent wells.

A liner has now been run over an approximately 350 metre (1,148 feet)
production interval, and although the well has not been tested, the
Weatherford equipment measured sustained gas flow rates of 20 - 25
million standard cubic feet per day (560 to 708 thousand standard cubic
metres per day) whilst drilling the section under-balanced. We believe
that this is the biggest gas rate ever measured on a well in Georgia to
date. Part of the build-up section of the well, which was open at the
time, penetrates the gas cap through a zone in the reservoir which was
previously described as "tight" when drilled using conventional drilling
techniques. With the high gas rate it has not been possible to estimate
the oil flow rate, as it is likely that oil has been carried through the
under-balanced separator with the gas to the flare stack. Although not
giving a direct guide to the potential of the well under long-term
production, the high flow rate for the gas is an encouraging sign for
the potential of under-balanced drilled wells in this reservoir.

The UBCTD unit is now being mobilised to the N100H2 well, in an area of
the reservoir which has shown prolific production in the past. Following
the experience while drilling N22 H certain modifications to the
equipment are being implemented and as such commencement of drilling on
the N100H2 well is not expected for about three weeks. N100H2 will be
followed by the N49H well, which has a surface location very close to
N100 and as such requires minimal mobilisation. As a result of the
delays experienced on the N22H well, it is likely that we will only be
able to complete 12 new UBCTD horizontal sections (and M11Z) by the end
of this year, as opposed to the planned 15.

The M11Z appraisal well sidetrack is currently at a depth of 3,798
metres (12,461 feet). Drilling in the current section is complicated by
the presence of extremely over-pressured swelling clays, and these
continue to cause drilling problems, even with the bigger mud pumps and
bi-centrical bits which were recently fitted to the converted UralMash
rig which is drilling the sidetrack. After extensive technical analysis
and discussions with the international drilling contractor Saipem
S.p.A., and with a major drilling mud company it has been decided that
the optimum way to sidetrack this well to the top of the reservoir as
planned will be to use an oil-based mud system (to control the swelling
clays) on the Sapiem Ideco E-2100Az drilling rig (which is equipped with
a top-drive drilling system and can use an oil-based mud system unlike
the current Ural-Mash). It is expected that the sidetrack will be
completed in a more effective manner utilising this new equipment. It is
now planned to sidetrack the well with the Saipem rig to the top of the
reservoir sequence at 4,155 metres (13,633 ft) where 5-inch casing will
be set. The Saipem rig is currently being mobilised to Georgia and
should be ready to re-commence drilling of the sidetrack by the middle
of April. The conventional drilling operations are expected to be
completed by the middle of May, after which Weatherford will take over
using the UBCTD unit to drill down into the Cretaceous and fully
evaluate the oil discovery.

The original production test on the Manavi M11 discovery well in 2003
was prematurely terminated due to the collapse of the production tubing
due to pressure during testing. Prior to this, during the initial
clean-up flow, good flow rates were observed from the well, although
unmetered, with 34.4 degree API oil being recovered. CanArgo believes
that the M11 Cretaceous oil discovery has potential to be one of the
most significant oil discoveries made recently in the Southern Caucasus.
Over 150 metres (490 feet) of hydrocarbon bearing Cretaceous limestone
reservoir was encountered, with the top at 4,348 metres (14,265 feet).
Regional outcrop studies indicate this reservoir unit to be over 300
metres (approximately 1,000 feet) thick. No oil-water contact was
indicated in the well.

The contract with Saipem S.p.A signed in January 2005 was originally to
supply a drilling rig complete with crew to drill the M12 appraisal well
to a planned total depth of 5,000 metres (16,404 feet) in the
Cretaceous. The contract also includes an option to drill the M13
appraisal well. The M12 location is approximately 4 km to the west of
the Manavi M11 oil discovery well, and located on seismic data acquired
by CanArgo in 1998. In order to expedite the Manavi appraisal program,
CanArgo plan to drill and set surface casing on the M12 well while
Saipem first complete the M11 sidetrack, thereby minimising any delay in
the appraisal of this potentially important discovery.

The Norio exploration well MK72 well is currently cased at a depth of
4,520 metres (14,830 feet), having encountered oil bearing sands in the
secondary Oligocene target. The well is targeting a large prospect at
Middle Eocene level analogous to the nearby Samgori Field. Data obtained
from the recently run vertical seismic profile indicates the presence of
a seismic reflector some 300 metres (984 feet) below the current depth
of the well which may be the primary target. The crew from the rig
drilling the M11Z well are becoming free, and it is now planned to
recommence drilling activities by mid-April, with a planned total depth
of 5,100 metres (16,733 feet).

