Diaz Resources Ltd.
TSX : DZR

Diaz Resources Ltd.

March 31, 2011 09:00 ET

Diaz Announces Year End Results, Reserves Evaluations and the Cancellation of the Previously Announced Financing

CALGARY, ALBERTA--(Marketwire - March 31, 2011) - Diaz Resources Ltd. (TSX:DZR) announces that is has filed its 2010 MD&A, Financial Statements, and Annual Information Form ("AIF") on SEDAR.

Diaz has now completed its second year with its principal focus on heavy oil exploration and development following the suspension of the focus on developing natural gas reserves, early in 2009.

The primary reasons for the change in focus to heavy oil are:

  • The rapid rebound in oil prices in 2009, partly aided by OPEC oil production curtailments,
  • Increasing use of oil by far eastern economies, especially China,
  • The variable uses and easy transportation of oil, making it the principal fuel of choice, and
  • The availability of inexpensive leases in Alberta and Saskatchewan, on repeatable exploration prospects, in close proximity to Lloydminster.

Diaz discontinued its natural gas exploration efforts in early 2009 due to the Company's realization that:

  • Natural gas prices would steadily decrease,
  • North American gas prices are isolated from world pricing, and in a time of surplus are extremely low,
  • Extensive horizontal shale gas development through out North America will keep gas in surplus for the foreseeable future, and finally
  • Major companies entering the North American shale gas play will continue the over supply situation for a lengthy period.

As a result of the foregoing, Diaz commenced developing its Lloydminster heavy oil pool and acquired potentially productive leases on an additional 13 prospects. To date, Diaz has interests in 10 producing wells on 4 separate properties, and has the potential to drill over 50 development wells in the next 2 years provided financing can be obtained. Diaz plans to continue development drilling at its Lloydminster heavy oil pool while continuing to build an inventory of acreage, of heavy oil prospects in Alberta and Saskatchewan.

Exploration and Development

Below is a map of the current active exploration and development areas for the Company:

To view the Exploration and Develpment map, please visit the following link: http://media3.marketwire.com/docs/3314dzr_map.pdf

In addition to its Lloydminster property, since the beginning of 2009, Diaz has acquired oil and gas leases on five prospects in Alberta (5,750 gross acres, 3,793 net acres) and eight prospects in Saskatchewan (20,563 gross acres, 11,522 net acres) for a total inventory of eleven heavy oil prospects and three medium/light oil projects. The primary pay zones are Lloydminster in Alberta and the Dina, Shaunavon and Birdbear zones in Saskatchewan.

Financial

For 2010, revenue decreased to $6.5 million compared with $7.0 million for the prior year period. Cash flow from operations for the period decreased to $1.7 million or $0.02 per share compared with $1.9 million or $0.03 per share for the prior year period. Diaz reported a loss for the year of $4.2 million or ($0.05) per share versus a loss of $14.4 million or ($0.21) per share in the prior year period. The Company took an impairment write down of $11.4 million during the prior year as a result of a sharp reduction in estimated future gas prices.

Net capital expenditures for 2010 totalled $4.0 million compared with nil in the prior year as prior year capital expenditures of $4.4 million were offset by disposals of $4.4 million. Capital expenditures during 2010 were financed by two equity financings, cash flow from operations, working capital, and an increase in net debt.

Production

The Company's total production for 2010 decreased 20% to average 505 BOEd compared with the prior year average of 642 BOEd.

Reserves and Reserves Values

The independent engineering evaluation of Diaz's properties assigned proved reserves, before royalties, of 1.2 million BOE and total reserves, before royalties, of 3.3 million BOE at December 31, 2010. These reserve estimates result in a before tax present value of estimated future net revenues, discounted at 10%, of $38 million.

