Canex Energy Inc.

Canex Energy Inc.

May 26, 2005 22:07 ET

Canex Announces First Quarter Results

CALGARY, ALBERTA--(CCNMatthews - May 26, 2005) - Canex Energy Inc ("Canex" or "the Company") (TSX VENTURE:CXO) is pleased to announce its operating and financial results for the quarter ended March 31, 2005. The Company had significant increases in production, cash flow and earnings from the same period last year and from the fourth quarter of 2004.


- Drilled and cased 4 of 4 wells (1.6 net);

- First quarter production 587 boepd up 190% from the previous year;

- Production increased from 465 boepd in January to 743 boepd in March;

- Exited the quarter close to 900 boepd;

- Three cased wells (1.3 net) waiting on completion and tie-ins;

- Cash flow from operations increased to $1,201,665 up 225% from last year;

- Corporate netback increased to $23.09/boe;

- G&A costs dropped to $0.90/boe;

- Increased the undeveloped land inventory by 10% including a doubling of prospective acreage on the Worsley Triassic trend;

Key Subsequent Events

- Closed a financing of $12,150,000 at $2.70/share;

- Eliminated the working capital deficit;

- Increased the 2005 capital budget to $24,000,000;

- Increased the target exit rate to 2000 boepd;

- Commenced the summer drilling program at Worsley.

The following table summarizes some of the key financial results. Complete financial statements with accompanying notes along with management discussion and analysis have been filed on SEDAR (

Three Months Ended Mar 31
2005 2004 Change

Production (boe/d) 587 202 191%

Net Revenue (000's) 2,005 561 257%
Cash flow (000's) 1,202 369 226%
Earnings (000's) 434 82 432%
Capital Spending (000's) 5,506 250 2,102%

Per Common Share Fully Diluted
Cashflow $0.06 $0.03 115%
Earnings $0.02 $0.01 202%

Balance Sheet at period end (000's)

Property & Plant (000's) 18,765 4,745 295%
Working Capital Surplus/(Deficit) (000's) (6,343) (555) 1,044%
Shareholder's Equity 9,850 3,460 185%

Wt Avg Shares 000's 19,665 13,312 48%
Diluted 000's 20,978 13,875 51%

Revenue $/boe $52.51 $37.51 40%
Royalty $/boe $14.58 $6.65 119%
Opcost $/boe $11.32 $5.55 104%
Transportation $/boe $2.62 $0.00
Property Netback $/boe $23.99 $25.31 (5%)
G&A $/boe $0.90 $5.00 (82%)
Corporate Netback $/boe $23.09 $20.31 14%

Operational Highlights

The Company had an active first quarter capital program of $5,506,000. Results were better than expected with the Company enjoying 100% success (4 for 4) on its step-out drilling program. The drilling included three step outs at Worsley extending the pool boundaries in three different directions. Based on the positive results, the farmor exercised an option to participate at casing point in the last two wells drilled. As a result, Canex's working interest drops to 34.8% for two half sections with no overriding royalty. The Company has earned 4.5 (2.4 net) sections of land and has options to continue earning.

Aside from the four wells drilled and cased, the Company completed five oil zones on wells drilled late last year and pipeline connected six wells. Two of the wells were dual zone completions with dual pumping units which came on-stream in February and March. In the first quarter, approximately $1,563,000 of the capital spending (28%) related to completion and tie-in work included in the future capital for the reserve report. This capital was also included in last year's finding and development costs.

First quarter production increased 190% to 587 boepd. Gains mostly came from the Company's Worsley light oil property. Results could have been better unfortunately, January production at Worsley was negatively impacted by extreme cold weather. The Company struggled with repeated freeze offs on newly installed pumping equipment. Additional facility start-up issues on the new central battery also contributed to the down time. January production averaged 465 boepd, down from December's exit rate of 600 boepd. Throughout the quarter operating conditions steadily improved. In addition, new wells were brought on-stream increasing average production in March to 743 boepd with an exit rate of close to 900 boepd.

Cash flow increased 226% and netbacks increased 14% over last year. The positive results were moderated by increased unit operating costs. Operating costs increased in the quarter as the Company shifted from shallow dry gas to pumping light oil wells. The increased costs were amplified by operating challenges during the first three months. The Company incurred higher costs at Worsley as result of the start-up and freeze off issues previously mentioned. In addition, delays with pipeline tie-ins resulted in the additional trucking costs as oil was trucked to the central battery for processing. Currently salt water is still trucked to a third party facility for disposal. The Company anticipates it will have a water injector/disposal well for pressure maintenance by mid summer. This project has been included in the capital budget. The Company expects the unit operating costs to decline throughout the year as operational "bugs" get worked out of the system and additional production is brought on line which will spread out the fixed costs.


Due to reduced on-stream efficiency during break-up and restricted production on some wells waiting on GPP, the Company expects Q2 production to average 750-850 boepd which is below its current potential of 900+ boepd. The Company still expects to average 1000 boepd in 2005 and is on track to exit at 2000 boepd.

The majority of the growth is expected to occur in the third and fourth quarters. The Company intends to drill 20-25 development wells at Worsley as the next phase of a multi year drilling program. In addition, the Company continues to pursue numerous other drilling opportunities on the Peace River Arch. With the strengthened balance sheet and expanded capital program the Company is in a good position to continue its growth through balanced exploration and development programs.

Additional Disclosure

Canex also announces that it proposes to renew its normal course issuer bid (the "Bid") pursuant to the bylaws, rules and policies of the TSX Venture Exchange (the "TSXV"). Subject to regulatory approval the Bid will commence on June 10, 2005 and expire on June 9, 2006 unless terminated early by the Company. Pursuant to the Bid, the Company may acquire up to an aggregate of 1,209,086 common shares over a 12 month period, representing 5% of the issued and outstanding common shares being 24,181,735 as of May 25, 2005. The Company will be restricted under the rules of the TSXV and applicable securities legislation, to acquire not more than 483,635 common shares being 2% of the aggregate number of issued and outstanding common shares, during any 30 day period.

During the previous period of May 15, 2004 to May 14, 2005 the Company acquired 13,000 common shares at an average price of $1.34/share pursuant to the previous Bid.

Canex also announces its annual and special meeting of the shareholders will be held on June 15th 2005.

Reader advisory:

The term "BOE" may be misleading, particularly if used in isolation. In accordance with NI 51-101, a BOE conversion ratio for natural gas of 6 mscf: 1 bbl has been used which is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

Investors are cautioned that the preceding statement of the Company may include certain estimates, assumptions and other forward-looking information. The actual future performance, developments and/or results of the Company may differ materially from any or all of the forward-looking statements, which include current expectations, estimates and projections, in all or part attributable to general economic conditions and other risks, uncertainties and circumstances partly or totally outside the control of the Company, including natural gas/oil prices, reserve estimates, drilling risks, future production of gas and oil, rates of inflation, changes in future costs and expenses related to the activities involving the exploration, development and production of gas and oil hedging, financing availability and other risks related to financial activities.

The TSX Venture Exchange has not reviewed and does not accept responsibility for the adequacy or accuracy of this release.

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