Corridor Resources Inc.
TSX : CDH

Corridor Resources Inc.

March 29, 2012 16:05 ET

Corridor Announces 2011 Year End Results and Reserves

HALIFAX, NOVA SCOTIA--(Marketwire - March 29, 2012) - (TSX:CDH): Corridor Resources Inc. ("Corridor") announced today its 2011 year end financial results and reserve evaluations. Corridor's annual financial statements, management's discussion and analysis and Annual Information Form for the year ended December 31, 2011 have been filed on SEDAR at www.sedar.com and are available on Corridor's website at www.corridor.ca.

All amounts referred to in this press release are in Canadian dollars unless otherwise stated.

2011 Highlights

  • During the year, Corridor completed the drilling of the vertical Will DeMille O-59 shale gas appraisal well to a total depth of 3188 meters measured depth. Strong gas shows were encountered within Hiram Brook sandstones and the Upper Frederick Brook shale. Based upon initial analysis of well log information, the well intersected at least eight intervals with significantly elevated gas shows that are considered frac candidates. Corridor plans to evaluate these intervals with logs and sidewall cores in order to select the intervals for future fracture stimulation. The Will DeMille O-59 well is located north of Elgin, New Brunswick.
  • During the year, Corridor reported the results of an independent resource assessment, dated July 12, 2011 and effective June 1, 2011 ("the Sproule Report"), by qualified reserves evaluator Sproule Associates Limited of Calgary ("Sproule"). Based on data available at the time, Sproule's best estimate of the Total Petroleum Initially-In-Place of the Macasty Shale on Anticosti Island is 33.9 (19.8 net to Corridor) billion barrels of oil equivalent ("Bboe") for Corridor's land holdings. The probability that the Total Petroleum Initially-In-Place exceeds 21.4 (12.3 net to Corridor) Bboe is 90% (low estimate) and the probability that the Total Petroleum Initially-In-Place exceeds 53.9 (31.9 net to Corridor) Bboe is 10% (high estimate). Sproule classified the total Petroleum Initially-In-Place as "undiscovered resources". Corridor is actively evaluating options regarding further exploration to determine the potential of this resource, including the possibility of farming out some of the Corridor interest to an experienced shale oil developer. The Anticosti exploration program is at an early stage; further work is required to determine the potential for commercially viable resource recovery, prior to considering development.
  • During the year, Corridor filed a Project Description and an Environmental Assessment with the Canada-Newfoundland and Labrador Offshore Petroleum Board ("C-NLOPB") for the drilling of an exploration well on the Old Harry prospect. The Project Description commenced the official regulatory process for obtaining the necessary approvals to drill the offshore well. Initially, the C-NLOPB determined that Corridor's application would be subject to a project specific screening level Environmental Assessment ("EA") while the Western Newfoundland Strategic Environmental Assessment ("SEA") took place concurrently. However, subsequently, the C-NLOPB decided that the SEA update would be completed before proceeding with the review of the Old Harry EA and announced that the SEA update would be completed in early 2013. Corridor believes that both the SEA update and the Old Harry EA processes can be completed in a timeline which will accommodate Corridor's proposed project schedule. Corridor currently proposes to drill a well at Old Harry within the 2014-15 timeframe. In October 2011, the C-NLOPB amended Corridor's Exploration Licence 1105 to extend Period 1 of the license from five years to seven years (January 15, 2015) which should provide Corridor with sufficient time to gain the regulatory permits required to drill the Old Harry prospect in the proposed timeframe. Corridor's exploration license also has a provision whereby Corridor can extend this drilling period by an additional year with the payment of a deposit.
  • Corridor maintains approximately 2 million gross acres (approximately 1.3 million net acres) of undeveloped land in connection with its three high impact exploration prospects (Frederick Brook shale, Macasty shale oil and Old Harry prospect). The remaining terms on substantially all the licenses in respect of such prospects range from 4.5 to 9 years. Corridor is actively seeking joint venture partners in all three prospects.
  • On March 20, 2012, the Government of Québec announced its 2012-2013 budget which includes provisions that recognize the potential of Québec as an oil and gas producer and outlines steps to encourage the development of this potential.

Year End Financial Results

The following table provides a summary of Corridor's financial and operating results for the three and twelve months ended December 31, 2011 with comparisons to the three and twelve months ended December 31, 2010.

