Compass Petroleum Ltd.

Compass Petroleum Ltd.

October 22, 2010 16:30 ET

Compass Petroleum Ltd. Announces Year End Fiscal 2010 Financial Results and Reserves Summary

CALGARY, ALBERTA--(Marketwire - Oct. 22, 2010) - Compass Petroleum Ltd. ("Compass" or the "Company") (TSX VENTURE:CPO) announces its financial and operating results for the fiscal year ended June 30, 2010. The Company has filed its audited Financial Statements and related Management's Discussion and Analysis for the year ended June 30, 2010. The Company has also filed an Annual Information Form, as at June 30, 2010, which includes the disclosure and reports relating to reserves data and other oil and gas information required by National Instrument 51-101, Standards of Disclosure for Oil and Gas Activities ("NI 51-101"). A copy of these documents may be obtained via the System for Electronic Document Analysis and Retrieval (SEDAR) at under Compass' profile and on the Company's website at


Fiscal 2010 was another challenging year for the oil and natural gas sector. Although crude oil prices stabilized, natural gas prices continued to erode to depressed levels. The overall economy remains weak and financial markets are cautious and risk adverse. However, the Company's corporate profile changed significantly in fiscal 2010. Highlights of the Company's activity were as follows:

- Obtained a public listing on the TSX Venture Exchange through a transaction involving a capital pool corporation (Sun Red Capital Corporation) and became a reporting issuer under securities legislation in the provinces of British Columbia, Alberta and Ontario in May 2010.

- Completed a debt financing transaction involving the issuance of convertible notes for aggregate gross proceeds of $10.9 million in September 2009.

- In May 2010, the Company's wholly-owned subsidiary, Compass Acquisition Corp., completed a private placement of 7,882,911 subscription receipts for aggregate gross proceeds of $10,641,930. Each such subscription receipt was exchanged into one Class B common share of Compass Acquisition Corp. immediately prior to the amalgamation of Compass Acquisition Corp. and Sun Red on May 21, 2010 and each such Class B common share was exchanged for one common share of the Company upon the amalgamation of Compass Acquisition Corp. and Sun Red.

- Ended the fiscal year with no bank debt and positive working capital of $3.6 million.

- Participated in the drilling of nine wells (net 7.88) including four wells (net 2.88) in Alberta and five wells (net 5.0) in west central Saskatchewan.

- Refocused Company activity and operational emphasis on the emerging Viking light oil resource play in the Dodsland area of west central Saskatchewan with the drilling of two horizontal Viking oil wells in the fourth quarter of fiscal 2010.

Fiscal 2011 Operational Activity to Date

- Successfully completed two (net 2.0) horizontal Viking oil wells drilled in Q4 2010 at Lucky Hills in the Dodsland area using mutli-stage fracturing technology.

- Drilled and completed four (net 4.0) horizontal Viking oil wells at Lucky Hills in the Dodsland area.

- Acquired sixteen net sections of undeveloped land in the greater Dodsland area to expand the Company's acreage base on the Viking light oil resource play in west central Saskatchewan.

- Drilled a successful Sawtooth oil well at Grand Forks in southern Alberta.

- Commenced a nine well fall 2010 Viking light oil horizontal well drilling program at Lucky Hills with three wells drilled and cased to date.

- Commenced construction of pipeline tie-ins for solution gas on Viking horizontal oil wells.

Summary of Operations

(Thousands except per share amounts) Years Ended June 30
2010 2009
Revenue $ 13,238 $ 16,395
Funds from operations 3,287 5,729
per share, (basic and diluted) 0.13 0.24
Loss for the period (4,567) (4,190)
per share, (basic and diluted) (0.18) (0.18)
Capital additions 7,485 9,087
Dispositions - 471
Net capital additions 7,485 8,616

Net adjusted working capital/(net debt) 3,331 (12,432)
Convertible notes 10,920 -

Total assets 61,648 54,145
Total shares outstanding at year end 32,023,519 23,938,294


Gas (Mcfpd) 2,790 3,733
Oil (bblpd) 387 418
boepd (6Mcf = 1bbl) 852 1,040
Product Prices
Gas ($/Mcf) $ 3.97 $ 5.55
Oil ($/bbl) $ 65.81 $ 64.51

Undeveloped land holdings (net acres) 87,948 91,576


Revenue decreased to $13.2 million for fiscal 2010 compared with $16.4 million for the prior year. Declining sales volumes account for most of the decrease.

