Capitol Energy Resources Ltd.
TSX VENTURE : CPX

Capitol Energy Resources Ltd.

August 26, 2005 09:00 ET

Capitol Energy Announces June 30, 2005 Results and is on Track for Significant Production Growth at Dixonville

CALGARY, ALBERTA--(CCNMatthews - Aug. 26, 2005) -

All amounts in thousands of Canadian dollars unless otherwise specified

Capitol Energy Resources Ltd. ("Capitol" or the "Company") (TSX VENTURE:CPX) today reported results for the three months ended June 30, 2005. All amounts are in thousands of Canadian dollars unless otherwise specified. NOTE: all prior period share and per share references have been adjusted to reflect Capitol's one for five share consolidation in May 2005.

Highlights of three months ended June 30, 2005

After closing the Tiger Energy Limited acquisition in the first quarter of 2005, Capitol interpreted its 3D seismic program to select well locations for the first phase of a development drilling program at Dixonville. To ensure efficient execution of the Dixonville development program, the Company put the following in place:

- Contracted two drilling rigs.

- Secured $20 million of bank lines to fund development.

- Initiated an under-balanced drilling program to optimize initial well performance and increase recovery rates.

- Commenced a multiple pad drilling program to minimize capital costs and environmental impact.

- Commenced a reservoir study to optimize hydrocarbon recovery, drilling patterns and provide information to design a water flood pilot project.

On the exploration front, Capitol achieved the following:

- Successfully drilled, cased and completed a gas well at Mulligan.

- Finalized farm-in deals at Boundary Lake, Hamburg, and expanded on opportunities in the Dixonville area.

The Company also reports the following corporate highlights:

- Shareholders approved the consolidation of the Company's voting common shares on the basis of one new share for each five shares outstanding.

- Shareholders approved the conversion of the Company's outstanding non-voting shares into voting common shares on the basis of one post-consolidated voting common share for each five non-voting shares.

- Filed an Annual Information Form to become eligible to utilize the short form prospectus rules.

The following tables highlight the Company's financial and operating highlights for the three and six months ended June 30, 2005.



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Financial Three months ended Six months ended
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($ thousands except June 30, June 30,
per share amounts) 2005 2004 2005 2004
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Petroleum and natural
gas sales 3,848 44 6,404 44

Cash flow from (used in)
operations 1,176 (263) 1,805 (555)
Per share, basic 0.03 (0.01) 0.05 (0.03)

Net loss (1,497) (906) (38) (1,200)
Per share, basic (0.04) (0.05) (0.00) (0.07)

Capital expenditures 6,415 959 14,983 1,001

Corporate acquisition - - 49,514 -

Asset acquisition - 5,174 - 5,174

Net working capital (3,743) 12,652 (3,743) 12,652

Total assets 77,286 20,045 77,286 20,045

Shareholders' equity 69,526 18,809 69,526 18,809

Number of shares outstanding
Weighted average 40,597 18,746 34,741 17,109
Outstanding at end of
period 40,660 21,291 40,660 21,291
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Operating

Average daily production
Natural gas (mcf/d) 797 - 672 -
Oil (bbls/d) 698 12 594 6
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Total (boe/d)
(gas @ 6 mcf: 1 boe) 831 12 706 6

Netback ($/boe)
Average selling price 50.93 39.64 50.10 39.64
Royalties (13.29) (11.10) (13.10) (11.10)
Production expense (1.99) (7.02) (4.00) (7.02)
Transportation expense (8.02) (2.68) (5.87) (2.68)
------------------------------------------
Realized netback 27.63 18.84 27.13 18.84

Gross (Net) wells drilled
Gas 1 (0.5) - (-) 1 (0.5) - (-)
Oil 3 (3.0) - (-) 5 (3.8) - (-)
Standing (pending
completion) - (-) - (-) 3 (2.5) - (-)
------------------------------------------
Total 4 (3.5) - (-) 9 (6.8) - (-)
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Dixonville update

Capitol started the Montney "C" Pool development drilling program in June, one month earlier than anticipated. The three wells the Company drilled in June commenced production in August.

Since June 30, the Company has drilled eight horizontal oil wells maintaining a 100% success rate. These wells will be brought on stream late in the third quarter. The majority of the wells were drilled around the perimeter of the pool to confirm and extend the pool boundaries while calibrating the new 3D seismic. Additionally, a higher density pattern was drilled at the southwest end of the pool and will ultimately be used for a pilot waterflood project.

Capitol has initiated construction of a new battery at a location geographically more central to current and anticipated future production, and closer to the municipal roads to reduce transportation costs. The new battery will expand Capitol's oil handling capability to 3,000 barrels per day in October and 4,000 barrels per day by year end.

The results of the first phase of development drilling and the completion of a full pool reservoir simulation study will help select specific drilling locations for the higher productivity portions of the pool.

Exploration update

Over the past 12 months, Capitol has developed a diversified exploration portfolio in west central Alberta and north east British Columbia.