Selected Financial Information

Three months ended December 31 Twelve months ended December 31
thousands of dollars except per share amounts 2011 2010 2011 2010
Revenues $ 5,295 $ 7,864 $ 23,993 $ 29,558
Net earnings (loss) $ (71,416 ) $ (3,038 ) $ (79,585 ) $ (6,912 )
Net earnings (loss) per share - basic and diluted $ (0.807 ) $ (0.034 ) $ (0.899 ) $ (0.078 )
Cash flow from operations(1) $ 2,071 $ 3,585 $ 9,250 $ 13,250
Capital expenditures $ 4,383 $ 1,840 $ 8,951 $ 21,006
Total assets $ 204,017 $ 301,283 $ 204,017 $ 301,283
(1) Cash flow from operations is a non-IFRS measure. Cash flow from operations represents net earnings adjusted for non-cash items including depletion, depreciation and amortization, deferred income taxes, share-based compensation and other non-cash expenses. See "Non-IFRS Financial Measures" in Corridor's management's discussion and analysis for the year ended December 31, 2011.

Financial Summary for 2011

  • Natural gas revenues for the year ended December 31, 2011 decreased to $21,777 thousand from $27,283 thousand for the year ended December 31, 2010 due to a decrease in the average natural gas sales price to $5.17/mscf in 2011 from $5.66/mscf in 2010 and a decrease in Corridor's average daily gas production to 11.5 mmscfpd in 2011 from 13.2 mmscfpd in 2010. The decrease in natural gas prices at Henry Hub during the year was offset by higher premiums at Dracut which have increased by 25% over the prior year to an average of approximately US$1.00/mmbtu for the year ended December 31, 2011.
  • Cash flow from operations was $9,250 thousand for the year ended December 31, 2011 compared to $13,250 thousand for the year ended December 31, 2010 due to the lower natural gas revenues in 2011 partially offset by lower transportation expenses. Cash flow from operations for the year ended December 31, 2011 was approximately $1,000 thousand higher than the latest forecast of $8,200 thousand due to an increase in gathering, processing and transportation fees in Q4 2011.
  • Corridor's net working capital at December 31, 2011 was $9,507 thousand, approximately $3,500 thousand higher than previously forecasted due to higher cash flow from operations and reduced capital expenditures in Q4 2011. Corridor had cash and cash equivalents at December 31, 2011 of $6,396 thousand and no outstanding debt.
  • Due to the significant decline in forecast natural gas prices, Corridor was required under IFRS to estimate the recoverable amount of its New Brunswick assets at December 31, 2011. The recoverable amount was determined using discounted after-tax future net cash flows of proved plus probable reserves using forecast prices and costs. As IFRS does not permit the use of a risk-free discount rate, Corridor estimated its discount rate as 10%. As a result, Corridor recorded an impairment loss of $90,307 thousand during the year and Corridor's net loss increased to $79,585 thousand for the year ended December 31, 2011 from $6,192 thousand for the year ended December 31, 2010.
  • Corridor's gross general and administrative expenses decreased by $648 thousand for the year ended December 31, 2011 compared to the year ended December 31, 2010 reflecting management's commitment to lower general and administrative expenses during this period of lower natural gas prices.
  • During the year, workover activities of approximately $900 thousand were carried out on selected wells in an effort to optimize and improve production from these wells. Corridor also performed well surveillance activities with optimization of flow cycles and soaping of liquid loading wells. Workover activities and optimization efforts resulted in a gross initial uplift of 1.0 mmscfpd.

Q4 2011 Netback Analysis

Three months ended December 31 Twelve months ended December 31
thousands of dollars except $/mscf 2011 2010 2011 2010
Natural gas revenues $ 4,194 $ 7,024 $ 21,777 $ 27,283
Royalty expense (- ) (256 ) (679 ) (606 )
Production expense (752 ) (1,016 ) (3,969 ) (3,931 )
Transportation expense (1,181 ) (1,798 ) (5,499 ) (6,840 )
Netback $ 2,261 $ 3,954 $ 11,630 $ 15,906
Natural gas production (mmscf) 985 1,223 4,213 4,819
Natural gas production per day (mmscfpd) 10.7 13.3 11.5 13.2
Natural gas revenues ($/mscf) $ 4.26 $ 5.74 $ 5.17 $ 5.66
Royalty expense ($/mscf) (0.00 ) (0.21 ) (0.16 ) (0.13 )
Production expense ($/mscf) (0.76 ) (0.83 ) (0.94 ) (0.82 )
Transportation expense ($/mscf) (1.20 ) (1.47 ) (1.31 ) (1.42 )
Netback ($/mscf) $ 2.30 $ 3.23 $ 2.76 $ 3.29

Natural gas revenues decreased to $4,194 thousand in Q4 2011 from $7,024 thousand in Q4 2010 due to the decrease in the average natural gas sales price to $4.26/mscf in Q4 2011 from $5.74/mscf in Q4 2010 and the decrease in the average daily natural gas production to 10.7 mmscfpd in Q4 2011 from 13.3 mmscfpd in Q4 2010. The decrease in production is due to the decreased drilling activities at the McCully Field since 2009 following decreases in natural gas prices.

The decrease in the royalty expense for Q4 2011 is due to no royalty amounts being payable as a result of the significant decrease in the natural gas revenues due to low natural gas prices during Q4 2011, while the deductions allowable in the royalty calculation did not decrease significantly.