Funds from operations decreased to $3.3 million (or $0.13 per share) in fiscal 2010, compared with $5.7 million (or $0.24 per share) in 2009.

Compass reported a loss of $4.6 million in fiscal 2010 or ($0.18) per share compared with a loss of $4.2 million or ($0.18) per share in fiscal 2009. In fiscal 2010, in connection with the May 2010 financing transaction (discussed below), Compass renegotiated the terms of its outstanding convertible notes, which created an unusual charge of $2.1 million, whereas in fiscal 2009 the Company wrote off goodwill of $4.3 million arising from its acquisition of Ravenwood Resources Inc. in 2003.

The Company incurred approximately $7.5 million of capital expenditures in 2010 compared to net capital expenditures of $8.6 million in 2009.

During the course of fiscal 2010, the Company completed two financings. Convertible notes of $10.9 million were issued in September 2009 and a private placement of $10.6 million was completed in May 2010, which resulted in the issuance of 7,882,911 common shares at an effective price of $1.35 per share.


The Company's average production for the year ended June 30, 2010 decreased by 18% to 852 boe/day from 1,040 boe/day for the prior fiscal year. Production declines from existing wells were not replaced by new discoveries or acquisitions in fiscal 2010.


Compass began a new chapter in its corporate history by becoming a publically traded issuer in the fourth quarter of fiscal 2010. Compass ended the fiscal year in a strong financial position with no bank debt and positive working capital of $3.6 million.

For internal budgeting purposes management expects crude oil prices to trade in a range from US $70 per bbl WTI to US $85 per bbl WTI for fiscal 2011, while natural gas prices are expected to be weak, with AECO prices forecast to range from CDN $3.00 per Mcf to CAD $3.60 per Mcf. Having regard to this pricing environment, the Company has determined to focus on the development and exploitation of its light oil Viking resource lands at Lucky Hills in the Dodsland area of west central Saskatchewan utilizing horizontal drilling and multi-stage fracturing technology. A total of nineteen horizontal Viking oil wells have been budgeted for drilling and completion in fiscal 2011. The Company's overall production is expected to be largely weighted towards oil by the end of fiscal 2011 (in the range of 65% to 75%).

Reserves and Reserve Value

The following tables summarize certain information concerning the Company's oil and natural gas reserves contained in an independent reserves report prepared by Sproule Associates Limited ("Sproule") as of June 30, 2010 (the "Sproule Report"). The report was prepared in accordance with definitions, standards and procedures contained in the Canadian Oil and Gas Evaluation Handbook and NI 51-101.

AS OF JUNE 30, 2010

Gross Net Gross Net Gross Net Gross Net
CATEGORY (Mbbl) (Mbbl) (Mbbl) (MMcf) (MMcf) (Mbbl) (Mbbl) (Mbbl)
Producing 386.3 336.0 889.1 770.4 3,378.0 2,999.0 22.7 15.0
Non-producing - - - - 991.0 890.0 6.8 5.1
Undeveloped 48.5 40.0 206.1 180.9 4,435.0 4,050.0 1.2 1.0
TOTAL PROVED 434.7 376.0 1,095.2 951.3 8,804.0 7,940.0 30.8 21.1
PROBABLE 367.1 300.5 323.0 265.3 5,012.0 4,532.0 15.2 10.0
PLUS PROBABLE 801.9 676.5 1,418.2 1,216.6 13,816.0 12,472.0 46.0 31.1

Gross Net
Producing 1,861.1 1,621.2
Non-producing 172.0 153.5
Undeveloped 995.0 896.9
TOTAL PROVED 3,028.1 2,671.7
PROBABLE 1,540.7 1,331.2
PLUS PROBABLE 4,568.8 4,002.9

-------------- DISCOUNTED AT (% per year)
0 5 10 15 20 0
Producing 49,263 36,628 29,463 24,856 21,634 46,977
Non-Producing 3,094 2,441 1,980 1,641 1,382 2,316
Undeveloped 15,113 9,685 6,143 3,770 2,143 11,260
TOTAL PROVED 67,471 48,754 37,586 30,266 25,160 60,553
PROBABLE 41,702 24,994 16,975 12,322 9,347 31,161
PROBABLE 109,173 73,748 54,561 42,859 34,507 91,714

