DeeThree Exploration Ltd.
TSX : DTX

DeeThree Exploration Ltd.

August 11, 2011 17:44 ET

DeeThree Exploration Ltd. Announces 2011 Second Quarter Results and Senior Officer Appointments

CALGARY, ALBERTA--(Marketwire - Aug. 11, 2011) -

NOT FOR DISTRIBUTION TO U.S. NEWS WIRE SERVICES OR DISSEMINATION IN THE UNITED STATES

DeeThree Exploration Ltd. ("DeeThree" or the "Company") (TSX:DTX) is pleased to announce its financial and operational results for the three and six months ended June 30, 2011 as follows.

The second quarter of 2011 was a very active and exciting period for DeeThree. The Company delivered strong financial and operating results, recognizing the benefits of the assets acquired on March 22, 2011.

CORPORATE HIGHLIGHTS:

  • Achieving average production of 2,167 boe/d, an increase of 204% over the same quarter of 2010.
  • Increasing crude oil and NGLs production substantially to 798 bbls/d from 15 bbls/d a year ago, thereby changing the production mix to 37% crude oil and NGLs versus 2% in 2010.
  • Generating funds from operations of $4.8 million or $0.08 per share versus $0.4 million or $0.02 per share a year ago.
  • Increasing operating netbacks 154% to $28.04/boe from $11.02/boe in the same period last year.
  • Increasing cash netbacks, excluding unrealized gains on financial instruments, to $24.18/boe from $5.72/boe in the second quarter of 2010.
  • Investing $12.5 million in capital expenditures.
  • Receiving $5.0 million cash as a result of a strategic joint venture agreement announced on June 27, 2011.
  • Exiting the period with working capital of $17.8 million and an unutilized credit facility of $20.0 million.

During the second quarter, the Company successfully closed two strategic farm-out and joint venture agreements. The first, which was press released on April 18, 2011, was with a major oil and gas company whereby the farmee is committed to drill four horizontal earning wells on DeeThree's undeveloped lands in the Lethbridge area by December 31, 2011. The farmee is responsible for 100% of the costs through completion to earn a 60% working interest with no payout terms. The farmee spud the first well in late June and has completed drilling the horizontal section of the wellbore. The well has also been completed with testing operations now underway. The second joint venture, press released on June 27, 2011, was with a junior oil and gas company whereby the farmee agreed to pay DeeThree $5.0 million and committed to drill and complete a minimum of two horizontal wells on our Company's lands located in the northern portion of our Lethbridge property by year-end. The farmee is responsible for 100% of the costs through completion to earn a 60% working interest with no payout terms. No locations have yet to be spud under the terms of this agreement.

The combined joint ventures represent less than 30% of DeeThree's undeveloped Bakken acreage in the Lethbridge area, and in a full earning scenario, would encompass 12 gross (4.8 net) wells being drilled in addition to the cash payment. Our Company's drilling (100% working interest) along with those of the joint venture partners allows DeeThree to test the aerial extent of the Bakken play in a more timely and cost effective manner.

Operational Update

DeeThree had a very active quarter operationally, investing $12.5 million in capital expenditures. We currently have seven horizontal wells drilled that are waiting to be brought on-stream in the coming weeks.

Lethbridge – Alberta Bakken

We are pleased with the drilling results of the Alberta Bakken to date. DeeThree has completed its first round of drilling that included four horizontal wells with the focus on the southern and eastern land blocks. Two of these wells are currently in the process of facility and pipeline construction and should be on-stream in the coming weeks. The remaining two wells are currently awaiting fracture stimulation operations. We will be evaluating the production and decline curves of these wells before continuing with the second round of drilling. Our Company has been successful in bringing the drilling and completion costs down in the Bakken area, and throughout this evaluation period, will continue to assess lower cost drilling and fracture stimulation methods. In the meantime, our two joint venture partners will be drilling and evaluating the western and northern land blocks for Alberta Bakken potential at no cost to DeeThree.

Lethbridge – Shallow Oil

During the second quarter, the Company successfully drilled a Sunburst oil discovery. The well, an unstimulated bilateral horizontal, was flowing at a rate of 309 boe/d (72% oil) at the end of a five-day test period. DeeThree is excited about the potential of this new discovery and has identified a number of further development and exploration prospects based on this highly successful well.

Peace River Arch

Subsequent to quarter-end, in early July, DeeThree spud its first horizontal well targeting the Montney formation in the Rycroft area of northern Alberta. A vertical test well was drilled and logged prior to a 1,145-metre horizontal section being drilled. Excellent penetration rates, natural gas and oil shows were encountered throughout the horizontal section. The well is currently awaiting a 14-stage fracture stimulation, which is planned for mid-August. The Company is currently drilling the second Montney well with operations expected to be completed in late August.