The decrease in the net production expense per mscf for Q4 2011 to $0.76/mscf from $0.83/mscf for Q4 2010 is due to the decrease in workover activities in Q4 2011. In addition, higher repairs and maintenance and supplies were necessary in Q4 2010 following the installation of an inlet compressor.

Transportation expense decreased to $1.20/mscf for Q4 2011 from $1.47/mscf for Q4 2010 due to the impact of a transportation agreement for 12,000 mmbtu per day of transportation on the Canadian side of the M&NP in effect from April 1, 2011 to March 31, 2012 at a cost significantly lower than firm tolls and to a stronger Canadian dollar as compared to the U.S. dollar.

2011 Reserve Information

Corridor currently has natural gas reserves in the McCully Field near Sussex, New Brunswick and has crude oil reserves in the Caledonia Field near Sussex, New Brunswick.

GLJ has assessed Corridor's reserves in its reports ("the GLJ Reports") dated effective December 31, 2011 and December 31, 2010 which were prepared in accordance with National Instrument 51-101 Standards of Disclosure of Oil and Gas Activities. The following table presents a summary from the GLJ Reports of Corridor's gross natural gas reserves, before the deduction of royalties, using forecast prices and costs.


Reserves Category
2011 Gross
Reserves
bscf
2010 Gross
Reserves
bscf
Total proved 58.7 62.2
Total probable 44.0 59.2
Total proved plus probable 102.7 121.4
Possible(1) 114.1 118.7
Proved plus probable plus possible(1) 216.7 240.1
(1) Possible reserves are those additional reserves that are less certain to be recovered than probable reserves. There is a 10% probability that the quantities actually recovered will equal or exceed the sum of proved plus probable plus possible reserves.

The decrease in proved reserves results mostly from the 2011 production of 4.2 bscf.

The proved plus probable reserves assessment has decreased due to the delay in drilling new development wells as a result of low forecasted natural gas prices.

GLJ assessed the net present value of Corridor's natural gas, oil and natural gas liquids reserves, based on forecast costs and prices, as follows:

Net Present Value ($ in million) - undiscounted
2011 2010

Reserves Category
Before Income Tax(1) After Income
Tax
(1)
Before Income
Tax
(1)
After Income
Tax
(1)
Proved 219 211 257 238
Proved plus probable 464 388 627 506
Proved plus probable plus possible(2) 1,217 931 1,447 1,096
(1) The estimated value of future net revenue does not represent the fair market value of Corridor's reserves.
(2) Possible reserves are those additional reserves that are less certain to be recovered than probable reserves. There is a 10% probability that the quantities actually recovered will equal or exceed the sum of proved plus probable plus possible reserves.
Net Present Value ($ in million) - discounted at 10%
2011 2010

Reserves Category
Before Income Tax(1) After Income
Tax
(1)
Before Income
Tax
(1)
After Income
Tax
(1)
Proved 96 95 122 118
Proved plus probable 171 152 226 194
Proved plus probable plus possible(2) 352 283 430 340
(1) The estimated value of future net revenue does not represent the fair market value of Corridor's reserves.
(2) Possible reserves are those additional reserves that are less certain to be recovered than probable reserves. There is a 10% probability that the quantities actually recovered will equal or exceed the sum of proved plus probable plus possible reserves.

The decrease in the net present value of Corridor's net reserves is primarily the result of declines in forecasted natural gas prices as estimated by GLJ.

GLJ assigned to Corridor total proved crude oil reserves of 87 mbbls and total proved plus probable crude oil reserves of 521 mbbls in the GLJ Reports. The complete 2011 GLJ Report will be available in the near future on Corridor's website at www.corridor.ca, and a summary of the 2011 GLJ Report is included in Corridor's Annual Information Form for the year ended December 31, 2011, a copy of which has been filed on SEDAR at www.sedar.com.

Corridor is a junior resource company engaged in the exploration for and development and production of petroleum and natural gas onshore in New Brunswick, Prince Edward Island and Québec and offshore in the Gulf of St. Lawrence. Corridor currently has natural gas reserves and production in the McCully Field near Sussex, New Brunswick and discovered crude oil reserves in the Caledonia Field near Sussex, New Brunswick in 2008. In addition, Corridor has contingent resources and discovered resources in Elgin, New Brunswick.