Debentures Change of Terms

Diaz has now completed all required documentation related to the previously announced change in terms to the $7.085 million aggregate principal amount of 8.75% convertible unsecured subordinated debentures ("Debentures"). The amended terms of the Debentures are: (i) increase the interest payable on the Debentures from 8.75% per annum to 10.5% per annum effective January 17, 2011; (ii) reduce the conversion price of the Debentures from $0.90 per share to $0.33 per share, such that 3,000 common shares of the Corporation shall be issuable for each $1,000 principal amount of Debentures converted; and (iii) extend the maturity date of the Debentures from March 27, 2012 to March 27, 2014.

Private Placement

The previously announced $3.0 million best efforts private placement was unsuccessful due to poor market conditions. Diaz is now considering several financing alternatives to provide the necessary funds for its heavy oil drilling program to begin as planned this spring.

Business Outlook

Diaz expects oil prices to remain at high levels as industrial activity in North America slowly recovers.

Due to current high natural gas storage levels and significant volumes of gas being developed on North American shale gas projects there is still considerable uncertainty as to when natural gas prices will improve. To mitigate the uncertainty in natural gas prices, Diaz has put in place fixed gas price contracts for approximately half of the Company's anticipated 2011 gas production, at prices between $4.00 per Mcf and $4.46 per Mcf.

The Company will continue to focus on its Lloydminster heavy oil development program and if successful, Diaz should exit 2011 with a significant increase in its oil production relative to current levels.

SUMMARY OF OIL AND GAS RESERVES
AND NET PRESENT VALUES OF FUTURE NET REVENUE
AS OF DECEMBER 31, 2010
FORECAST PRICES AND COSTS

  RESERVES   RESERVES   RESERVES  
  LIGHT AND                     NATURAL GAS          
COMPANY TOTAL MEDIUM OIL   HEAVY OIL   NATURAL GAS     LIQUIDS   TOTAL   TOTAL  
  Gross   Net   Gross   Net   Gross   Net     Gross   Net   Gross   Net  
RESERVES CATEGORY (MBbl ) (MBbl ) (MBbl ) (MBbl ) (MMcf ) (MMcf )   (MBbl ) (MBbl ) (MBOE ) (MBOE )
PROVED                                          
  Developed Producing 30   25   79   77   2,487   2,223     9   6   533   479  
  Developed Non-producing 10   9   47   45   415   364     1   1   127   116  
  Undeveloped -   -   160   142   -   1,798     13   9   504   451  
TOTAL PROVED 40   34   286   264   4,886   4,385     23   16   1,164   1,046  
PROBABLE 28   22   667   560   8,414   6,788     15   10   2,111   1,723  
   
TOTAL PROVED PLUS PROBABLE 68   56   953   824   13,300   11,173     38   26   3,275   2,769  
   
   
  NET PRESENT VALUES OF FUTURE NET REVENUE  
COMPANY TOTAL BEFORE INCOME TAXES DISCOUNTED AT (% per year)   AFTER INCOME TAXES DISCOUNTED AT (% per year)  
  0   5   10   12   15   0   5   10   12   15  
RESERVES CATEGORY (MM$ ) (MM$ ) (MM$ ) (MM$ ) (MM$ ) (MM$ ) (MM$ ) (MM$ ) (MM$ ) (MM$ )
PROVED                                        
  Developed Producing 9.3   8.1   7.3   6.9   6.5   9.3   8.1   7.2   6.9   6.5  
  Developed Non-producing 3.2   2.7   2.3   2.2   2.1   3.2   2.7   2.3   2.2   2.0  
  Undeveloped 10.6   7.3   5.1   4.6   3.8   10.6   7.2   5.2   4.5   3.8  
TOTAL PROVED 23.1   18.1   14.7   13.7   12.4   23.1   18.0   14.7   13.6   12.3  
   
PROBABLE 50.7   33.6   23.3   20.3   16.6   50.7   30.1   21.0   18.4   15.1  
   
TOTAL PROVED PLUS PROBABLE 73.8   51.7   38.0   34.0   29.0   73.8   48.1   35.7   32.0   27.4  

Further information regarding financial and operating results may be obtained at www.sedar.com, where the Company's MD&A and financial statements have been filed.

