Diaz Resources Ltd.
TSX VENTURE : DZR

Diaz Resources Ltd.

August 27, 2012 09:00 ET

Diaz Announces Q2 2012 Financial Results

CALGARY, ALBERTA--(Marketwire - Aug. 27, 2012) - Diaz Resources Ltd. (TSX VENTURE:DZR) wishes to announce that it has filed on SEDAR its Interim Financial Statements and MD&A for the six months ended June 30, 2012.

Diaz is pleased to report that for the six months ended June 30, 2012, it increased production, revenues and cash flow from operations, compared with the same period in the prior year. The Company's average first half production increased to 427 BOEd from 405 BOEd while revenues increased to $3.2 million from $2.5 million and cash flow from operations increased to $570,000 compared with $151,000 in the prior year.

The Company's Q2 2012 revenues were derived 91% from oil production as compared with 54% in Q2 2011. This resulted from quarterly oil production increasing to 250 bopd from 104 bopd in the prior year combined with natural gas production declining to 825 mcfd from 1,772 mcfd in the prior year. During the quarter approximately 50% of Diaz's natural gas production was shut-in due to uneconomic natural gas prices.

Operations

In Q1 2012 Diaz completed a three well drilling program at Macklin, Saskatchewan and placed the wells on production at the end of the quarter. The wells produced at an average combined rate of 225 bopd (101 bopd net to Diaz) during Q2 2012 and have subsequently declined to 105 bopd (47 bopd net to Diaz). The Company now has increased its number of horizontal heavy oil wells to 17 wells in total, with 6 wells at Macklin and 11 wells at Lloydminster, Alberta.

During Q2 2012 Diaz commenced a program to increase the water handling facilities and disposal capacity at Macklin by installing a pipeline to transport increased volumes of water between its main oil battery and an existing water disposal well.

The Company plans to significantly increase the total fluid production from producing wells at Macklin which we believe will increase oil production at the field.

Financial

The Company's Q2 2012 revenues increased to $1.5 million from $1.1 million and cash flow from operations increased to $208,000 compared with negative $169,000 in Q2 2011. The Company had a net loss for the quarter of $749,000 compared with a net loss of $1.2 million in Q2 2011. Net loss for the six month period was $1.7 million compared with $1.2 million for the same period in the prior year.

Diaz incurred $371,000 of capital expenditures during the quarter compared with $693,000 for Q2 2011. For the sixth month period, capital spending was $2.2 million compared with $1.5 million for the same period in the prior year. Capital expenditures for the three and six month periods ended June 30, 2012, were financed from cash flow from operations, working capital and an increase in the Company's bank debt.

At June 30, 2012, Diaz had net current debt of $3.5 million compared with net current debt of $1.7 million at the beginning of the year.

Future Plans

The management of Diaz is optimistic that higher total fluid production at Macklin, made possible by the increased water handling facility which commenced in August this year, will result in an increase in the Company's production and cashflow. In addition, oil prices have recently improved which will give the Company's financial results an added boost.

However, the overall productivity of the Company's heavy oil wells, while acceptable, have been substantially lower than anticipated when Diaz decided to proceed with its $8.0 million secured convertible debenture issue, completed in June 2011. As a result, the combination of higher interest costs of the debenture and low gas prices has put the Company in a position of having limited capital for further development of the heavy oil properties. Consequently, Diaz is considering alternatives available to it to ensure that the Company's asset base can be maintained and developed over time to maximize value, including reorganization of its capital structure, possible asset sales or other transactions.

Business Outlook

Diaz expects oil prices to remain above $90 per barrel through the balance of 2012, as demand for oil continues to be strong and distribution bottlenecks at Cushing, Oklahoma, are now beginning to be alleviated with the reversal of the Seaway Pipeline. The Seaway Pipeline reversal allows oil to be delivered from Cushing to the US Gulf Coast.

Using current heavy oil discounts, WTI prices in excess of $90 should result in the Company realizing average prices for its heavy oil production greater than $60 per barrel for the remainder of the year. At this price the Company believes continued development of Diaz's heavy oil projects have positive economics.

Longer term growth will result from development of new production and reserves from Diaz's heavy oil prospect inventory acquired over the past three years.

Diaz is an oil and gas exploration and production company based in Calgary, Alberta. Diaz's current focus is on heavy oil exploration and development in Alberta and Saskatchewan.

Neither the TSX Venture Exchange nor its regulation services provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

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