Brazeau Belly River

Also in early July, the Company spud its first horizontal Belly River well in the Brazeau area of west central Alberta. The well was drilled in the Basal Belly River channel sand to its planned depth with a 676-metre horizontal section. The well is currently awaiting an 11-stage fracture stimulation that is expected to be completed by August 15, 2011. DeeThree is currently drilling its second Belly River well with operations anticipated to be completed by late August.

Outlook

We are extremely pleased with the current state of our Company. DeeThree continues to maintain a healthy balance sheet, exiting the second quarter with $17.8 million in positive working capital and an unutilized credit facility of $20.0 million. Drilling results to date in 2011 have exceeded expectations and the strategic joint venture and farm-out agreements will allow DeeThree to explore the Bakken play, while providing for a great deal of financial and operating flexibility. Our Company has three operated rigs currently drilling and another two non-operated drilling rigs are anticipated to be operational in the third and fourth quarters. We will evaluate the testing results of the 11 gross (10.4 net) wells drilled to date to determine the best use of our Company's capital over the balance of the year in order to maximize production and reserves additions. We look forward to providing updates with the results of this very active program as they occur.

Management Appointments

We are pleased to announce that Mr. Clayton Thatcher has been promoted to Vice President, Exploration, having most recently served as the Company's Vice President, Geophysics. Prior to joining DeeThree in 2010, Mr. Thatcher worked with major oil and gas explorers including Encana Corporation and Cenovus Energy.

Mr. Brendan Carrigy has been promoted to Executive Vice President and is also a Director of the Company. Mr. Carrigy has been the Vice-President, Exploration of the Corporation since July, 2009. Prior to joining DeeThree, Mr. Carrigy was Vice-President, Exploration for Cyries Energy Inc. from its inception in July 2004 to July 2007 and Exploration Manager of Cequel Energy Inc. from January 2002 to July 2004.

These promotions recognize their contributions to our success.

FINANCIAL & OPERATING HIGHLIGHTS

Three Months Ended June 30, Six Months Ended June 30,
2011 2010(4 ) Change 2011 2010(4 ) Change
(000s, except per share amounts) ($ ) ($ ) (% ) ($ ) ($ ) (% )
Financial
Oil and natural gas revenues 9,465 1,679 464 11,434 3,972 188
Funds from operations (1) 4,777 372 1,184 3,944 1,219 224
Per share
– basic and diluted 0.08 0.02 300 0.08 0.06 33
Cash flow from (used in)
operating activities 2,299 407 465 (2,564 ) 1,065 (341 )
Net loss (899 ) (2,079 ) (57 ) (2,890 ) (2,668 ) 8
Per share
– basic and diluted (0.01 ) (0.10 ) (90 ) (0.06 ) (0.14 ) (57 )
Capital expenditures (2) 12,490 4,012 211 142,019 11,170 1,171
Total assets 195,267 38,690 405 195,267 38,690 405
Working capital (5) 17,871 3,133 470 17,871 3,133 470
Shareholders' equity 174,850 32,880 432 174,850 32,880 432
(000s) (# ) (# ) (% ) (# ) (# ) (% )
Share Data
At period-end 62,572 21,181 195 62,572 21,181 195
Weighted average
– basic and diluted 62,572 21,074 197 49,596 19,098 160
(% ) (% )
Operating(3)
Production
Natural gas (mcf/d) 8,214 4,191 96 5,991 4,698 28
Crude oil and NGLs (bbls/d) 798 15 5,220 445 16 2,681
Total (boe/d) 2,167 714 204 1,444 799 81
Average wellhead prices
Natural gas ($/mcf) 3.85 4.14 (7 ) 3.82 4.43 (14 )
Crude oil and NGLs ($/bbl) 90.74 72.35 25 90.37 73.62 23
Total ($/boe) 47.99 25.85 86 43.74 27.47 59
Netbacks
Operating netback ($/boe) 28.04 11.02 154 24.82 13.50 84
Funds from operations ($/boe) 24.18 5.72 323 15.06 8.42 79

Three Months Ended June 30,

Six Months Ended June 30,
2011 2010(4 ) Change 2011 2010(4 ) Change
(% ) (% )
Gross (net) wells drilled
Gas (#) -- (-- ) 3 (3.0 ) -- -- (-- ) 5 (5.0 ) --
Oil (#) 2 (2.0 ) -- (-- ) -- 4 (4.0 ) -- (-- ) --
Standing (#) -- (-- ) -- (-- ) -- -- (-- ) --(-- ) --
Dry and abandoned (#) -- (-- ) 2 (2.0 ) -- -- (-- ) 2 (2.0 ) --
Total (#) 2 (2.0 ) 5 (5.0 ) (60 ) 4 (4.0 ) 7 (7.0 ) (43 )
Average working interest (%) 100 100 -- 100 100 --

(1) Funds from operations and funds from operations per share are not recognized measures under International Financial Reporting Standards ("IFRS"). Refer to the commentary below under the heading "Non-IFRS Measurements" for further discussion.