Dias has also filed its Annual Information Form which includes the Company's reserves data and other oil and gas information for the year ended December 31, 2010, as mandated by National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities of the Canadian Securities Administrators. Copies of Diaz's AIF may be obtained at www.sedar.com.

Summary of Operations

(Thousands, except shares and per share amounts)  Years Ended December 31  
    2010     2009  
Financial            
  Revenue (net of royalty expense) $ 6,508   $ 6,973  
  Cash flow from operations *   1,684     1,881  
    per share, diluted   0.02     0.03  
  Loss for the period   (4,228 )   (14,355 )
    per share, diluted   (0.05 )   (0.21 )
 
    Capital additions   4,334     4,415  
    Dispositions   346     4,407  
  Net capital additions   3,988     8  
 
  Net current debt   6,402     5,844  
  Convertible debentures**   6,682     6,377  
 
  Total assets   34,029     36,657  
  Total shares outstanding at period end   90,883,252     76,576,752  
 
Operations            
  Production            
    Gas (MMcfd)   2.3     3.3  
    Oil (Bopd)   128     97  
    BOEd (6 Mcf = 1 Bbl)   505     642  
  Product Prices            
    Gas ($/Mcf) $ 4.80   $ 4.72  
    Oil ($/Bbl) $ 61.83   $ 54.51  
 
  Reserves (proved plus probable, future costs and prices)            
    Gas (Bcf)   13.3     16.7  
    Oil (MBbl)   1,059.0     1,058.0  
    BOE (Millions)   3.3     3.8  
 
  Net present value of future net revenue, before tax discounted at 10% $ 38.0   $ 52.4  
 
  Undeveloped land holdings (net acres)            
    Canada   53,583     54,409  
    United States   494     446  
  Total net acreage   54,077     54,855  

* Non-GAAP measure. Please see the reconciliation of "cash flow from operations" to "cash flow from operating activities" found in the MD&A for the year ended December 31, 2010.

** Convertible debentures have a face value of $7.1 million and mature on March 27, 2014. See Note 8, "Convertible Debentures", in the notes to the financial statements for the year ended December 31, 2010.

*** Net present value of future net revenue may not represent fair market value of reserves.

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

ADVISORY: This press release contains forward looking statements. Although Diaz believes that the expectations reflected in these forward looking statements are reasonable, undue reliance should not be placed on them because Diaz can give no assurance that they will prove to be correct. Since forward looking statements address future events and conditions, by their very nature they involve inherent risks and uncertainties.

The forward looking statements contained in this press release are made as of the date hereof and Diaz undertakes no obligations to update publicly or revise any forward looking statements or information, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws.

Where amounts are expressed on a barrel of oil equivalent (boe) basis, natural gas volumes have been converted to barrels of oil at six thousand cubic feet (mcf) per barrel (bbl). Boe figures may be misleading, particularly if used in isolation. A boe conversion of six thousand cubic feet per barrel is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. References to oil in this discussion include crude oil and natural gas liquids (NGLs).

NEITHER THE TORONTO STOCK EXCHANGE NOR ITS REGULATION SERVICES PROVIDER (AS THAT TERM IS DEFINED IN THE POLICIES OF THE TORONTO STOCK EXCHANGE) ACCEPTS RESPONSIBILITY FOR THE ADEQUACY OR ACCURACY OF THIS RELEASE.

Contact Information

  • Diaz Resources Ltd.
    Robert W. Lamond
    Chairman
    (403) 269-9889
    (403) 269-9890 (FAX)
    or
    Diaz Resources Ltd.
    Donald K. Clark
    Chief Operating Officer
    (403) 269-9889
    (403) 269-9890 (FAX)
    info@diazresources.com
    www.diazresources.com