Dr David Robson, Chairman, President and Chief Executive Officer
commented,

"Our results reflect the fact that we have been concentrating on
preparation for the UBCTD program during the latter part of 2004, rather
than on short-term production, and we obviously spent a considerable
amount of time during 2004 raising the necessary funds for this year's
program. This program has now started, albeit a couple of months
delayed, with the N22H well and we are looking forward to the
continuation of this program and to increasing production. I believe
that the delays experienced on N22H were due primarily to teething
problems with the Weatherford equipment, and we hope that these have now
been resolved. Both we and Weatherford have learnt from this first well,
and we are currently implementing some equipment modifications to ensure
the optimum drilling method moving forward. The indications on the N22H
well are promising so far, and it is a very exciting time with the test
results due within a fortnight.

We continue to experience significant drilling problems with the M11Z
sidetrack well, and although we have carried out extensive modifications
to our rig, I believe that the time has come to utilise more modern
technology on this well. With Saipem now bringing their higher
specification and more powerful rig to complete this sidetrack, and with
the use of oil-based mud, I believe this is the optimum way to complete
this well. Although this will cause a short delay to the planned timing
for the M11Z test, I believe that we can take other measures to keep the
overall Manavi appraisal program on track. This also frees up our drill
crew to re-commence drilling on the Norio prospect - where we are
hopefully very close to the objective on this well, and have already
found oil in the upper section. By the end of this year we should have
two tests on the potentially very significant Manavi discovery,
hopefully a further discovery at Norio, and increased production from
our UBCTD program. We have had some teething problems, and problems
encountered in drilling difficult reservoirs, but we are addressing
these challenges and together with our own personnel and those of our
international contractors we continue to work very hard on these
projects, and I look forward to an exciting year"

CanArgo is an independent oil and gas exploration and production company
with its oil and gas operations currently located in the Republic of
Georgia and the Caspian area.

The matters discussed in this press release include forward-looking
statements, which are subject to various risks, uncertainties and other
factors that could cause actual results to differ materially from the
results anticipated in such forward-looking statements. Such risks,
uncertainties and other factors include the uncertainties inherent in
oil and gas development and production activities, the effect of actions
by third parties including government officials, fluctuations in world
oil prices and other risks detailed in the Company's reports on Forms
10-K and 10-Q filed with the Securities and Exchange Commission. The
forward-looking statements are intended to help shareholders and others
assess the Company's business prospects and should be considered
together with all information available. They are made in reliance upon
the safe harbor provisions of Section 27A of the Securities Act of 1933,
as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. The Company cannot give assurance that the results will be
attained.



CanArgo Energy Corporation
Preliminary Results for the Year and Three Month Period Ended
December 31,2004

Consolidated Statement of Operations
Expressed in United States dollars
Unaudited Unaudited
------------------------------------------------------
Three Months Ended Twelve Months Ended
December 31, December 31, December 31, December 31,
2004 2003 2004 2003
------------------------------------------------------
Operating
Revenues
from
Continuing
Operations:
Oil and gas
sales $ 2,127,658 $ 2,609,298 $ 9,574,520 $ 7,881,172
Other - - - 223,608
------------------------------------------------------
2,127,658 2,609,298 9,574,520 8,104,780
------------------------------------------------------

Operating
Expenses:
Field
operating
expenses 630,132 47,101 2,320,756 1,051,905
Direct
project
costs 215,525 338,174 1,434,114 1,028,682
Selling,
general and
admin-
istrative 2,200,966 1,206,987 5,929,256 3,228,982
Non cash stock
compensation
expense 1,236,590 - 1,395,036 276,507
Depreciation,
depletion
and
amortization 615,143 933,806 2,881,020 3,294,086
Impairment of
oil and gas
properties - - 64,552 -
Impairment of
oil and gas
ventures - - 75,000 -
Impairment
of other
assets 35,260 - 35,260 -
Gain on
disposition
of investment - - - (664,576)
Gain on
disposition
of
subsidiary (1,271,260) - (1,606,274) -
Loss on
disposition
of assets 47,835 - 47,835
------------------------------------------------------
3,662,356 2,573,903 12,528,720 8,263,421
------------------------------------------------------

Operating
Income
(Loss) from
Continuing
Operations (1,534,698) 35,395 (2,954,200) (158,641)
------------------------------------------------------

