Canoro Resources Ltd.
TSX VENTURE : CNS

Canoro Resources Ltd.

July 30, 2009 01:11 ET

Canoro Resources Ltd. Announces Its Results for the Year Ended March 31, 2009

CALGARY, ALBERTA--(Marketwire - July 30, 2009) -

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Canoro Resources Ltd. ("Canoro" or the "Company") (TSX VENTURE:CNS) announces its results for the year ended March 31, 2009.

Highlights

- Average daily production increased 162% from an average of 298 barrels of oil equivalent per day (boe/d) in 2008 to 781 boe/d per day in 2009.

- Amguri reserves were increased by 1.2 mmboe proved and 1.0 mmboe proved plus probable, net of production of 0.3 mmboe.

- AA-ON/7 exploration drilling was unsuccessful after two wells, the PSC was relinquished and 3.5 mmboe of probable reserves were written off.

- Amguri Barail appraisal drilling was very disappointing as well A-12 came in significantly below prognosis and wet. Amguri 13B however encountered 10 meters of oil pay and 24 meters of potential gas pay yet due to operational problems the well could not be completed.

- Amguri Tipam appraisal was successful yielding an excellent dry gas well at A-14 testing at stabilised rates of 2.7 mmcfd.

- Amguri condensate recovery and gas injection project was commenced and expected to be onstream in Q1 2010.

- A significant re-interpretation of Amguri field was commissioned using Pre-Stack Depth Migration (PSDM) seismic reprocessing of 3D data to develop a new model of the field.

- Loss of $6.3 million ($0.06 per share) with funds from operations positive for the first time at $2.0 million ($0.02 per share).

- At year end, the Company had no debt and positive working capital of $7.0 million.

- $30 million capital program spent primarily on exploration and appraisal drilling.

Subsequent to year-end and 2009/10 outlook

- Positive election results in India should allow the Company to move ahead on its Nagaland joint venture with ONGC.

- Closed limited-recourse funding of US$4.0 million for the purchase and installation of the gas compression.

- 2009/10 capital expenditure program of $9 million to $11 million focused primarily on gas compression plant and well workovers.

- Outlook for average 2009/10 production of 700 boe/d to 900 boe/d with a significant impact on cash flow towards year-end as production mix moves from 30/70 oil/gas to 60/40 oil/gas on commissioning the gas re-injection facility.



Highlights of FY2009 Results

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Years ended 31 March
(US$000s, US$ per share) 2009 2008 % Change
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Financial
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Funds generated by operations 1,969 (1,319) n/m
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per share diluted 0.02 (0.01) n/m
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Profit (loss) for the year (6,304) (7,088) 11%
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per share diluted (0.06) (0.06) 0%
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Operating netback per barrel of oil
equivalent ($/boe) 29.55 33.86 (13%)
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Capital expenditures 30,000 13,708 119%
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Working capital 6,989 35,545 (80%)
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Long-term debt - - n/m
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Shareholders' equity 78,138 82,091 (5%)
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Common shares outstanding (000s) 113,709 112,992 1%
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OPERATING

Production
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Crude oil and condensate production
(bbl/d) 244 106 130%
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Natural gas production (mcf/d) 3,223 1,153 179%
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Barrels of oil equivalent (boe/d) 781 298 162%
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Commodity prices
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Average crude oil price
Nigerian Bonny Light ($/bbl) 87.81 84.59 4%
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Average realized crude oil price ($/bbl) 95.96 97.32 (2%)
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Average natural gas price ($/mcf) 2.18 2.45 (11%)
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RESERVES
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Volumes (mboe)
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Proved 3,944 2,773 42%
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Proved + probable 7,372 9,853 (25%)
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Proved + probable + possible 11,287 16,417 (31%)
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Net present value BTAX 10% (US$000s)
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Proved 37,956 69,631 (45%)
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Proved + probable 73,024 170,133 (57%)
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Proved + probable + possible 98,647 286,351 (66%)
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Net asset value (BTAX NPV10%) US$ per share
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Proved 0.40 0.93 (57%)
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Proved + probable 0.70 1.82 (62%)
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Proved + probable + possible 0.93 2.85 (67%)
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MESSAGE TO SHAREHOLDERS

Canoro has been building its operation in northeast India since 2003. The Company began by taking over a 60% participating interest in the Amguri Production Sharing Contract in Assam and working over the field. Much had to be done in order to create a beach head in northeast India. Much had to be done to realize production and revenue from the Amguri field. Now Management's objective is to grow the Company. There is much to do.

