Choice Resources Corp.
TSX VENTURE : CZE

Choice Resources Corp.

October 31, 2006 07:00 ET

Choice Announces Second Quarter Financials

CALGARY, ALBERTA--(CCNMatthews - Oct. 31, 2006) - Choice Resources Corp. (TSX VENUTRE:CZE) ("Choice" or the "Company") is pleased to announce its financial and operating results for the six month period ended August 31, 2006.

HIGHLIGHTS

- The Company participated in 5 wells during the second quarter.

- Several new discoveries were made at Whitecourt and at Killam.

- Production averaged 1,625 BOE/d compared to 1,371 BOE/d during the second quarter.

- Production for the first six months was 1,552 BOE/d compared to 1,360 BOE/d for the same period last year.

- Cash flow from operations was $3.87 million ($0.06 per share) for the six month period.

- Operating expenses for the quarter were were $11.54/boe vs. $14.50/boe for the same period last year.

- G&A expenses were $0.61 million for the quarter vs. $0.44 million for the same three month period due to costs associated with the merger with DEEP Resources.

- Bank Debt is presently $24 million (increased mainly due to the merger with DEEP).

- The Company shot and processed several seismic programs for the development and exploration of several key areas.

- A new exploration area was added with a 39 section farm-in and seismic proposal covering 60 sections in central Alberta.

- A merger was completed with DEEP Resources Ltd. effective July 21, 2006. (Minimal impact in terms of production and cash flows on a consolidated basis for the current quarter).

During the quarter the Company took advantage of its conservative balance sheet and acquired DEEP Resources Ltd. in a share swap. The merger adds approximately 500 BOE/d on a consolidated basis and several exciting new areas were added to the portfolio with this acquisition. The Whitecourt area is a new area of focus and three successful exploration wells have been drilled on the property. The results remain confidential and the Company will be drilling a minimum of three more wells in the next quarter. At Carson Creek the Company will spud a well in the third quarter with up to 5 follow-up locations if successful (this property has 3D seismic over 50% of the 18 section block). A new oil discovery was made at Killam and the Company has drilled 2 horizontal oil wells on the prospect to date. An application for miscellaneous well spacing was recently approved and the Company plans to develop this area with multi-leg horizontals. The initial production rates on a per well basis at Killam are in the 100 to 250 boe/d range and the Company has shot 3D over 3 sections of land (2.5 net sections). The Company intends to continue its exploration focus on natural gas and will expand its emphasis on near term exploitable oil development.

Production increased during the quarter by 19% to 1,625 BOE/d. This is mainly due to one month of consolidated results from Deep Resources and for the 6 month period production was up 14%. Units operating costs decreased to $11.54/BOE from $14.50/BOE during the quarter and this trend will continue as new production is brought on stream.

Cash flow at 6 cents per share is below target primarily due to the impact of lower natural gas prices during the quarter. A significant improvement in prices is being realized in October and November. A small collar hedge was put in place for 2007 with a $6.00/GJ floor. (See MD&A for further description of these hedging operations.)

Our exploration play inventory continues to grow with the addition of some exciting new plays in the Whitecourt and Samson areas.

The next two quarters should see the Company achieve new milestones as the new areas in Killam and Whitecourt are developed and the resulting production is brought on stream. At the time of this release production is approximately 1,950 BOE/d. The financial statements for the quarter are attached and a more detailed operations update will be provided by press release in November.

Please refer to the associated notes filed on Sedar (in particular the notes to the annual audited statements), the operations summary and the management discussion and analysis.

