Culane Energy Corp.
TSX VENTURE : CLN

Culane Energy Corp.

April 28, 2011 14:29 ET

Culane Energy Releases 2010 Financial Results

CALGARY, ALBERTA--(Marketwire - April 28, 2011) -

THIS NEWS RELEASE IS NOT FOR DISSEMINATION IN THE UNITED STATES OR TO U.S. PERSONS.

Culane Energy Corp. (TSX VENTURE:CLN) ("Culane" or the "Company") announces its financial and operating results for the year ended December 31, 2011. The audited Financial Statements and related Management's Discussion and Analysis have been filed with Canadian securities regulatory authorities on SEDAR at www.sedar.com and posted on the Company's website at www.culaneenergycorp.com.

2010200920102009
SUMMARYQ4Q4YearYear
Daily production - BOE8591,0739631,370
Netback per BOE20.1826.7623.0324.96
Cash flow - ($000's)1,5161,9396,18810,018
Cash flow per share (basic)0.060.080.250.42
Earnings (loss) - ($000's)(153)(375)(2,677)(4,840)
Wells drilled--64
Capital expenditures - ($000's)2,3854,96814,19713,105
Dispositions – ($000's)---408
Working Capital - ($000's)47169
Bank debt - ($000's)(18,738)(13,913)
Net debt - ($000's)(18,691)(13,744)
Basic shares outstanding at December 3127,189,75424,519,754

Summary- continued (per share information stated below is based on weighted average – basic outstanding shares)

  • In 2010, gross proved reserves increased by 37.1%, gross proved plus probable reserves increased by 23.8%, and gross proved plus probable plus possible reserves increased by 24.1% from 2009.
  • Water-flood injection rates at Killam reached 6,500 bbls/d early in the first quarter of 2011 following the tie-in of its final water source well. Current rates are approximately 6,100 – 6,300 bbls/d.
  • Production averaged 963 BOE/d for 2010 compared to 1,370 BOE/d for 2009 (Q4/10 – 859, Q3/10 – 958, Q2/10 – 980, Q1/10 – 1,056, Q4/09 – 1,073). Production mix was 76% oil and 24% natural gas for the fourth quarter of 2010.
  • Prices for 2010 averaged $68.39 per bbl for oil and $4.24 per Mcf for natural gas compared to 2009 prices of $57.95 per bbl for oil and $4.10 per Mcf of natural gas.
  • Gross revenues were $20.3 million for 2010 compared to $24.5 million for 2009.
  • Cash flow for 2010 was $6.2 million, or $0.25 per share, compared to $10 million, or $0.42 per share for 2009. Cash flow for 2010 included $824,000 from participation in Alberta drilling royalty credits recorded as other income.
  • The Company recorded a loss of $2.7 million for 2010, or $0.11 per share, compared to a loss of $4.8 million, or $0.21 per share in 2009. Higher depletion costs in 2009 contributed to the bigger loss in the earlier period.
  • Capital expenditures of $14.2 million were incurred in 2010. Most of the expenditures ($9.8 million) were in Saskatchewan with three horizontal wells and one vertical test well drilled, and one in progress at year end in new exploration areas, plus 10 additional sections of lands acquired. Two additional water source wells were drilled at Killam Alberta in August 2010, along with water source pipelines added in the fourth quarter for a total of $4 million expended on the water-flood projects during 2010.
  • The Company's land base in Saskatchewan is now comprised of 43,993 acres (68.7 sections), 85% Crown and 15% freehold.
  • Net debt (bank debt less working capital) at December 31, 2010 was $18.7 million compared to $13.7 million at December 31, 2009.
  • The Company had drawn $18.7 million on its primary credit facility of $27 million at December 31, 2010, leaving $8.3 million available, plus $3 million on its development facility.
  • The Company issued 2,250,000 flow-through common shares at $1.45 per share for gross proceeds of $3.3 million in the fourth quarter of 2010. The proceeds were used toward funding the Company's winter exploration drilling program.
  • The basic common shares outstanding at April 27, 2011 are 27,189,754.

