Corridor Resources Inc.

Corridor Resources Inc.

May 05, 2009 08:00 ET

Corridor Updates Operations and Plans in New Brunswick

HALIFAX, NOVA SCOTIA--(Marketwire - May 5, 2009) - Corridor Resources Inc. (TSX:CDH) provided an update today on its exploration, development and production operations as well as its current financial outlook.

McCully Drilling

One additional McCully natural gas well has been drilled and cased in preparation for fracturing operations scheduled for early this summer. The McCully L-38 well was drilled to a total measured depth of 3133 meters, encountering a total of 55 net meters of indicated natural gas bearing sands with varying amounts of bitumen in some of the gas bearing intervals. The indicated net pay intervals were encountered in the "D", "E", "F" and "G" sands, including 6 meters of net gas bearing sand with the highest measured pressure gradient for any sand encountered to date in the McCully Field. Completion of this well will be undertaken this summer as part of a planned multi-well fracturing, completion and tie-in program. The Nabors #86 drilling rig has been removed from the well pad and placed off contract. Corridor's plans are to suspend drilling operations at McCully for the remainder of 2009 to maintain a strong cash-positive balance sheet. This drilling hiatus will provide Corridor with an opportunity to generate a detailed simulation model of the entire McCully Field which will be utilized to optimize future drilling locations and reservoir performance.

McCully Well Completions

Plans are currently being finalized regarding completion of several McCully gas wells this summer, including the P-47, L-38 and C-29 wells and the I-47 horizontal well drilled last year. Several significant changes are planned to be introduced in this upcoming well completion program. Corridor is re-designing its approach to fracturing new wells in the McCully Field this summer by frac'ing with propane and eliminating water and methanol in the frac fluids. The capacity to frac with propane has been designed and developed by GasFrac Energy Services, a Calgary based company and a relatively new player in the well services industry. Corridor expects that propane, which is a component of natural gas, is an ideally suited fluid for fracturing McCully reservoirs, as it is expected to minimize formation damage and to be more readily recoverable on flow-back than water and methanol.

McCully Production

In Corridor's completion programs during the past two years, methanol and water have been the significant components of the frac fluids employed. High concentrations of methanol have served to reduce the surface tension effects of the frac fluids and to prevent hydrates from forming during testing and production operations. However, new evidence indicates that chemical interactions between methanol and certain components of the formation appear to have caused down-hole scaling and deposition of minerals, including gypsum, within the well-bore. These deposits appear to be impairing production performance of at least some of these wells, accentuated by the unusually low temperatures and high pressures of the McCully reservoirs. Recent observations of scale deposits on instruments retrieved from the bottom of some wells indicate that these deposits may be reducing the flow capacity of these wells and causing greater declines in production rates than were expected. Corridor and its consultants are currently designing a work-over program to be conducted this summer that is aimed at removing these down-hole scale deposits. In addition, a work-over will be carried out this summer which is intended to prevent the influx of formation water into the gas production stream in the N-66 horizontal well.

South Branch G-36 Test Results

In other activities, Corridor has discontinued the pump testing of the South Branch G-36 oil well and has shut the well in for a pressure build-up. The well produced 45 degrees API oil on pump at a maximum rate of 45 barrels per day before declining to a final rate of approximately 5 barrels per day. These results are being analyzed to determine the reasons for the decline in production and to determine the next steps in evaluating the commercial potential of the Caledonia Field. Factors that may have contributed to these results are the apparent partial failure of the water/methanol frac in the G-36 well, the presence of oil/water emulsions in the recovered fluids and possibly poorer than expected reservoir quality. Under consideration as next steps in evaluating this discovery are a potential re-frac of the test interval in the G-36 well using propane as the frac fluid and/or the drilling and fracturing of a horizontal well at a location adjacent to the discovery well. The 3-D seismic acquired by Corridor last fall shows extensive potential for numerous additional wells to follow up on this light oil discovery.

Elgin Shale Gas Prospect

Corridor continues to have preliminary discussions with potential farm-in partners that could, if successfully concluded with one, help to accelerate evaluation and potential production of natural gas from the Frederick Brook shale formation, initially in the Elgin area. Corridor's 2009 budget includes funds to undertake some completion and testing operations this summer at the Green Road G-41 vertical shale gas well. Alternatively, Corridor may opt to defer such operations to next year and include them as part of future activities planned for the Elgin area. Corridor has engaged an engineering firm to undertake an independent assessment of the quantity of the resource within the Frederick Brook shale in the Sussex/Elgin sub-basins, in accordance with National Instrument 51-101 - Standards of Disclosure for Oil and Gas Activities. It is expected that the results of this assessment will assist Corridor in developing a longer term plan for the appraisal and potential development of this vast resource.

