Canoro Resources Ltd.

Canoro Resources Ltd.

February 27, 2009 13:03 ET

Canoro Reports Third Quarter and Updates Activity

CALGARY, ALBERTA--(Marketwire - Feb. 27, 2009) - Canoro Resources Ltd., (TSX VENTURE:CNS) is pleased to announce its financial and operational results for the three and nine months ended December 31, 2008.

Financial results

The table below, "Financial and Operating Results," provides a summary of the Company's financial and operating results for the three and nine month periods ended December 31, 2008, and the same period ended December 31, 2007. For the periods ended after March 31, 2008, Canoro has begun reporting all financial information in US dollars and has translated and restated the December 31, 2007 numbers, which were previously reported in Canadian dollars, to reflect the change in reporting currency. Consolidated financial statements with management's discussion and analysis (MD&A) are now available on the company's website ( and will also be available on the SEDAR website (


Three months Nine months
ended ended
December 31 December 31
($ thousands, except per % %
unit amounts) 2008 2007 (1) change 2008 2007 (1) change
Natural gas (mcf/d) 2,725 1,122 143 3,421 1,031 232
Crude oil (bbl/d) 197 100 97 256 93 175
Total (boe/d) 651 287 127 826 265 212

Realized gas price
($/mcf) 2.00 2.45 (19) 2.26 2.42 (7)
Realized oil price
($/bbl) 55.17 96.35 (43) 107.83 80.71 34
Nigerian Bonny Light
($/bbl) 58.98 90.62 (35) 101.21 79.72 27

Realized price ($/boe) 25.05 41.32 (39) 42.77 42.46 1
Royalties ($/boe) 2.99 4.09 (36) 4.30 2.47 74
Operating costs ($/boe) 4.61 7.20 (36) 4.27 7.07 (40)
Netback ($/boe) 17.45 30.03 (42) 34.20 32.91 4

Funds from operations 32 (1,578) - 3,445 (1,458) -

Capital expenditures 11,685 3,253 259 26,171 11,376 130

(1) Restated in United States dollars from the previously reported Canadian
dollar amounts.

Operational Update

The third quarter of Fiscal 2009 has proven to be a challenging period for Canoro Resources Ltd. Whilst there were initially encouraging drilling results in Q2, subsequent testing of Amguri-14 and Amguri-12 yielded mixed results. While A-14 proved to be an excellent dry gas producer, A-12 was unable to demonstrate commercial production potential. Persistent problems with one of the drilling rigs under contract resulted in significant delays and cost overruns and the rig was subsequently released. A complete re-evaluation of the Amguri geological model was initiated while the liquids extraction plant project at Amguri was moved ahead.

Canoro posted a loss of $3.6 million, or $0.03 per share for the quarter. Funds flow from operations was negligible with a realized oil price of $55.17 per barrel and natural gas prices of $2.00 per mcf average during the quarter. With approximately 70% of the Company's production currently being natural gas sold on a fixed price contract basis, Canoro currently has limited exposure to changes in oil prices. For each $1.00 per barrel change in oil prices, the Company's annual funds flow changes by approximately $0.1 million based on year-to-date average liquids production volumes. Having $12.0 million working capital as at December 31, 2008, the Company continues to be debt free and well capitalized to complete its 2009 program, although low oil prices contribute minimally to capital re-investment at this juncture. With little access to either equity or debt markets in the current environment, Canoro will be cautious with its available resources to ensure that it can complete this phase of its development and be well positioned as conditions improve.

Going into Q4 FY2009 and the next year, the Company has the following objectives:

- Double condensate production and increase the proved reserves by installing a liquids recovery and gas re-injection facility in the current Amguri gas condensate reservoir.

- Tie in additional gas production at the recent discovery Amguri-14 as well as recomplete A-11 for dual zone capability.

- Refine the geological model of Amguri by reprocessing and re-interpreting 3D seismic using Pre-Stack Depth Migration (PSDM).

- Conserve financial resources by deferring discretionary exploration activities.

- Continue to reduce operating and G&A expenses.

- Free up capital by obtaining alternative financing for the Amguri facility additions.

- Expand the portfolio with development projects to increase the critical mass of the Company.


