Defiant Resources Corporation
TSX : DFR

Defiant Resources Corporation

February 21, 2007 12:00 ET

Defiant Resources Corporation Provides Operations Update, 2007 Guidance and Announces 2006 Reserves Summary

CALGARY, ALBERTA--(CCNMatthews - Feb. 21, 2007) - Defiant Resources Corporation ("Defiant" or the "Company") (TSX:DFR) is pleased to provide an operations update for the fourth quarter 2006 and first quarter 2007 together with guidance for 2007. The Company is also announcing the results of its independent year-end reserves and unproved properties evaluation prepared by Sproule Associates Limited ("Sproule").

Fourth Quarter 2006

Production averaged 1,015 boe per day in the fourth quarter bringing the year to date average production to 908 boe per day, an increase of 187% over 2005's average of 316 boe per day. December's production averaged 1,200 boe per day as the Company was able to resolve curtailment and capacity constraints in the Grande Prairie area by the end of the year. Production for the first quarter of 2007 is estimated to average 1,100 boe per day accounting for winter conditions, production declines and regulatory issues discussed below.

During the fourth quarter the Company had disappointing drilling results, with six (5.1 net) wells drilled, resulting in one (1.0 net) oil well and five (4.1 net) dry and abandoned wells. This brought the total number of wells drilled in 2006 to seventeen (14.3 net), including four (4.0 net) gas wells, two (1.6 net) oil wells and 11 (8.7 net) dry and abandoned wells, for an overall success rate of 39%. The lower success rate this year reflects the predominantly exploratory nature of the 2006 drilling program. Defiant was unable to drill a number of its lower risk prospects in 2006 as the Company continued to work with various stakeholders in the Dimsdale, Grande Prairie East and Clairmont areas to resolve their concerns. The Company has been able to alleviate most of the area residents' concerns, an Alberta Energy and Utilities Board ("EUB") hearing will likely be required to resolve the remaining concerns which will delay drilling some of these prospects until the second half of 2007. We do not expect similar delays with future drilling prospects as the new prospects are outside the proposed annexation area for the City of Grande Prairie.

The initial exploratory discovery well for a new Dunvegan oil reservoir at Grande Prairie East was placed on production in the final quarter of 2006. The well has achieved stable production rates in excess of 100 (55 net) boe per day since early December. The Company plans to follow up this discovery with four development locations in the first half of 2007.

Capital expenditures for the fourth quarter are estimated at $8.0 million. Total net debt at year end is approximately $13 million, including an $8.0 million draw on our $18 million bank lines.

First Quarter 2007

The Company has successfully drilled and tested a Dunvegan gas well in Grande Prairie East which is currently being tied in and will be on production in April. We anticipate the well will produce at 750 mcf per day, adding 125 boe per day to our net production.

A second well in the Dunvegan oil discovery was successfully drilled and cased in early February. The well was recently completed and fractured which will allow the well to be placed on production in March at 100 (55 net) bbls/d. The well will produce for four months at this rate pursuant to the prescribed new oil well production period after which it will be subject to an allowable of 70 (40 net) bbls/d. Further analysis is required to determine optimal down spacing development plans and the feasibility of a water flood pressure maintenance scheme to increase production rates and ultimate oil recoveries.

Other wells to be drilled before spring break up include lower risk high impact locations at Karr, Gold Creek and Dimsdale. These prospects are considered more developmental in their risk profile as they have producing wells on the adjacent lands and have been high graded by 3D seismic.

Defiant has been required by the EUB to reclass one of its Grande Prairie gas wells as an oil well. The EUB required the well to be shut in during the month of February. Since being placed on production in mid 2006 at substantial natural gas rates with little oil, the oil volumes have steadily increased while the gas rate has remained constant. At the time the well was shut in it was producing at a rate of 1.5 mmcf/d of natural gas and 150 bbls/d of oil, or 400 (200 net) boe per day. We have submitted a Good Production Practice ("GPP") application to the EUB which, if it is approved, will allow the well to resume producing to its full potential. We expect to receive a decision on the GPP application from the EUB in the next 30 to 45 days. Defiant is able to offset a portion of this temporary decrease in production by increasing production rates from other gas wells in the Grande Prairie area.

Production for the first quarter of 2007 is estimated to average 1,100 boe per day, and we expect to exit the quarter producing at over 1,300 boe per day when the new Dunvegan oil and gas wells are placed on production.

2007 Capital Budget and Guidance

The Company's Board of Directors has approved a $21 to $26 million capital budget for 2007. The range accounts for commodity price volatility while allowing the Company to adhere to its fiscal policy of maintaining net debt below 1.5 times annualized trailing quarter cash flow. Capital expenditures for the first quarter of 2007 are expected to be $4.5 to $5.0 million which will help keep net debt below 1.0 time annualized cash flow. Defiant's 2007 capital budget is focused on a combination of development and high impact exploration opportunities generated in 2006. The Company plans to drill 20 (15 net) wells, including 11 (7.0 net) wells in Grande Prairie, two (2.0 net) wells at Karr and two (1.2 net) wells at Gold Creek. Expenditures are estimated at $15 million for drilling and completions, $6.0 million for land and seismic acquisition and $5.0 million for equipping and tie in. These expenditures are expected to increase average daily production by approximately 60%, to 1,400 boe per day and allow the Company to achieve an exit rate of 1,800 boe per day in 2007.