North and east of Dixonville, the Company has developed another core area at Helen. A solid land base has been assembled through farm-in and Crown land sales. Two exploration wells have tested gas and are expected to be tied-in and on-stream in the fourth quarter of 2005. The Company has shot 2D seismic in the area and identified several follow-up locations. These locations are scheduled for drilling in the fourth quarter of 2005 and first quarter of 2006.

At Mulligan, the Company has identified several drilling targets on a 3D seismic program shot in the last quarter of 2004. One location has been drilled and tested commercial quantities of gas and associated liquids. The well is anticipated to be on stream in the fourth quarter of 2005. Two follow up locations are currently drilling and, pending success, additional locations are scheduled to be drilled in the fourth quarter of 2005 and first quarter of 2006. Currently, the Company has a 45% working interest in 13 sections of land.

At Columbia, the Company has drilled two wells, both of which encountered reservoir and hydrocarbons in the primary zone. The first well was abandoned in the primary zone due to uneconomic gas flow rates and will be completed in an up-hole zone prior to year end. The second well will be completed in the fourth quarter.

Outlook

Current production is approximately 1,000 boe per day from Dixonville. Drilling results are on track to meet Capitol's production targets.

Current production behind pipe from all areas is approximately 1,000 boe per day and is anticipated to be on stream in the third and fourth quarters of 2005. The Company's ongoing drilling programs will continue to add incremental production.

The Dixonville drilling program to date has been 100% successful, and was focused where no proved or probable reserves had been recognized by our independent reserve evaluators. The drilling program has confirmed Capitol's perspective at Dixonville and extended the productive trend to over 6.5 miles long by 2 miles wide. The balance of Capitol's 2005 capital program will focus on increasing pool productivity in the highest quality portions of the pool.

Other Corporate

On August 10, 2005 a Director of the Company purchased 37,500 common shares on a flow through basis for $4.00 per share for gross proceeds of $150.

On August 24, 2005 the Company's board approved the issuance of 156,000 stock options at $5.00 per share to an officer of the Company.

About Capitol Energy Resources Ltd.

Capitol Energy is an emerging independent oil and gas company. Our business strategy includes building core areas through production acquisitions, development drilling and high quality exploration prospects thereby providing above average returns to our shareholders. Capitol's focus is the development program at Dixonville and complementary natural gas opportunities.

Capitol has approximately 41 million shares outstanding (44 million including outstanding dilutives). Management and directors represent approximately 16% of the basic shares outstanding.

The Company's June 30, 2005, financial statements and Management's Discussion and Analysis may be viewed on SEDAR (http://www.sedar.com) or the Company's website (http://www.capitolenergy.ca).

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS and NON-GAAP SUPPLEMENTAL MEASURES

Certain statements regarding Capitol Energy Resources Ltd. including management's assessment of future plans and operations, may constitute forward-looking statements under applicable securities laws and necessarily involve known and unknown risks and uncertainties, most of which are beyond Capitol's control. These risks may cause actual financial and operating results, performance, levels of activity and achievements to differ materially from those expressed in, or implied by, such forward-looking statements.

Such factors include, but are not limited to: the impact of general economic conditions in Canada and the United States; industry conditions including changes in laws and regulations including adoption of new environmental laws and regulations, and changes in how they are interpreted and enforced; competition; the lack of availability of qualified personnel; fluctuations in commodity prices; the results of exploration and development drilling and related activities; imprecision in reserve estimates; the production and growth potential of Capitol's various assets; fluctuations in foreign exchange or interest rates; the ability to access sufficient capital from internal and external sources; and obtaining required approvals of regulatory authorities.

Accordingly, Capitol gives no assurance nor makes any representations or warranty that the expectations conveyed by the forward-looking statements will prove to be correct and actual results may differ materially from those anticipated in the forward looking statements. Capitol undertakes no obligation to publicly update or revise any forward-looking statements.

Capitol may use the terms "cash flow from operations", "cash flow", "cash flow per share", "net operating income" and "netbacks" which are not recognized measures under Canadian generally accepted accounting principles (GAAP). Management believes that in addition to net earnings, cash flow is a useful supplemental measure as it provides an indication of the results generated by the Company's principal business activities before the consideration of how those activities are financed or how the results are taxed. Investors are cautioned, however, that this measure should not be construed as an alternative to net earnings determined in accordance with GAAP, as an indication of Capitol's performance. Capitol's method of calculating cash flow may differ from other companies, and accordingly it may not be comparable to measures used by other companies. Capitol calculates cash flow from operations before the change in non-cash working capital related to operating activities. In addition, the terms "cash flow" and "funds from" may be used interchangeably.

The TSX Venture Exchange has neither approved nor disapproved the contents of this press release.

Contact Information

  • Capitol Energy Resources Ltd.
    Monty Bowers
    President & CEO
    (403) 508-6321
    (403) 508-6309 (FAX)
    or
    Capitol Energy Resources Ltd.
    Doug Dearing
    Vice President, Finance & CFO
    (403) 508-6320
    (403) 508-6309 (FAX)