The Company completed its first full year of operations at Killam under a fully implemented waterflood where it achieved increasing water injection rates of up to 4,700 barrels per day by year end, and observed positive response to the waterflood through stabilized oil production rates and decreasing gas-oil ratios. Water injection rates increased to 6,500 barrels per day by the end of February 2011 with the tie-in of two major water source wells. The Killam waterflood project is now fully developed and the Company is moving forward with the surfactant polymer flood development. The Company has also laid plans for a central battery facility at Killam, for 2012. On the exploration front, the Company drilled three exploratory wells and one development well in S.W. Saskatchewan in 2010, resulting in one producing oil well in the Upper Shaunavon formation. The exploration drilling in S.W. Saskatchewan continued in the first quarter of 2011, funded by $3.3 million raised late in 2010 through the issue of flow-through shares, specifically for this purpose. Although production and cash flow were lower in 2010 compared to 2009, reserves increased through the recognition of the waterflood potential at Killam. The Company anticipates that the waterflood will have a positive impact at Killam, further increasing oil production rates in 2011, and combined with rising oil prices will result in increased cash flows over 2010.

In 2010, gross proved reserves increased by 37.1%, gross proved plus probable reserves increased by 23.8%, and gross proved plus probable plus possible reserves increased by 24.1% from 2009, even after accounting for production of 341.5 MBOE. The net present value before income tax (discounted at 10%) of gross proved reserves at December 31, 2010 was $79.6 million, an increase of 25.6% from December 31, 2009. At December 31, 2010, the net present value before income tax (discounted at 10%) of gross proved plus probable reserves was $97.3 million, an increase of 19.4% year over year. At December 31, 2010, the net present value before income tax (discounted at 10%) of gross proved plus probable plus possible reserves was $128.0 million, a decrease of 29.9% from December 31, 2009. The reserve increases are mainly attributable to increased reserve recognition for secondary and tertiary recovery at Killam, Alberta.

The reserves have been assigned as Proved, Probable and Possible. McDaniel has assigned Possible reserves (3P) to improved Killam waterflood recovery and to the Killam surfactant polymer flood. The Proved, Probable and Possible reserves assigned at this time to Killam combine for a 29.4% oil recovery factor. The "Discovered Petroleum Initially-in-place" at Killam net to Culane is estimated by McDaniel at 42.4 million barrels of 24 degree API oil. Culane maintains 100% ownership in this asset and is the operator.

ALBERTA

KILLAM

Commencing February 28, 2011, water injection rates were increased to 6,500 barrels per day and are now at approximately 6,300 barrels of water per day. In the fourth quarter of 2010, Culane constructed a pipeline to tie in 3 water source wells to decrease water trucking costs and increase water injection rates. This pipeline has reduced operating costs by approximately $2.50 per barrel. The two new water source wells drilled in August have been equipped, and tied in to the newly constructed water pipeline to the Killam water injection facility. As a result of water injection into the Killam pool of approximately 4,700 barrels per day to the end of February, Culane has observed full field response to the waterflood. Culane has achieved a voidage replacement ratio in Section 16 of 2.0 and a voidage replacement of greater than 1.0 in the other sections. Culane has also observed a comparable decrease in daily natural gas rates. The new increases in water injection rates are expected to have a positive impact, further increasing oil production rates across all the wells in the pool.

Culane has 31 multi-leg horizontal producing oil wells at Killam, 13 water injectors that are a combination of vertical and horizontal wells and 12 water source wells.

Water-flooding and Surfactant Polymer flooding can dramatically increase the amount of recoverable oil reserves above the estimated 10% oil recovery resulting from primary production. Analogous oil pool case histories have established that water-flooding similar oil reservoirs has the potential to recover up to 25% of the original oil in place and Surfactant Polymer flooding has the potential to recover up to 48% of the original oil in place. The Killam feasibility study, linear core flooding results on Killam wells and existing analogous pools indicates the potential for these oil recoveries.

SASKATCHEWAN

COLEVILLE

As previously announced, in the first quarter of 2010 Culane drilled an exploration well targeting the Birdbear formation in west central Saskatchewan at Coleville. The well was then acidized and swabbed with rates up to 70 barrels of oil per day and water cuts ranging from 65% to 100%. The oil quality is 14.6° API. A single well battery was then constructed to allow this well to be production tested. Culane carried out an initial chemical treatment on this well in April with the subsequent testing of the well being delayed by road bans and wet weather. Once production commenced Culane produced 100 barrels of oil in 18 hours, then the well turned back to producing water. The produced oil sample was sent to the lab for analysis. The produced oil turned out to be a thick emulsion that formed when the mud system was turned over to produced water from another Birdbear pool 30 miles away. To date, efforts to break the emulsion block have failed.