Production for the quarter averaged 651 boe/d and 826 boe/d for the nine months ended 31 December 2008, representing increases of 127% and 212% over the respective prior year periods. Quarter over quarter production declined 30% due to both lower seasonal gas demand and the need to maintain reservoir conditions while waiting for the condensate extraction plant to be installed later this year. The effect of the liquids extraction is two-fold. First, overall reserves of condensate and gas have the potential to double through the enhanced recovery of liquids and the ability through reservoir management to produce the gas significantly longer. Second, the production mix will change from approximately 30/70 condensate/gas to 70/30, the net effect of which would be to increase funds flow from operations by approximately 60% from the same production volume due to the substantially higher netback generated by liquids sales.

During the quarter, the Company completed the evaluation of bids for gas re-injection and condensate extraction facilities at Amguri. The main equipment packages have been awarded for manufacture with commissioning expected by the end of the year based on manufacturers' current delivery dates. The delay in commissioning is primarily due to longer than expected delivery times for the equipment packages. Preparations are being made to convert the Amguri-11 well to a dual producer/injector, install an electric submersible pump (ESP) in well Amguri-5 to increase Barail condensate/oil production and tie in Amguri-14 as a producer of dry Tippam gas by June 30, 2009. Amguri-14 gas is planned to be used for sales and additional reinjection supply. Current production is estimated to be approximately 225 barrels of oil/condensate per day and 3.0 million cubic feet of gas per day, or about 725 boe/d.

The Amguri A-12 and A-14 appraisal wells were drilled in the prior quarter and production testing was conducted during Q3 FY2009. The Amguri A-14 appraisal well was tested in the upper Tipam Formation. A three-day production test on this section yielded maximum rates of 4.8 mmscfd on an 8mm choke with a tubing pressure of 2100 pounds per square inch ("psi"), and a stabilized final rate of 2.7 mmscfd on a 6 mm choke with a tubing head pressure of 2,180 psi. These results combined with a subsequent pressure buildup test, support the Company's view that the A-14 well is an excellent dry gas well which could be capable of flowing over 6 mmcfd dry gas at minimal pressure drawdown. This Tipam gas discovery allows the Company to sell dry natural gas to local markets as well as re-injecting excess Tipam gas for voidage replacement in Barail gas condensate reservoir currently producing. The Company has commenced the building of a four-inch diameter flow line to facilitate both gas sales and gas re-injection from A-14. The Company had high expectations for the Amguri-12 well; however production testing of the two main Barail intervals was unsuccessful in spite of log analysis indications of hydrocarbons. The well tested water in both target Barail sands. The A-12 well came in significantly lower than prognosis and appears to be in a separate compartment and not connected to the "A" pool as defined by the A-11, A-10B and A-6 producers. The Company plans to conduct additional pressure gradient work to confirm this result. The disappointing results of A-12 have led to the Company re-evaluating its geological model of the reservoir with the aid of a detailed PSDM analysis of reprocessed 3D seismic, expected by the beginning of calendar Q2 2009. The Company is optimistic that the PSDM work will result in a significantly better understanding of the subsurface geology at Amguri.



The Company drilled the Dergaon #2 well, on the Assam portion of the AA-ON/7 block during the quarter. Dergaon #2, the appraisal well was offsetting Dergaon #1 and targeted a zone of equivalent structural height to Dergaon # 1. The zone tested in Dergaon #2 was non-hydrocarbon bearing on well-log data and the well has been plugged and abandoned. Subsequently, Canoro has withdrawn its application to the Government of India seeking an extension of the exploration phase thereby, relinquishing the Assam portion of the AA-ON/7 Block.. As a result of the relinquishment, probable reserves of 21.2 BCF (3.5 MMBOE) net to Canoro's 65% working interest and possible reserves of 15.8 BCF (2.6 MMBOE) net have been written down by the Company. Proven reserves will be unaffected by the relinquishment. Canoro is currently pursuing a new PSC to be established on the Nagaland portion of the AA-ON/7 block the exploration license for this was granted in August 2006.