Other Income
(Expense):
Interest, net (237,485) (14,339) (902,130) (35,386)
Other (304,902) (37,343) (1,238,144) (634,911)
Equity
income
from
investments (205,230) (63,545) (205,230) 65,544
------------------------------------------------------
Total Other
Income
(Expense) (747,617) (115,227) (2,345,504) (604,753)
------------------------------------------------------

Loss from
Continuing
Operations
Before
Minority
Interest
and Taxes (2,282,315) (79,832) (5,299,704) (763,394)
Income taxes - (25,296) - -

Minority
interest in
loss (income)
of consolidated
subsidiaries - (15,753) - 7,406
------------------------------------------------------

Loss from
Continuing
Operations (2,282,315) (120,881) (5,299,704) (755,988)

Net Income
(Loss) from
Discontinued
Operations,
net of taxes
and minority
interest - (6,682,756) 542,210 (6,607,517)
------------------------------------------------------

Income (Loss)
Before
Cumulative
Effect of
Change in
Accounting
Principle (2,282,315) (6,803,638) (4,757,494) (7,363,505)
Cumulative
effect
of change in
accounting
principle - - - 41,290
------------------------------------------------------
Net Income
(Loss) $ (2,282,315) $ (6,803,638) $ (4,757,494) $ (7,322,215)
------------------------------------------------------
------------------------------------------------------

Weighted
average
number of
common
shares
outstanding
- Basic 195,141,706 103,790,989 134,005,490 99,432,000
------------------------------------------------------
- Diluted 195,141,706 103,790,989 134,005,490 99,432,000
------------------------------------------------------

Basic Net
Income (Loss)
Per Common
Share
- from
continuing
operations $ (0.01) $ (0.00) $ (0.04) $ (0.01)
- from
discontinued
operations $ - $ (0.06) $ 0.00 $ (0.07)
- cumulative
effect of
change in
accounting
principle,
net of Income
tax $ - $ - $ - $ 0.00
------------------------------------------------------

Basic Net Income
(Loss) Per
Common Share
After Cumulative
Effect of
Change in
Accounting
Principle $ (0.01) $ (0.06) $ (0.04) $ (0.08)
------------------------------------------------------

Diluted Net
Income (Loss)
Per Common
Share
- from
continuing
operations $ (0.01) $ (0.00) $ (0.04) $ (0.01)
- from
discontinued
operations $ - $ (0.06) $ 0.00 $ (0.07)
- cumulative
effect of
change in
accounting
principle,
net of
Income tax $ - $ - $ - $ 0.00
------------------------------------------------------

Diluted Net
Income (Loss)
Per Common Share
After Cumulative
Effect of Change
in Accounting
Principle $ (0.01) $ (0.06) $ (0.04) $ (0.08)
------------------------------------------------------

Other
Comprehensive
Income:
Foreign
currency
translation (163,768) (138,861) 146,463 (151,131)
------------------------------------------------------
Comprehensive
Income
(Loss) $ (2,446,083) $ (6,942,499) $ (4,611,031) $ (7,473,346)
------------------------------------------------------
------------------------------------------------------



CanArgo Energy Corporation
Preliminary Results at December 31,2004

Consolidated Balance Sheet
Expressed in United States dollars
Unaudited
-----------------------------
As of
December 31, December 31,
2004 2003
-----------------------------

Cash and cash equivalents $ 24,617,047 $ 3,472,252
Assets held for sale 600,000 10,346,077
Other current assets 5,744,148 1,798,685
Capital assets 72,995,666 57,668,233
Other Intangible assets 648,507 -
Investments in and advances to
oil and gas and other ventures - net 478,632 75,000
-----------------------------
Total Assets $ 105,084,000 $ 73,360,247
-----------------------------
-----------------------------

Liabilities held for sale - 4,447,706
Other current liabilities 7,009,303 7,279,417
Long term liabilities 1,254,165 152,000
Minority interest in subsidiaries - 4,772,683
Stockholders' equity 96,820,532 56,708,441
-----------------------------
Total liabilities and
stockholders' equity $ 105,084,000 $ 73,360,247
-----------------------------
-----------------------------


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Contact Information

  • FOR FURTHER INFORMATION PLEASE CONTACT:
    CanArgo Energy Corporation
    Julian Hammond
    Investor Relations Manager
    +44 7740 576 139
    +44 1481 729 982 (FAX)
    e-mail: info@canargo.com
    or
    Norway
    Gambit H&K AS
    Regina Jarstein
    + 47 95213451
    or
    USA
    CEOcast.com
    Michael Wachs
    +1 212 732 4300