Gordon D. Harris, President and CEO



Highlights

2nd Quarter and Six Months ended August 31, 2006

Financial:
($000 except per unit and where noted)
(Per share #'s are based on the weighted
average # of shares issued and outstanding
during the period)


Q2 Q2 YTD YTD
2006 2005 2006 2005

Gross Sales Revenue 4766 5,942 10,237 11,411
Net Sales Revenue 3,956 4,647 8,550 9,001
Cash Flow 1,428 2,268 3,866 4,771
Per Share (basic) 0.02 0.04 0.06 0.09

Net Income (Loss) (212) 653 513 1,449
Per Share (basic) 0.00 0.01 0.01 0.03

General & Administrative
Expense 613 437 1,000 786

Capital Expenditures 3,395 2,790 10,579 5,974

Net Debt 29,474 4,407 29,474 4,407

Shares Outstanding (millions)
Weighted Average (basic) 74,251 57,245 68,270 53,443

Operations:
Production
Natural gas & sulphur (MCF/d) 7,751 7,752 7,761 7,761
NGL (BBL/d) 76 79 75 66
BOE/d 1,625 1,371 1,552 1,360

Prices
Gas $/MCF $ 4.95 $ 7.63 $ 5.63 $ 7.41
Liquids $/BBL $ 76.24 $ 68.39 $ 77.09 $ 68.13
$/BOE $ 31.88 $ 47.10 $ 35.85 $ 45.60



Choice Resources Corp.
Consolidated Balance Sheets
As at August 31, 2006 and February 28, 2006
---------------------------------------------------------------------------
---------------------------------------------------------------------------
August 31 February 28,
2006 2006
unaudited audited

Assets

Current assets
Accounts receivable and prepaid expenses $ 12,692,335 $ 11,327,949

Property, plant and equipment (note 3) 95,216,903 59,823,970

Goodwill 8,878,919 5,030,905
------------- -------------
$116,788,157 $ 76,182,824
------------- -------------
------------- -------------

Liabilities

Current liabilities
Cheques in transit $ 4,156,261 $ 1,824,843
Accounts payable and accrued liabilities 13,849,750 24,076,496
Obligation under capital lease (note 4) 409,944 463,805
Bank loan 23,750,000 950,000
------------- -------------
42,165,955 27,315,144

Asset retirement obligations (note 5) 2,803,248 1,525,300

Future income taxes 14,009,926 11,785,482
------------- -------------
58,979,129 40,625,926
------------- -------------

Shareholders' Equity

Equity instruments (note 6) 57,153,262 36,079,632

Contributed surplus (note 8) 2,342,270 1,676,862

Deficit (1,686,504) (2,199,596)
------------- -------------
57,809,028 35,556,898
------------- -------------
$116,788,157 $ 76,182,824
------------- -------------
------------- -------------

The accompanying notes are an integral part of these financial statements.


Choice Resources Corp.
Consolidated Statements of Earnings and Deficit
Six months Ended August 31, 2006 and 2005
(unaudited)
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Three Months Ended Six Months Ended
Aug 31 Aug 31 Aug 31 Aug 31
2006 2005 2006 2005
Revenue
Oil and natural
gas sales $ 4,765,972 $ 5,939,707 $ 10,236,825 $ 11,405,916
Processing
income 93,083 2,237 192,710 4,921
Royalties (903,394) (1,295,292) (1,879,409) (2,410,028)
------------ ------------ ------------- -------------
3,955,661 4,646,652 8,550,126 9,000,809
------------ ------------ ------------- -------------

Expenses
Production 1,724,812 1,829,673 3,456,828 3,224,983
General and
administrative 613,083 436,947 1,000,421 786,158
Interest on bank
loan, loan payable
and capital lease
(note 7) 189,982 111,851 226,779 217,914
Stock based
compensation
(note 8) 87,095 125,070 263,567 248,750
Depletion,
depreciation
and accretion 1,667,279 1,086,565 2,819,974 2,241,345
------------ ------------ ------------- -------------
4,282,251 3,590,106 7,767,569 6,719,150
------------ ------------ ------------- -------------

Earnings before
income tax (326,590) 1,056,546 782,557 2,281,659

Income taxes
Future (114,300) 404,011 269,465 832,800
------------ ------------ ------------- -------------


Net earnings (212,290) 652,535 513,092 1,448,859

Deficit,
beginning of
period (1,474,214) (6,382,443) (2,199,596) (7,178,767)