-------------- DISCOUNTED AT (% per year)
5 10 15 20
Developed Producing 35,565 28,913 24,550 21,455
Developed Non-Producing 1,925 1,629 1,397 1,210
Undeveloped 6,997 4,224 2,369 1,101
TOTAL PROVED 44,487 34,766 28,316 23,766
PROBABLE 18,658 12,686 9,234 7,033
PROBABLE 63,144 47,451 37,550 30,799
Columns may not add due to rounding.

The pricing assumptions used in the Sproule Report are summarized below:

Oil gas NGLs
Edmonton Cromer FOB
Par Medium AECO-C Field
WTI Price Hardisty 29.30 Gas Gate Inflation
Cushing 400 API Heavy API Price (butane) rate Exchange
Oklahoma ($Cdn/ ($Cdn/ ($Cdn/ ($Cdn/ ($Cdn/ (1)% rate
Year ($US/bbl) bbl) bbl) bbl) MMbtu) bbl) per year ($US/Cdn)
2005 56.46 69.29 34.35 57.36 8.58 45.20 1.3 0.826
2006 66.09 73.30 43.32 62.35 7.16 59.32 1.5 0.882
2007 72.27 77.06 44.77 65.36 6.65 63.71 2.0 0.935
2008 99.59 102.85 76.32 93.05 8.15 75.09 1.0 0.943
2009 61.63 66.20 55.59 62.77 4.19 47.07 2.0 0.880

2010 76.77 80.41 66.74 76.39 4.58 56.94 1.5 0.934
2011 80.46 84.35 69.16 79.28 5.12 59.72 1.5 0.934
2012 82.72 86.75 69.40 79.81 5.45 61.42 1.5 0.934
2013 86.47 90.75 70.79 82.58 6.65 64.26 1.5 0.934
2014 90.22 94.74 72.00 85.27 7.76 67.08 1.5 0.934
2015 91.57 96.17 73.09 86.55 7.89 68.10 1.5 0.934
2016 92.94 97.62 74.19 87.86 8.02 69.12 1 5 0.934
2017 94.35 99.10 75.31 89.19 8.15 70.17 1.5 0.934
2018 95.75 100.59 76.45 90.53 8.28 71.23 1.5 0.934
2019 97.19 102.11 77.60 91.90 8.42 72.30 1.5 0.934
2020 98.65 103.65 78.78 93.29 8.55 73.39 1.5 0.934

Escalation rate of 1.5% thereafter
(1) Inflation rates for forecasting prices and costs.

As at June 30, 2010

thousands except per share amounts

Present value of reserves before taxes (P+P) (discounted at 10%) $ 54,561
Undeveloped acreage(1) 8,455
Adjusted working capital 3,331
Estimated value 66,347
Fully diluted shares outstanding(2) 42,377
Net asset value per share $ 1.57

(1) Based on independent land evaluation as of June 30, 2010.
(2) Options to purchase 580,000 common shares were not included in the
computation as they were out of the money as at June 30, 2010.


Included in this news release is reference to "funds from operations". Funds from operations is a non-GAAP measure that is commonly used in the oil and natural gas industry. It represents cash provided by operating activities before changes in non-cash working capital and asset retirement expenditures. The Company considers funds from operations to be a key measure as it demonstrates the ability of the business to generate the cash flow necessary to fund future growth through capital investment and to repay debt. Funds from operations should not be considered as an alternative to, or more meaningful than, cash flow provided by operating activities as determined in accordance with GAAP as an indicator of the Company's performance. Compass' determination of funds from operations may not be comparable to that reported by other issuers.