2009 - A YEAR OF MIXED RESULTS

The 2009 Fiscal Year was a year of mixed results for the Company. Canoro suffered major disappointments from the exploration and appraisal drilling program, yet it realized a strengthening of its reserve base in the core asset at Amguri and established a production base with positive cash flow.

The Company posted a loss of $6.3 million, or $0.06 per share. However, for the first year since its inception, Canoro generated positive funds from operations of $2.0 million or $0.02 per share. Oil & gas production more than doubled to average 781 barrels of oil equivalent ("boe") per day. Production revenue during the year more than doubled to $11.1 million as a result of the increase in production, offset slightly by an 11% decrease in gas prices as the Indian rupee weakened during the year. The Company made significant progress this year in establishing Canoro as an operating entity. Over the past year, Canoro made a major investment in people and infrastructure to carry the Company to the next level of growth. At current levels of production, Canoro's cost structure is too high. As the growth in production is realized, the Company expects its metrics to be competitive. Notwithstanding, the Company has made significant cost reductions throughout the organization and will continue to do so.

Canoro incurred a record capital spending program during the year, spending $30 million primarily on exploration and appraisal drilling. Drilling results were poor, with only two of six wells successful. Expectations were high for Amguri-12, which proved to be an expensive failure of both the Amguri geological model and the drilling operations itself. The well was significantly off prognosis and over budget. A-12 was the third well to miss the target zone along the extremely complex fault bounding the Amguri field. The drilling program was shut down and the rigs released while the geological and geophysical group began to reassess the entire Amguri Barail zone model. The risk level of the Company's drilling had proved unacceptably high and with indications of a failed velocity model, the Company embarked on an extensive pre-stack depth migration (PSDM) analysis of the field. The Company remains convinced of the potential for Amguri, but are committed to having a significantly better technical understanding before embarking on another drilling program.

As many international E&P companies have experienced, Canoro suffered for having secured drilling rigs in an over-heated services market of 2008. Both rigs ran into several major problems which resulted in poor execution, costly delays and failed completions. It was a difficult and expensive decision to release both rigs, however the Company believes that it was prudent to halt the program given its experience.

There was some good news in the drilling program however. In the shallower Tipam zone at Amguri, the Company successfully completed the A-14 appraisal well. The well tested 4.8 million standard cubic feet ("mmscf") per day into an 8mm choke and a stabilised rate of 2.7 mmcfd into a 6mm choke at minimal pressure drawdown. A-14 is an important addition to the well stock at Amguri, both as a source of dry gas to facilitate the condensate recovery and gas reinjection project, as well as incremental natural gas sales to the local market. With the potential for greater gas deliverability, Canoro is aggressively examining the gas marketing potential in the area.

Two exploration wells on the AA-ON/7 Block proved dry. With these results, the Company withdrew from AA-ON/7, writing off 15.2 billion cubic feet ("Bcf") of probable gas reserves (about 3.5 mmboe). The Company also withdrew its application for an extension and effectively relinquished the block. Unique in India, a portion of AA-ON/7 extended into Nagaland, which portion is the subject of a new PSC application by Canoro and its partners.

The Amguri asset continued to improve as Canoro posted a 42% increase in proved reserves for the year to 3.9 mmboe, replacing production by over five times. With the significant writeoff of AA-ON/7 reserves, by the end of FY2009 Canoro's proved and probable reserves were down 25% to 7.4 mmboe. The AA-ON/7 writeoff did mask the improvement at Amguri where 2P reserves increased 16% by the end of the year.