(2) Total capital expenditures, including acquisitions.

(3) For a description of the boe conversion ratio, refer to the commentary below under the heading "BOE Presentation".

(4) Amounts presented for the three and six months ended June 30, 2010 have been restated for the effect of the adoption of IFRS.

(5) Current assets less current liabilities, excluding current derivative financial instruments.

Reader Advisory

Forward-Looking Statements. Certain statements contained in this press release may constitute forward-looking statements. These statements relate to future events or the DeeThree's future performance. All statements other than statements of historical fact may be forward-looking statements. Forward-looking statements are often, but not always, identified by the use of words such as "seek", "anticipate", "plan", "continue", "estimate", "expect", "may", "will", "project", "predict", "potential", "targeting", "intend", "could", "might", "should", "believe" and similar expressions. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. DeeThree believes that the expectations reflected in those forward-looking statements are reasonable, but no assurance can be given that these expectations will prove to be correct and such forward-looking statements included in this press release should not be unduly relied upon by investors. These statements speak only as of the date of this press release and are expressly qualified, in their entirety, by this cautionary statement.

In particular, this press release contains forward-looking statements, pertaining to the following: projections of market prices and costs, supply and demand for oil and natural gas, the quantity of reserves, oil and natural gas production levels, capital expenditure programs, treatment under governmental regulatory and taxation regimes, expectations regarding DeeThree's ability to raise capital and to continually add to reserves through acquisitions and development, and projections of market prices and costs.

With respect to forward-looking statements contained in this press release, DeeThree has made assumptions regarding, among other things: the legislative and regulatory environments of the jurisdictions where DeeThree carries on business or has operations, the impact of increasing competition, and DeeThree's ability to obtain additional financing on satisfactory terms.

DeeThree's actual results could differ materially from those anticipated in these forward-looking statements as a result of risk factors that may include, but are not limited to: volatility in the market prices for oil and natural gas; uncertainties associated with estimating reserves; uncertainties associated with DeeThree's ability to obtain additional financing on satisfactory terms; geological, technical, drilling and processing problems; liabilities and risks, including environmental liabilities and risks, inherent in oil and natural gas operations; incorrect assessments of the value of acquisitions; competition for, among other things, capital, acquisitions of reserves, undeveloped lands and skilled personnel.

This forward-looking information represents DeeThree's views as of the date of this document and such information should not be relied upon as representing its views as of any date subsequent to the date of this document. DeeThree has attempted to identify important factors that could cause actual results, performance or achievements to vary from those current expectations or estimates expressed or implied by the forward-looking information. However, there may be other factors that cause results, performance or achievements not to be as expected or estimated and that could cause actual results, performance or achievements to differ materially from current expectations. There can be no assurance that forward-looking information will prove to be accurate, as results and future events could differ materially from those expected or estimated in such statements. Accordingly, readers should not place undue reliance on forward-looking information.. Except as required by law, the Company undertakes no obligation to publicly update or revise any forward-looking statements.

Non-IFRS Measurements. This news release contains the terms "funds from other operations" and "funds from operations per share", which should not be considered an alternative to or more meaningful than cash flow from operating activities as determined in accordance with IFRS or previous GAAP. These terms do not have any standardized meaning as prescribed by IFRS or previous GAAP. DeeThree's determination of funds from operations and funds from operations per share may not be comparable to that reported by other companies. Management uses funds from operations to analyze operating performance and leverage, and considers funds from operations to be a key measure as it demonstrates the Company's ability to generate cash necessary to fund future capital investments and to repay debt. Funds from operations is calculated using cash flow from operating activities as presented in the statement of cash flows before changes in non-cash working capital and settlement of retirement costs. DeeThree presents funds from operations per share whereby per share amounts are calculated using weighted average shares outstanding consistent with the calculation of earnings per share.

BOE Presentation. References herein to "boe" mean barrels of oil equivalent derived by converting gas to oil in the ratio of six thousand cubic feet (Mcf) of gas to one barrel (bbl) of oil. Boe may be misleading, particularly if used in isolation. A boe conversion ratio of 6 Mcf: 1 bbl is based on an energy conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

This new release shall not constitute an offer to sell or the solicitation of an offer to buy any securities in any jurisdiction.

We seek Safe Harbor.

Contact Information

  • DeeThree Exploration Ltd.
    Martin Cheyne
    President and Chief Executive Officer
    (403) 263-9130