The Company calculated "funds from operations" as follows:

Year ended Year ended
June 30, 2010 June 30, 2009

Cash provided by operating activities $ 1,933,022 $ 5,974,057
Changes in non-cash working capital 974,518 (760,925)
Actual retirement obligation settled 30,459 516,118
Transaction costs relating to
acquisition of "Sun Red" 348,552 -
Funds from operations $ 3,286,551 $ 5,729,250

Also included in this news release is reference to "adjusted working capital" and "net debt", which is defined as current liabilities (excluding future income taxes) plus outstanding bank debt less current assets (excluding financial instruments), as a measure of short term liquidity. The Company calculates "adjusted working capital and net debt" as follows:

June 30, June 30,
2010 2009
Current assets
(excluding financial instruments) $ 7,861,490 $ 2,738,883
Banks indebtedness (0) (10,300,000)
Accounts payable and accrued liabilities
(excluding future income taxes) (4,530,332) (4,870,487)
Adjusted working capital / (net debt) $ 3,331,158 $ (12,431,604)

Where "net debt" is positive the Company uses the term "adjusted working capital and net debt".

Also included in this news release is reference to "net asset value per share". Net asset value per share is a measure commonly used in the oil and natural gas industry to provide a per share value that contemplates the net present value of the issuer's oil and natural gas reserves, its undeveloped acreage and its adjusted working capital. For a quantitative reconciliation of the Company's net asset value per share, please refer to the heading "Net Asset Value Per Share (Unaudited)" in this news release.


Reported production represents Compass' ownership share of sales before the deduction of royalties. Where amounts are expressed on a barrel of oil equivalent ("boe") basis, natural gas has been converted at a ratio of six thousand cubic feet to one boe. This ratio is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Boe's may be misleading, particularly if used in isolation. References to natural gas liquids ("liquids") include condensate, propane, butane and ethane and one barrel of liquids is considered to be equivalent to one boe.

Compass is an oil weighted, oil focused junior oil and gas exploration and production company based in Calgary, Alberta. The Company's current main focus is on the exploitation and development of its Viking light oil resource lands in the Dodsland area of west central Saskatchewan.


This news release contains certain forward-looking information (referred to herein as "forward-looking statements") within the meaning of applicable Canadian securities laws. Forward-looking statements are often, but not always, identified by the use of words such as "anticipate", "plan", "intend", "estimate", "expect", "may", "will", "should", or similar words suggesting future activities or outcomes. In particular, this news release contains forward-looking statements relating to: (i) reserves and the net present values of future net revenues from Compass' oil and natural gas reserves; and (ii) expectations with respect to the weighting of the Company's overall production, as between oil and natural gas, by the end of fiscal 2011.

Forward-looking statements are subject to certain risks and uncertainties that could cause actual events or outcomes to differ materially from these anticipated or implied by such forward-looking statements.

- Forward-looking statements relating to reserves and the estimated net present values of future net revenues from Compass' oil and natural gas reserves are based upon various assumptions and factors, including that the reserves described exist in the quantities estimated and can profitably be produced in the future. Such forward-looking statements are subject to certain risks, including: (i) the possibility that actual reserves will vary from reserve estimates and those variations could be material, (ii) declines in oil and natural gas prices, (iii) fluctuations in currency exchange rates; and (iv) changes in legislation that affects the oil and natural gas industry;

- Forward-looking statements respecting the anticipated weighting of the Company's overall production, as between oil and natural gas, by the end of fiscal 2011 are based upon various assumptions and factors including continued emphasis by the Corporation on oil development (as opposed to the development of the Corporation's natural gas properties) in accordance with the Company's existing business plan (which plan is subject to change), the results of horizontal wells drilled to date by the Company in west central Saskatchewan, the time required to drill and complete existing wells and the assumption that future wells can be completed in similar time frames, the Company's experience with the drilling of other oil and natural gas wells, the availability of materials, equipment and personnel in a timely manner and on commercial terms acceptable to the Company, the ability to obtain all required regulatory approvals on a timely basis and on satisfactory terms, that the wells to be drilled in connection with the fiscal 2011 drilling program will be capable of commercial production of hydrocarbons, and no new laws and regulations being enacted that would materially affect operations.

The forward-looking statements contained in this news release are made as of the date hereof and Compass does not undertake any obligation to update publicly or to revise any of the included forward-looking statements, except as required by applicable Canadian securities law. The forward-looking statements contained herein are expressly qualified by this cautionary statement.

Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

Contact Information

  • Compass Petroleum Ltd.
    Yook L. Mah
    President and CEO
    (403) 261-1911
    Compass Petroleum Ltd.
    Graham Barnes
    (403) 261-1911