Deficit, end of ------------ ------------ ------------- -------------
period $(1,686,504) $(5,729,908) $ (1,686,504) $ (5,729,908)
------------ ------------ ------------- -------------
------------ ------------ ------------- -------------

Net earnings
per share
Basic $ 0.00 $ 0.01 $ 0.01 $ 0.03
------------ ------------ ------------- -------------
------------ ------------ ------------- -------------
Diluted $ 0.00 $ 0.01 $ 0.01 $ 0.03
------------ ------------ ------------- -------------
------------ ------------ ------------- -------------

Basic
Weighted
average common
shares 74,251,060 57,274,900 68,269,569 53,442,675
Diluted
weighted
average
common shares 76,775,471 58,670,222 70,793,980 54,441,694

The accompanying notes are an integral part of the financial statements.


Choice Resources Corp.
Consolidated Statements of Cash Flows
Six months Ended August 31, 2006 and 2005 (unaudited)
---------------------------------------------------------------------------

Three Months Ended Six Months Ended
Aug 31 Aug 31 Aug 31 Aug 31
2006 2005 2006 2005

Cash provided by
(used for):
Operating activities
Net earnings $ (212,290) $ 652,535 $ 513,092 $ 1,448,859
Items not affecting
cash
Depletion,
depreciation and
accretion 1,667,279 1,086,565 2,819,974 2,241,345
Stock-based
compensation
expense 87,095 125,070 263,567 248,750
Future income
taxes (114,300) 404,011 269,465 832,800
--------------------------------------------------------

1,427,784 2,268,181 3,866,098 4,771,754

Changes in non-cash
working capital
(note 8) (6,901,385) 975,267 (8,751,440) 120,819
--------------------------------------------------------
(5,473,601) 3,243,448 (4,885,342) 4,892,573
--------------------------------------------------------

Financing activities
Repayment of
obligation under
capital lease (27,198) (25,123) (53,863) (49,751)
Increase
(repayment) of
bank loan 21,000,000 (8,475,000) 22,800,000 (11,825,000)
Working capital
obligations -
Deep Resources (13,290,537) (13,290,537)
Proceeds on
issuance of
common shares,
net of issuance
costs - 8,305,620 6,848,660

Proceeds on
exercise of
brokers' warrants 267,650 267,650

Proceeds on
exercise of stock
options 6,000 13,650 6,000
--------------------------------------------------------
7,682,265 (8,226,473) 17,774,870 (4,752,441)
--------------------------------------------------------

Investing activities
Property, plant and
equipment
expenditures (4,886,967) (2,789,517) (12,044,104) (5,973,517)
Change in non-cash
working capital
(note 8) 816,520 2,072,440 (2,893,553) 256,736
Property
dispositions 6,079,517 6,448,517
Property abandonment
expenditures (283,290) (56,533) (283,290) (56,533)
--------------------------------------------------------
(4,353,737) 5,305,907 (15,220,947) 675,203

Increase in cash (2,145,073) 322,882 (2,331,419) 815,335

Cash and cash
equivalents,
beginning of
period (2,011,188) (603,058) (1,824,842) (1,095,511)
--------------------------------------------------------
Cash and cash
equivalents, end
of period $(4,156,261) $ (280,176) $(4,156,261) $ (280,176)
--------------------------------------------------------
--------------------------------------------------------


The accompanying notes are an integral part of these financial statements.






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

Contact Information

  • Choice Resources Corp.
    Gordon D. Harris
    President and CEO
    (403) 216-5821
    (403) 216-5828 (FAX)
    Email: gharris@choiceresources.ca
    or
    Choice Resources Corp.
    Steve Austin
    Chief Financial Officer
    (403) 216-5821
    (403) 216-5828 (FAX)
    Email: saustin@choiceresources.ca
    or
    Choice Resources Corp.
    1100, 550 - 11th Avenue S.W.
    Calgary, Alberta T2R 1M7