Other Blocks

In Arunachal Pradesh, Block AA-ONN-2003/2, the operator has contracted a drilling rig and commenced location and road building. Canoro and its joint venture partners have a commitment to drill seven wells. However, based on current interpretation of the 3D seismic, only three drillable prospects have been identified and approved for drilling to date. It is anticipated that the operator will complete the three wells this calendar year with expenditures estimated at $3.0 million net to Canoro's 15% working interest. The remaining blocks in Assam are AA-ONN-2004/3 and AA-ONN-2004/5 with Phase I commitments that require 2D and 3D seismic programs, which will be deferred to later this year or early 2010, and the drilling of one exploration well on each block. The estimated capital expenditures required on these blocks for Phase I over the next three years is approximately US$6.8 million net to Canoro's 30% working interest. Procedures for the transfer of the 30% interest, operatorship to Canoro is in progress and pending approvals of the Government of India.

Common shares of Canoro trade on the TSX Venture Exchange under the symbol 'CNS'.

This news release contains certain forward-looking statements, including management's assessment of future plans and operations, and capital expenditures and the timing thereof, that involve substantial known and unknown risks and uncertainties, certain of which are beyond Canoro's control. Such risks and uncertainties include, without limitation, risks associated with oil and gas exploration, development, exploitation, production, marketing and transportation, loss of markets, volatility of commodity prices, currency fluctuations, imprecision of reserve estimates, environmental risks, competition from other producers, inability to retain drilling rigs and other services, delays resulting from or inability to obtain required regulatory approvals and ability to access sufficient capital from internal and external sources, the impact of general economic conditions in Canada, the United States and overseas, industry conditions, changes in laws and regulations (including the adoption of new environmental laws and regulations) and changes in how they are interpreted and enforced, increased competition, the lack of availability of qualified personnel or management, fluctuations in foreign exchange or interest rates, stock market volatility and market valuations of companies with respect to announced transactions and the final valuations thereof, and obtaining required approvals of regulatory authorities. Canoro's actual results, performance or achievements could differ materially from those expressed in, or implied by, these forward-looking statements and, accordingly, no assurances can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do so, what benefits, including the amount of proceeds, that Canoro will derive therefrom. Readers are cautioned that the foregoing list of factors is not exhaustive. All subsequent forward-looking statements, whether written or oral, attributable to Canoro or persons acting on its behalf are expressly qualified in their entirety by these cautionary statements. Furthermore, the forward-looking statements contained in this news release are made as at the date of this news release and Canoro does not undertake any obligation to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by applicable securities laws.

Non-GAAP terms

The Press Release contains the terms "funds from operations", and "netbacks" which are not recognized measures under Canadian generally accepted accounting principles. The Company uses these measures to help evaluate its performance. Management considers netbacks an important measure as it demonstrates its profitability relative to current commodity prices. Management uses funds from operations to analyze performance and considers it a key measure as it demonstrates the Company's ability to generate the cash necessary to fund future capital investments and to repay debt. Funds from operations has been defined by the Company as net earnings adjusted for non-cash items (depletion, depreciation and accretion, stock-based compensation, unrealized (gain)/loss on foreign exchange, and unrealized investment (gain)/loss) and excludes the change in non-cash working capital related to operating activities and expenditures on asset retirement obligations and reclamation. Canoro's determination of funds from operations may not be comparable to that reported by other companies nor should it be viewed as an alternative to cash flow from operating activities, net earnings or other measures of financial performance calculated in accordance with Canadian GAAP.

Barrel of oil equivalent

Where amounts are expressed on a barrel of oil equivalent (boe) basis, natural gas volumes have been converted to barrels of oil equivalent at six thousand cubic feet to one barrel of oil equivalent (6 mcf = 1 boe). This conversion ratio is the convention used in the oil and natural gas industry and is based on an energy equivalent conversion method primarily applicable at the burner tip and does not represent a value equivalent at the wellhead. The use of boe's may be misleading, particularly if used in isolation.

The TSX Venture Exchange does not accept responsibility for the adequacy or accuracy of this News Release.

Contact Information

  • Canoro Resources Ltd.
    S. Brian Gieni
    Vice President, Finance & CFO
    (403) 543-5742
    (403) 543-5740 (FAX)
    Canoro Resources Ltd.
    Les Kondratoff
    President & CEO
    (403) 543-5741
    (403) 543-5740 (FAX)
    Canoro Resources Ltd.
    700, 717 - 7th Ave SW
    Calgary, Alberta, Canada T2P 0Z3