As many in the industry are experiencing in the wake of the turbulence in both commodity and capital markets, the investment community has yet to recognize the intrinsic value in the Company. Canoro has been hit particularly hard, with the stock currently trading at approximately 20% of its net asset value. Management's task is to ensure that the market price of your shares begin to reflect the true value of the Company.

OUTLOOK FOR 2009/10

2009/10 will be a markedly different year for Canoro as it focuses entirely on production operations as opposed to exploration and appraisal drilling. The key project for the year will be the construction and commissioning of the condensate recovery and gas reinjection facility at Amguri. This is important as it significantly changes the Company's production mix from 30/70 oil/gas to 60/40 oil/gas. In so doing, Canoro effectively double the oil & condensate production which is sold at world prices, currently around $70/bbl as opposed to gas which is currently sold on the spot market for around $12/boe. While the Company is expecting a small increase in production for 2009/10 to average approximately 700 boe/d to 900 boe/d, Management is anticipating a significant increase in cash flow at year end due to the change in production mix. The Company expects to exit the year in excess of 1,000 boe/d.

BUILDING A BETTER UNDERSTANDING OF AMGURI

Amguri is a very complex field. Bounded by a significant fault, the various reservoirs have proved elusive geological targets. The Company has struggled with three wells drilled along the fault, all of which were problematic. Two wells, A-10 and A-13, missed the target initially and needed to be sidetracked into the main reservoir. A-12 having come in significantly lower than prognosis was definitive proof that the geological model of the field was seriously flawed. With well results in hand, the Company determined that the seismic velocity model was unable to accurately predict the various formation tops. A key issue was the velocity differences across the fault which resulted in depth errors. To develop a better model of the field and negate the velocity problems, a depth-migrated seismic volume needed to be generated by way of PSDM reprocessing of the Amguri 3D seismic data. The PSDM work is underway the Company expects to be completing a full reinterpretation of Amguri by the end of the year. On the basis of this reinterpretation, the Company expects to have a clearer picture of the field and be able to pick well locations to fully develop Amguri at significantly lower risk.

CREATING VALUE THROUGH GAS MARKETING

Canoro has begun to develop significant gas production potential, which could be expanded with additional Tipam drilling. The Company has however been restricted to low priced spot market sales and large seasonal swings in demand from the neighbouring tea gardens. Canoro has begun a major initiative to secure more lucrative markets for the Company's gas production. There is the potential for direct marketing of gas to regional consumers as well as the possibility of developing a gas-fired power plant. Gas marketing will be a key objective for the Company going into 2009/10.

NEW VENTURES AND STRATEGIC PARTNERSHIPS

As an integral component of the Company's strategy going forward, Canoro will be actively pursuing a variety of new business initiatives aimed at acquiring production and development assets. The expansion and diversification of the asset base is critical to the long term success of Canoro. The Company plans to build out of its core operations in the North East and move into other regions of India and beyond. The immediate objective for the Company is to close its deal with ONGC on Changpang and the adjacent exploration blocks in Nagaland. This transaction has been considerable time in the making as it has involved gaining the support of many levels of stakeholders. During the recent general elections in India, a majority government was elected in Nagaland, which Management believes will clear the way for the necessary agreements between the Nagaland government and ONGC. While there is no assurance that the transaction will be ultimately consummated, the Company is working ahead in earnest to bring the deal together both from a stakeholder and a financing perspective. Success with Changpang would have a material impact on the operations and value of the Company.

In addition to Changpang, the Company has a number of strategic initiatives aimed at gaining strong partners and a broader suite of assets. Over the course of the year, it is Canoro's objective to secure a strategic partner or acquisition and make the next step in the growth of the Company.

BUILDING A BETTER ORGANIZATION

During the course of the year, the Company added two new directors to the board, James N. Smith and Robert S. Wynne, both of whom have significant experience in building successful E&P companies and realising the intrinsic value for the shareholders. Canoro has also made some significant changes to our management team to better execute the strategy. In particular, Brian Gieni has moved into the Country Manager role reflecting the need for senior executive in exerting greater control and guidance in country. Ryan Ellson has assumed the role of Vice President Finance and will assume much of the financial responsibilities of Mr. Gieni.