Culane completed drilling and logged the Coleville stratigraphic test well 2A9-29-31-23 W3M on January 21, 2011. As predicted by seismic and shallow well control, the structure on the top of the Birdbear zone increased by approximately 6 meters.

Culane licensed a horizontal well after receiving approval for its HWP (Horizontal Well Project) by the Government of Saskatchewan, but drilling operations are currently on hold while the Company completes its strategic alternatives process.

Culane will pay a 2.5% Crown royalty on the first 100,000 barrels (16,000 m3) of oil produced from any horizontal wells drilled in the Birdbear Formation on Saskatchewan Crown lands. Culane owns a 100% working interest in this project.

KERROBERT

On December 27, 2010 Culane drilled a well on its Kerrobert property at 16-10-34-22w3, reaching a total depth of 1,463m and was logged on January 13, 2011. The Kerrobert well is a vertical stratigraphic test well with two target formations in the Devonian. First, an 18 meter drill core was retrieved from the Devonian Birdbear formation and sent for analysis. Results of this analysis are encouraging with oil saturation, permeability, and porosity better than expected. [Over a 5 meter dolomite interval, porosities ranged from 20 to 26 percent and oil saturations ranged from 40 to 77 percent. Permeabilities in this interval ranged from 34 millidarcies with a 40 percent oil saturation to 645 millidarcies with a 69 percent oil saturation.] These permeability and oil saturations exceed core results published on the A12-4-39-27 W3M vertical test well located in the center of the oil producing Hallam North Birdbear pool located in S.W. Saskatchewan. Culane has recently received approval for an HWP (Horizontal Well Project) approval to drill horizontal wells into the Birdbear formation. Drilling of a horizontal well at Kerrobert has been put on hold while the Company completes its Strategic Alternatives Process.

A deeper Devonian formation was also tested in the Kerrobert well and although the formation structure increased by 7 meters from what was anticipated, the zone proved to be uneconomic.

NOTUKEU

Results of the April 11, 2011 land sale were released last week and lands directly offsetting Culane's lands at Notukeu sold for $1 million to $1.6 million per section. Culane owns 13 sections of land at Notukeu, in S.W. Saskatchewan, with a 100% working interest and has identified an additional 25 drill locations.

Culane's drilling operations at Notukeu have resulted in a successful 100% working interest horizontal oil well in the Upper Shaunavon formation at 2-6-11-17w3. Initial production rates for the first month were averaging approximately 15 m3 (94 barrels) of oil per day with an 8 to 10 % water cut.

After a month of production, the well experienced pump failure and, following a replacement, oil production stabilized at its current rate of 17 bbls/d and a 9% watercut. The Company suspects the well has plugged off due to the influx of sand from the frac operation and plans to re-enter the well to clean the sand out of the well bore. After the results reported for the above mentioned land sale it is very clear that other parties understand the prospectivity of these lands in this area.

LOOKING FORWARD

As previously announced, Culane has acquired a 100% working interest in approximately two townships of land (69 sections) in southwest Saskatchewan. Culane acquired this land for its oil potential.

Current production is approximately 945 BOE's per day with an additional 60 barrels per day of oil waiting on ERCB approval to bring back on production.

The Company is currently engaged in a strategic alternatives process where it will review a range of alternatives available to the Company with a view to enhancing shareholder value. The Company is currently trading at a substantial discount to the net asset value of its underlying assets at a time when oil prices have exceeded $100 per barrel, and the Directors of Culane believe that a sale of the Company or a similar transaction is the best way to maximize shareholder value. The process is expected to conclude before the end of May but there is no assurance that the process will result in a transaction of any form.