Gulf of St. Lawrence

The Quebec government announced in its April budget that it is undertaking a strategic environmental assessment program in the Gulf of St. Lawrence to prepare the path for offshore oil and natural gas exploration and development. The time table set out by the government indicates this assessment will be completed over the next two and one-half years. Consequently, the earliest time that a permit could be issued by the Canadian and Quebec governments to drill an offshore exploration well in the Quebec sector of the Gulf would be 2012. Accordingly, Corridor is deferring to 2010 its application for approval to conduct a geo-hazard site survey for a proposed offshore exploration well at the Old Harry prospect.

Revised Capital Budget

Corridor is committed to maintaining a strong financial position through this period of low natural gas prices and a lower forecasted production rate. Corridor has decreased its forecast for the average natural gas price at Henry Hub for the remainder of 2009 from US$ 4.75/MMBtu to US$ 4.00/MMBtu, while maintaining an estimated exchange rate of US$0.825 per Canadian dollar. Corridor has also decreased its previously estimated net average natural gas production rate for the remainder of 2009 from 21 mmscf/d to 20 mmscf/d, primarily reflecting the production issues described above. As a result, Corridor's previously estimated cash flow from operations is forecast to decrease by approximately $6.5 million to $35 million. To maintain a strong balance sheet with no outstanding debt, Corridor plans to further reduce its 2009 capital budget from $47.5 million to $41.5 million. The net decrease in the capital budget includes the following changes:

- Deferment of the drilling and frac'ing of a step-out well at the Caledonia Field to follow up on the South Branch G-36 well, for a net reduction of $4.0 million;

- Deferment of the costs of a site survey at a proposed drilling location on the Old Harry prospect in the Gulf of St. Lawrence, for a net reduction of $0.8 million; and

- Deferment of the costs to tie-in the C-29 well, for a net reduction of $1.1 million.

Corridor will continue to monitor economic conditions and natural gas prices and may adjust its 2009 capital budget accordingly. Corridor has no debt, owns outright its gathering, gas plant and pipeline facilities and is targeting a net positive working capital position of not less than $15 million at year end 2009.

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 Quebec and offshore in the Gulf of St. Lawrence. Corridor currently has reserves of natural gas at only one property, the McCully Field near Sussex, New Brunswick. In June 2007, Corridor completed the construction of a field gathering system, a gas plant and a pipeline lateral connecting the McCully Field to markets through the Maritimes & Northeast Pipeline.

A map of the McCully Field is available at the following address:

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 following: exploration and development drilling program, including fracturing, completion and tie-in programs; production levels; farm-in activities; assessment of (resources); regulatory approval for offshore exploration at the Old Harry prospect; 2009 capital program; natural gas prices; Canada - U.S. exchange rates; capital expenditures; revenues; cash flow from operations; working capital from operations; sources of funding; and level of bank debt.

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. These factors include, but are not limited to: risks associated with oil and gas exploration, financial risks, substantial capital requirements, bank financing, government regulation, environmental, prices, markets and marketing, issuance of debt, variations in exchange rates and hedging. Further information regarding these factors may be found under the heading "Risk Factors" in Corridor 's annual information form for the year ended December 31, 2008 and its most recent management's discussion and analysis. Readers are cautioned that the foregoing list of factors that may affect future results is not exhaustive. 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 and oil commodity prices, exchange rates, 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.

Certain of the forward-looking statements in this press release may constitute "financial outlooks" as contemplated by National Instrument 51-102 Disclosure Obligations, including information related to projected revenues, expenses, capital expenditures and production for 2009, which are provided for the purpose of forecasting the financial position of Corridor at the end of the 2009 financial year. Please be advised that the financial outlook in this press release may not be appropriate for purposes other than the one stated above.

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.

This press release refers to "cash flow from operations" which is a financial measure that is not determined in accordance with Canadian generally accepted accounting principles ("GAAP"). This measure does not have a standardized meaning and may not be comparable to similar measures presented by other companies. "Cash flow from operations" is used by Corridor to analyse operating performance, leverage and liquidity and is included in this press release because it is believed to facilitate the understanding of the results of Corridor's operations and financial position. Cash flow from operations represents net earnings adjusted for non-cash items including depletion & depreciation, future income taxes, stock-based compensation and other non-cash expenditures.

Contact Information

  • Corridor Resources Inc.
    Norman W. Miller
    902-429-0209 (FAX)