BUILDING A PLATFORM FOR GROWTH

Over the last year Canoro has built a platform for future growth that allows the Company to be positioned to seize high potential opportunities that are beginning to present themselves. The Company has the beginnings of a significant asset base in India, high value prospects and the technical and management expertise to explore and develop the opportunities in front of it.

The following tables are excerpts from the financial statements of the Company for the fiscal year-ended March 31, 2009. These tables represent selected information only and should be read in conjunction with Canoro's Annual Consolidated Financial Statements (including the notes thereto) and Management Discussion and Analysis for the year ended March 31, 2009, accessible at www.sedar.com.



Consolidated Balance Sheets

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As at March 31 2009 2008
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(Thousands of United States dollars)
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Assets
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Current assets
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Cash and cash equivalents 5,456 23,993
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Restricted cash - 9,741
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Investment 28 80
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Accounts receivable 10,400 8,323
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Inventory 113 401
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Prepaid expenses and deposits 781 767
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16,778 43,305
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Property, plant and equipment 72,008 47,059
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Total Assets 88,786 90,364
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Liabilities and Shareholders' Equity
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Current liabilities
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Accounts payable and accrued liabilities 9,789 7,760
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Asset retirement obligations 859 513
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Shareholders' equity
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Common shares 86,883 85,597
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Contributed surplus 14,051 12,986
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Accumulated other comprehensive income 8,332 8,332
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Deficit (31,128) (24,824)
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78,138 82,091
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Total Liabilities and Shareholders' Equity 88,786 90,364
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Consolidated Statements of Operations and Deficit

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YEARS ENDED MARCH 31 2009 2008
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(Thousands of United States dollars)
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Revenues
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Petroleum and natural gas sales 11,099 4,817
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Royalties (1,142) (363)
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Investment gain - 26
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Interest income and other 247 870
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10,204 5,350
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Expenses
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Operating 1,531 756
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General and administrative 6,929 4,917
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Stock-based compensation 1,247 2,668
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Foreign exchange loss 899 123
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Unrealized investment loss 52 383
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Depletion, depreciation and accretion 5,850 3,591
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16,508 12,438
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Net loss (6,304) (7,088)
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Deficit, beginning of period (24,824) (17,736)
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Deficit, end of period (31,128) (24,824)
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Basic and diluted loss per share (0.06) (0.06)
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Consolidated Statements of Cash Flows

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YEARS ENDED MARCH 31 2009 2008
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(Thousands of United States dollars)
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OPERATING ACTIVITIES
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Net loss (6,304) (7,088)
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Non cash items
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Depletion, depreciation and accretion 5,850 3,591
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Unrealized foreign exchange (gain)/loss 1,124 (847)
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Unrealized investment loss 52 383
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Gain on sale of investment - (26)
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Stock-based compensation 1,247 2,668
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Net change in non-cash working capital (280) (4,876)
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1,689 (6,195)
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FINANCING ACTIVITIES
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Issuance of common shares, net of costs 689 31,684
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689 31,684
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INVESTING ACTIVITIES
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Additions to property, plant and equipment (net) (30,000) (13,708)
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Proceeds on sale of investments - 708
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Restricted cash 9,741 (3,365)
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Change in non-cash working capital (1,556) 280
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(21,815) (16,085)
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Net effect of foreign exchange on cash
denominated in foreign currencies 900 1,577
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Net change in cash and cash equivalents (18,537) 10,981
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Cash and cash equivalents, beginning of period 23,993 13,012
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Cash and cash equivalents, end of period 5,456 23,993
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Cash flow supplemental information:
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Interest received 222 881
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Additional Information

Additional information relating to Canoro, including Canoro's Annual Report, Annual Financial Statements, Management Discussion and Analysis (MD&A) and Annual Information Form for the year ended March 31, 2009, can be accessed on-line on SEDAR at www.sedar.com, or from the Corporation's website at www.canoro.com.