Reserves

Company share of remaining reserves – forecast prices and costs

Reserves categoryMedium Oil (Mbbl)Heavy Oil (Mbbl)Sales Gas (MMcf)Natural Gas Liquids (Mbbl)Total (MBOE)
GrossNetGrossNetGrossNetGrossNetGrossNet
Proved producing26.922.51632.31250.2661.1565.90.50.41769.91367.4
Proved non-producing0.00.0911.4611.6183.2147.80.00.0941.9636.2
Proved undeveloped0.00.0815.5636.073.557.90.00.0827.8645.6
Total proved26.922.53359.32497.8917.8771.60.50.43539.62649.3
Probable11.39.41280.9936.0496.2419.51.21.01376.21016.3
Total proved plus probable38.231.94640.23433.81414.01191.01.71.44915.73665.6
Possible0.00.04648.93276.0289.9223.70.00.04697.23313.3
Total proved plus probable plus possible38.231.99289.16709.81703.91414.81.71.49612.96978.9

*Gross reserves means working-interest plus royalty-interest reserves, before deduction of royalties.

Forecast pricesCompany share of Net Present Value Before Income Taxes ($M)
Reserves categoryDiscounted (per year) at:
Undisc5%10%15%20%
Proved producing65,528.153,815.045,420.939,308.234,714.7
Proved non-producing35,857.924,348.717,941.913,964.111,292.9
Proved undeveloped30,788.222,027.816,242.012,298.89,512.5
Total proved132,174.3100,191.579,604.865,571.155,520.1
Probable57,377.230,161.517,715.411,243.77,531.5
Total proved plus probable189,551.5130,353.097,320.276,814.863,051.6
Possible182,082.364,684.130,692.717,160.910,523.4
Total proved plus probable plus possible371,633.8195,037.0128,012.993,975.773,575.0
McDaniel's forecast pricing assumptionsWTI Cushing Oklahoma ($U.S./bbl)Edmonton Par Price 40 ° API ($Cdn./bbl)Alberta Bow River Hardisty Crude Oil ($Cdn/bbl)Alberta AECO spot price ($Cdn/MMBtu)US / Cdn Exchange
201185.0084.2072.804.250.975
201287.7088.4075.004.900.975
201390.5091.8075.105.400.975
201493.4094.8077.505.900.975
201596.3097.7080.006.350.975

Beyond year 2015, the price escalates on average 2% per year. A foreign exchange rate of $0.975 US to $1.00 Cdn was used beyond 2015.

About Culane Energy Corp.

Culane Energy is a junior oil and gas company engaged in the exploration, development and production of oil and natural gas in western Canada.

Reader Advisories

Forward-Looking Statements: This news release contains certain forward-looking statements, including management's assessment of future plans and operations and the expected timing and results from operations that involve substantial known and unknown risks, uncertainties and assumptions, certain of which are beyond Culane's control. Such risks, uncertainties and assumptions include, without limitation, those associated with oil and gas exploration, development, exploitation, production, marketing, processing and transportation, loss of markets, volatility of commodity prices, currency fluctuations, imprecision of reserve estimates, environmental risks, competition from other producers, inability to retain drilling rigs and other services, delays resulting from or inability to obtain required regulatory approvals and ability to access sufficient capital from internal and external sources, the impact of general economic conditions in Canada, the United States and overseas, industry conditions, changes in laws and regulations (including the adoption of new environmental laws and regulations) and changes in how they are interpreted and enforced, increased competition, the lack of availability of qualified personnel or management, fluctuations in foreign exchange or interest rates, stock market volatility and market valuations of companies with respect to announced transactions and the final valuations thereof, and obtaining required approvals of regulatory authorities. Culane's actual results, performance or achievements could differ materially from those expressed in, or implied by, these forward-looking statements and, accordingly, no assurances can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do so, what benefits that Culane will derive there from. Readers are cautioned that the foregoing list of factors is not exhaustive. Additional information on these and other factors that could affect Culane's operations and financial results are included in reports, including Culane's annual information form for the financial year ended December 31, 2009, on file with Canadian securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com). All subsequent forward-looking statements, whether written or oral, attributable to Culane or persons acting on its behalf are expressly qualified in their entirety by these cautionary statements. Furthermore, the forward-looking statements contained in this news release are made as at the date of this news release and Culane does not undertake any obligation to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by applicable securities laws.

BOEs may be misleading, particularly if used in isolation. A BOE conversion ratio of 6 Mcf: 1 bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

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.

27,189,754Common Shares

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