Canex Energy Inc.
TSX VENTURE : CXO

Canex Energy Inc.

August 25, 2005 16:59 ET

Canex Announces Second Quarter Results

CALGARY, ALBERTA--(CCNMatthews - Aug. 25, 2005) - Canex Energy Inc. (TSX VENTURE:CXO) ("Canex" or "the Company") is pleased to announce its operating and financial results for the quarter ended June 30, 2005. A 268% increase in production to 721 boepd and stronger commodity prices lifted the net income for the quarter to $562,009 up 333% from last year. Based on field estimates, current production has further increased to 1000-1100 boepd. The growth in production has come entirely by the drill bit on internally generated and operated prospects. Despite the challenging operating conditions in the second quarter, the Company drilled and cased seven (3.8 net) wells as part of its busiest quarter ever.

Highlights

- Closed a 4,500,000 share financing for gross proceeds of $12,150,000;

- Drilled and cased seven (3.8 net) wells at a 100% success rate as part of a 25 well development program;

- Second quarter production 721 boepd up 268% from last year and 23% from the first quarter;

- Cash flow from operations increased to $1,464,804 up 252% from last year and 22% from the first quarter

- Cash flow from operations for the year to date increased 274% to $2,666,468;

- Undeveloped land increased 82% to 33,000 net acres the majority of which is on the Company's Worsley/Clear Hills trend;

Key Subsequent Events

- Expanded the Worsley Battery to handle additional production;

- Increased production to 1000 - 1100 boepd based on field estimates;

- Applied to the EUB to start a water flood to increase reserves at Worsley;

- Drilled and cased five (2.7 net) additional wells 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 (www.sedar.com).



Three Months Ended June 30 Six Months Ended June 30
2005 2004 %Change 2005 2004 %Change
------------------------------------------------------------------------

Production (boe/d) 721 196 268% 655 199 229%

Net revenue (000's) 2,626 705 272% 4,631 1,265 266%
Cash flow (000's) 1,465 416 252% 2,666 713 274%
Net income (000's) 562 130 332% 996 211 372%
Capital spending
(000's) 5,082 485 948% 10,588 1,152 819%

Per Diluted
Common Share
Cash flow $ 0.06 $ 0.03 108% $ 0.11 $ 0.05 133%
Earnings $ 0.02 $ 0.01 156% $ 0.04 $ 0.01 194%


Balance Sheet at
period end (000's)
Property & plant
(000's) 23,286 5,094 357%
Working capital
surplus (000's) 1,479 48 2981%
Bank debt - 26
Shareholder's equity 22,186 4,232 424%

Wt average
shares 000's 24,319 14,374 69% 21,992 13,843 59%
Diluted shares 000's 25,505 15,088 69% 23,242 14,481 60%


Revenue $/boe $53.05 $46.65 14% $52.76 $41.80 26%
Royalty $/boe $13.15 $ 7.15 84% $13.78 $ 6.86 101%
Opcost $/boe $12.67 $ 9.62 32% $12.06 $ 7.52 60%
Transportation $/boe $ 2.63 $ 0.00 $ 2.63 $ 0.00
Property Netback $/boe $24.60 $29.88 -18% $24.29 $27.42 -11%
G&A $/boe $ 2.30 $ 6.36 -64% $ 1.68 $ 5.64 -70%
Corporate Netback
$/boe $22.30 $23.52 -5% $22.61 $21.78 4%


Operational Highlights

Worsley:

The Company continued its active drilling program at Worsley with seven additional (3.8 net) wells drilled and cased on the prospect. One of the wells (0.35 net) was an earning well in which the farmor elected its option to participate at casing point. In addition, Canex completed seven (3.6 net) wells in the quarter. Three of the wells completed were drilled in the first quarter and four were drilled in the second quarter.

Pipelining and equipping operations were affected by wet weather more so than drilling or completions. In addition, construction of two new field headers and one satellite delayed the startup for wells drilled in Q1 and Q2. The result was only one new well was brought on-stream in the quarter. The well was a high water cut edge well and added very little new production.

Subsequently, a second satellite was built and five new wells were tied in. The battery was shut down nine days for maintenance and expansion in July. During the down time a second oil treater capable of processing up to 2000 bbls fluid per day was installed and piping modifications were made for a new compressor. The compressor is expected to be installed in the third quarter with a capacity of 4 mmscf/d. At the time of this report the Company was installing a water injection skid capable of injecting 1600 bbls/d and expandable to 3200 bbls/d in preparation for a water flood. The Company expects water flooding will reduce third party disposal costs and increase the ultimate recovery. A few minor shut downs will be required before all the new equipment has been commissioned.

The Company has now tested three gas wells in the Charlie Lake. The wells have tested a combined rate of 4.5 mmscf/d (1.6 mmscf/d net). These wells are either in a gas cap to the oil pool(s) or a new gas pool(s). The Company is waiting on pressure data and interference tests to confirm the status. If they are in communication with the oil wells the Company must prove that concurrent production will not negatively affect the oil wells. Given this uncertainty the Company can not count on production from these wells this year. However, they are considered successful wells and will add to the reserves and net asset value of the Company.

Overall the Company is pleased with the results to date. Although some edge wells have high water cut most wells have more than one productive zone. Currently, there are 14 zones on production averaging 85 bopd and 120 mscf/d gross per well. In addition, there are 19 zones behind pipe which includes gas zones. Several wells are restricted under EUB allowables. During the second quarter one well was shut-in for two months to work off an over production penalty. The Company has submitted Good Production Practice (GPP) applications for three separate pools. The applications are viewed as routine and approval is expected shortly. The Company is also waiting on approval to commence water flooding.

Subsequent to the quarter, five (2.7 net) wells were drilled and cased at Worsley. The Company is planning to drill an additional 10 wells prior to year end.

Pouce Coupe

Subsequent to the quarter the Company participated in a 50% non operated well at Pouce Coupe. Based on open hole logs Canex elected not to participate in the casing and went on a 300% penalty. Canex does not expect the reserves to payout the well. The Company plans to drill or participate in 1-2 additional wells at Pouce Coupe this year.

Outlook

The Company is revising its target exit rate from 2000 boepd to a range of 1800 - 2000 boepd. The Company originally budgeted 58% working interest development wells in the Northeast portion of the Worsley field. However, the farmor has elected to participate over this portion of the field reducing the Company's working interest to 34.8%. Combined with the uncertainty over the timing of any free gas production the Company felt a revision to the target exit rate was required. In order for the Company to reach the 2000 boepd mark it will either require success from its other exploration prospects on the Peace River Arch or approval for free gas production at Worsley.

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.

Contact Information

  • Canex Energy Inc.
    Stephen Kapusta
    President & CEO
    (403) 263-3232
    Email: skapusta@canexenergy.com
    or
    Canex Energy Inc.
    660, 639 - 5th Avenue SW
    Calgary, Alberta T2P-0M9
    (403) 263-3232
    (403) 234-8773 (FAX)