Reserves

In 2006, Defiant added 1,069 mboe to its proved plus probable reserves before negative revisions of 927 mboe for an increase of 142 mboe verses production of 332 mboe. Reserve additions were largely in the greater Grande Prairie area with significant Dunvegan oil and gas discoveries. The negative revisions relate to the Reine area, which accounted for 65% of the total revisions. Proven and probable reserves previously assigned to the sections adjacent to our initial discovery at Reine were revised downwards when the offsetting wells were unable to produce gas at economic rates. The initial well continues to produce at 60 boe per day.

Highlights from the Reserve Report

1. During the year proved producing reserves increased 63% as Defiant was able to complete construction of its Grande Prairie pipeline and place all gas wells in the area on production;

2. The greater Grande Prairie area accounts for 57% of the net present value of our proved plus probable reserves;

3. Natural gas and the associated liquids represent 66% of the net present value of the reserves while light oil accounts for 34%;

4. The new Dunvegan oil discovery is estimated to have over three million barrels of oil in place with an initial recovery factor of approximately 10%. Defiant is analysing a core taken from the second well to determine what can be done to increase the recovery factor by implementing a water flood scheme.

Summary of Oil and Natural Gas Reserves Company Interest before Royalty

In this press release "Company Interest before Royalty" is the working interest reserves plus royalty interest reserves before royalty burdens payable are deducted. The following table summarizes year end proved and probable reserves for the company interest using forecast prices.



December 31
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2006 2005

Reserve Category Gas Oil Liquids Total Total
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mmcf mstb mstb mboe mboe

Proved producing 5,052 398 250 1,408 866
Proved developed non-producing 135 48 - 73 755
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Total proved 5,187 446 250 1,481 1,621
Probable 6,242 461 377 1,690 1,739
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Total proved plus probable 11,429 907 628 3,170 3,360
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Net Present Value of Reserves

The prices used in the reserve report were Sproule's Forecast Prices as at December 31, 2006. The estimated future net revenues are presented before deducting future estimated site restoration costs, and are reduced for estimated future abandonment costs and future capital costs associated with non-producing, undeveloped and probable additional reserves.

The Company's Statement of Reserves Data and Other Oil and Gas Information as required under NI 51-101 includes presentation of oil and gas net interests reserves and future net revenue after income taxes. Both are prepared using forecast prices and costs, constant prices and costs, and will be included in the Company's Annual Information Form which will be filed on SEDAR.



Summary of Future Net Revenue before income taxes

December 31, 2006 December 31, 2005
Discounted at 0% 5% 10% 15% 0% 10%
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$m $m $m $m $m $m
Proved producing 44,524 37,988 33,599 30,392 32,245 24,440
Proved non-producing 1,512 1,253 1,050 885 25,391 20,195
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Total Proved 46,036 39,241 34,648 31,277 57,636 45,635
Probable 37,752 23,874 17,362 13,461 51,032 26,830
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Total Proved plus
Probable 83,788 63,115 52,011 44,738 108,668 72,465
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Reserve Life Index

Defiant's reserve life index is 3.4 years proved, 7.2 years proved plus probable based on a 2006 exit production rate of 1,200 boe per day. This compares to 6.3 years proved and 13.2 years proved plus probable calculated on an exit rate of 700 boe per day for 2005.

Land Holdings

At December 31, 2006 Defiant had over 101,000 net acres of undeveloped land. The Company acquired approximately 29,700 net acres during the year, while allowing 9,100 net acres of non core lands to expire. The majority of the land additions were in the Grande Prairie area.
Sproule has prepared an independent evaluation of Defiant's undeveloped land position and has assigned a value of $10.2 million as of December 31, 2006. This represents a 40% increase over last year's value of $7.3 million.

About the Company

Defiant is a junior oil and gas, exploration and production company. We are geographically focused in two core areas where our management and technical team have considerable experience. The south east Peace River Arch and West Pembina areas have multiple targets that yield high gravity oil and liquid-rich, high heat value natural gas. Defiant typically operates, maintains a high working interest, utilizes best practices including 3D seismic and fracture stimulations and places wells on production within a few months of drilling. Risk is managed by maintaining a portfolio of low to medium risk opportunities augmented with higher risk, higher reward exploration. Defiant currently has 21.4 million basic and 25.8 million fully diluted shares outstanding.

Forward Looking Statements - Certain information regarding Defiant Resources Corporation set forth in this document, including management's assessment of Defiant Resources Corporation's future plans and operations, contains forward-looking statements that involve substantial known and unknown risks and uncertainties. These forward-looking statements are subject to numerous risks and uncertainties, certain of which are beyond Defiant Resources Corporation's control, including the impact of general economic conditions, industry conditions, volatility of commodity prices, currency fluctuations, imprecision of reserve estimates, environmental risks, competition from other producers, the lack of availability of qualified personnel or management, stock market volatility and ability to access sufficient capital from internal and external sources. Defiant Resources Corporation's actual results, performance or achievement could differ materially from those expressed in, or implied by, these forward-looking statements and, accordingly, no assurance 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 Defiant Resources Corporation will derive therefrom.

Contact Information

  • Defiant Resources Corporation
    Rick J. Ironside
    President & C.E.O.
    (403) 218-4104
    or
    Defiant Resources Corporation
    Rob H. Solinger
    V.P., Finance & C.F.O.
    (403) 218-4106
    or
    Defiant Resources Corporation
    1800, 800 - 6th Avenue SW
    Calgary, Alberta T2P 3G3
    (403) 266-5587
    (403) 266-5506 (FAX)
    Email: info@defiantresources.com
    Website: www.defiantresources.com