Disclaimer

Certain statements included or incorporated by reference in this press release constitute forward-looking statements or forward-looking information under applicable securities legislation. Such forward-looking statements or information are for the purpose of providing information about management's current expectations and plans relating to the future. Readers are cautioned that reliance on such information may not be appropriate for other purposes, such as making investment decisions. Forward-looking statements or information typically contain statements with words such as "anticipate", "believe", "expect", "plan", "intend", "estimate", "propose", "project" or similar words suggesting future outcomes or statements regarding an outlook. Forward-looking statements or information in this press release include, but are not limited to, statements or information with respect to: business strategy and objectives; development plans; exploration plans; acquisition and disposition plans and the timing thereof; reserve quantities and the discounted present value of future net cash flows from such reserves; future production levels; capital expenditures; net revenue; operating and other costs; royalty rates and taxes.

Forward-looking statements or information are based on a number of factors and assumptions that have been used to develop such statements and information but may prove to be incorrect. Although the Company believes that the expectations reflected in such forward-looking statements or information are reasonable, undue reliance should not be placed on forward-looking statements because the Company can give no assurance that such expectations will prove to be correct. In addition to other factors and assumptions may be identified in this press release, assumptions have been made regarding, among other things: the impact of increasing competition; the general stability of the economic and political environment in which the Company operates; the timely receipt of any required regulatory approvals; the ability of the Company to obtain qualified staff, equipment and services in a timely and cost-efficient manner; the ability of the operator of the projects which the Company has an interest in to operate the field in a safe, efficient and effective manner; the ability of the Company to obtain financing on acceptable terms; field production rates and decline rates; the ability to replace and expand oil and natural gas reserves through acquisition, development or exploration; the timing and costs of pipeline, storage and facility construction and expansion and the ability of the Company to secure adequate product transportation; future oil and natural gas prices; currency, exchange and interest rates; the regulatory framework regarding royalties, taxes and environmental matters in the countries in which the Company operates; and the ability of the Company to successfully market its oil and natural gas products. Readers are cautioned that the foregoing list is not exhaustive of all factors and assumptions that may have been used.

Forward-looking statements or information are based on current expectations, estimates and projections that involve a number of risks and uncertainties that could cause actual results to differ materially from those anticipated by the Company and described in the forward-looking statements or information. These risks and uncertainties that may cause actual results to differ materially from the forward-looking statements or information include, among other things: the ability of management to execute its business plan; general economic and business conditions; the risk of war or instability affecting countries or states in which the Company operates; the risks of the oil and natural gas industry, such as operational risks in exploring for, developing and producing crude oil and natural gas; market demand; the possibility that government policies or laws may change or governmental approvals may be delayed or withheld; risks and uncertainties involving geology of oil and natural gas deposits; the uncertainty of reserves estimates and reserves life; the ability of the Company to add production and reserves through acquisition, development and exploration activities; the Company's ability to enter into or renew production sharing contracts; potential delays or changes in plans with respect to exploration or development projects or capital expenditures; the uncertainty of estimates and projections relating to production (including decline rates), costs and expenses; fluctuations in oil and natural gas prices, foreign currency, exchange, and interest rates; risks inherent in the Company's marketing operations, including credit risk; uncertainty in amounts and timing of royalty or cess payments; health, safety and environmental risks; risks associated with existing and potential future law suits and regulatory actions against the Company; uncertainties as to the availability and cost of financing; and financial risks affecting the value of the Company's investments. See page 28 of the MD&A for a further discussion of specific risks and uncertainties. Readers are cautioned that the foregoing list is not exhaustive of all possible risks and uncertainties. Additional risk factors affecting the Company and its business are contained in the Company's Annual Information Form filed on SEDAR at www.sedar.com. 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.

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 equals 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 has not reviewed and does not accept responsibility for the adequacy and accuracy of the contents of this news release.

Contact Information

  • Canoro Resources Ltd.
    Robert S. Wynne
    Managing Director and Chief Operating Officer
    + 1 (403) 592-6295
    or
    Canoro Resources Ltd.
    Ryan Ellson
    Vice President, Finance
    + 1 (403) 410-6777
    or
    Canoro Resources Ltd.
    Suite 700, 717 - 7th Ave SW.
    Calgary, Alberta T2P 0Z3
    www.canoro.com