Forward Looking Statements

This press release contains certain forward-looking statements and forward-looking information (collectively referred to herein as "forward-looking statements") within the meaning of Canadian securities laws. All statements other than statements of historical fact are forward-looking statements. Forward-looking information typically contains statements with words such as "anticipate", "believe", "plan", "continuous", "estimate", "expect", "may", "will", "project", "should", or similar words suggesting future outcomes. In particular, this press release contains forward-looking statements pertaining to the estimates of reserves and resources, net present values of reserves, exploration and development plans, including plans regarding development of the Frederick Brook formation, drilling a well on the Old Harry prospect and exploration on Anticosti Island, regulatory developments and timing of such developments and plans to solicit joint venture partners. Statements relating to "reserves" and "resources" are forward-looking statements, as they involve the implied assessment, based on certain estimates and assumptions that the reserves and resources described exist in the quantities predicted or estimated and can profitably be produced in the future.

Undue reliance should not be placed on forward-looking statements, which are inherently uncertain, are based on estimates and assumptions, and are subject to known and unknown risks and uncertainties (both general and specific) that contribute to the possibility that the future events or circumstances contemplated by the forward-looking statements will not occur. There can be no assurance that the plans, intentions or expectations upon which forward-looking statements are based will in fact be realized. Actual results will differ, and the difference may be material and adverse to Corridor and its shareholders.

Forward-looking statements are based on Corridor's current beliefs as well as assumptions made by, and information currently available to, Corridor concerning anticipated financial performance, business prospects, strategies, regulatory developments, future natural gas commodity prices, future natural gas production levels, the ability to obtain equipment in a timely manner to carry out development activities, the ability to market natural gas successfully to current and new customers, the impact of increasing competition, the ability to obtain financing on acceptable terms, and the ability to add production and reserves through development and exploration activities. Although management considers these assumptions to be reasonable based on information currently available to it, they may prove to be incorrect. By their very nature, forward-looking statements involve inherent risks and uncertainties, both general and specific, and risks that forward-looking statements will not be achieved. These factors may be found under the heading "Risk Factors" in Corridor's Annual Information Form for the year ended December 31, 2011.

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

Oil and Gas Information

BOE conversions

All calculations converting natural gas to crude oil equivalent have been made using a ratio of six mscf of natural gas to one barrel of oil equivalent ("boe"). Boe may be misleading, particularly if used in isolation. A boe conversion ratio of six mscf of natural gas to one barrel of crude oil equivalent is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

Resources Information

"Total petroleum initially-in-place" or ("PIIP") refers to that quantity of petroleum that is estimated to exist originally in naturally occurring accumulations. It includes that quantity of petroleum that is estimated, as of a given date, to be contained in known accumulations, prior to production, plus those estimated quantities in accumulations yet to be discovered. Total petroleum initially-in-place is equivalent to total resources.

"Undiscovered petroleum initially-in-place" or "undiscovered resources" refers to those quantities of petroleum that are estimated, on a given date, to be contained in accumulations yet to be discovered. The recoverable portion of undiscovered petroleum initially-in-place is referred to as prospective resources, the remainder as unrecoverable. Undiscovered resources carry discovery risk. Prospective resources are those quantities of petroleum estimated, as of a given date, to be potentially recoverable from undiscovered accumulations by application of future development projects. Prospective resources have both an associated chance of discovery and a chance of development. Prospective resources are further subdivided in accordance with the level of certainty associated with recoverable estimates assuming their discovery and development and may be subclassified based on project maturity. There is no certainty that any portion of these resources will be discovered. If discovered, there is no certainty that it will be commercially viable to produce any portion of the resources. A recovery project cannot be defined for this volume of undiscovered petroleum initially-in-place at this time.

In respect of the Macasty Shale on Anticosti Island, Sproule classified the total petroleum initially-in-place as undiscovered resources in the Sproule Report, based on the following: (i) a core of the Macasty shale from the Chaloupe well contained residual oil; (ii) the Macasty shale has not been flow tested from any well on Anticosti Island; (iii) the resources are inferred to exist based on the interpretation and mapping of limited pyrolysis, core, well log and seismic data; (iv) this is an unconventional shale oil resource that will require a stimulated completion for evaluation and, until an appropriately researched project has been undertaken to identify and evaluate potentially recoverable volumes, it is premature to speculate whether the Macasty contains recoverable or unrecoverable resources. Corridor believes the significant positive factors relevant to the estimates are: (i) the Macasty core from the Chaloupe well drilled in 2010 contained oil and gas. This well is located on the high side of the Jupiter fault, where most of the Corridor acreage is located, and where the shale is interpreted to be oil prone; (ii) the Macasty shale is equivalent to the Utica shale of the St. Lawrence Lowlands of Québec, which has been reported to have produced oil and gas on test; (iii) Core analysis indicates that the Macasty has similar petrophysical and geochemical characteristics to Utica fields found in the North-East US; and (iv) the Macasty shale is a prolific source rock which is within the oil generation window over approximately three quarters of the island (most of it located in the Corridor land holdings).

Contact Information

  • Phillip R. Knoll, President
    Corridor Resources Inc.
    (902) 429-4511
    (902) 429-0209 (FAX)
    www.corridor.ca