Ember Resources Inc.
TSX : EBR

Ember Resources Inc.

November 07, 2006 13:22 ET

Ember Resources Inc. Releases Third Quarter 2006 Results

CALGARY, ALBERTA--(CCNMatthews - Nov. 7, 2006) -

Not for distribution to U.S. newswire services or for dissemination in the United States. Any failure to comply with this restriction may constitute a violation of U.S. securities law.

Ember Resources Inc. (TSX:EBR) ("Ember") announced today that it has filed its unaudited financial statements and related management's discussion and analysis ("MD&A") for the quarter and nine months ended September 30, 2006 on www.sedar.com.



Financial Highlights

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Three Three Nine
months months months
ended ended ended
(000's except per Sept Sept Percentage Sept
unit amounts) 30,2006 30,2005 Change 30,2006
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Natural gas sales $ 2,431 $ 1,774 37 $ 6,630
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Funds from
operations $ 1,162 $ 1,161 - $ 2,571
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- per share basic $ 0.03 $ 0.05 (40) $ 0.08
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- per share diluted $ 0.03 $ 0.04 (25) $ 0.08
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Net Income (loss) $ (1,040) $ 185 (662) $ (3,212)
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- per share basic &
diluted $ (0.04) $ 0.01 (500) $ (0.11)
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Capital investment $ 12,204 $ 4,935 148 $ 28,834
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Total assets $ 82,597 $ 67,680 22 $ 82,597
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Working capital
(deficiency) $ (7,143) $ 44,002 (116) $ (7,143)
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Average shares
- basic 30,418 25,736 18 30,418
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Average shares
- diluted 30,752 26,543 16 30,752
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Operating Highlights

Three Three Nine
months months months
ended ended ended
(000's except per Sept Sept Percentage Sept
unit amounts) 30,2006 30,2005 Change 30,2006
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Daily avg gas
production (mcf/d) 4,972 2,336 113 4,166
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Daily avg production (boe/d) 829 389 113 694
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Average sales price ($/mcf) 5.31 8.26 (36) 5.83
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Royalties ($/mcf) 0.53 0.54 (2) 0.73
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Operating expenses ($/mcf) 1.44 1.25 15 1.63
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Transportation
expenses ($/mcf) 0.19 0.33 (42) 0.23
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Operating net back
($/mcf) 3.15 6.14 (49) 3.24
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Operating net back
($/boe) 18.92 36.87 (49) 19.46
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Gross CBM wells
drilled (net) 20.0 / 19.5 10.0 / 9.0 100 / 117 27.0 / 26.5
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- Mannville 3.0 / 2.5 2.0 / 1.0 50 / 150 3.0 / 2.5
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- Horseshoe Canyon 17.0 / 17.0 8.0 / 8.0 113 / 113 24.0 / 24.0
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Land (000s of net
acres) 300 296 1 300
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Quarterly Highlights

Mannville commercialization

- Modifications to drilling techniques have yielded positive results. Three new wells drilled during the quarter have increased Ember's confidence in commerciality of its Mannville coals.

Production growth

- Production increased 113% to 4.972 mmcf/d from 2.336 mmcf/d in third quarter 2005. Production per share increased 80% from Q3 2005.

- Production was up 18% from the second quarter's 4.23 mmcf/d, the third consecutive double-digit quarter of production growth.

- Current production is meeting our expectations at an estimated 6.5 mmcf/d with an additional 1.5 mmcf/d increase expected prior to the end of the year.

- The Company is forecasting a 2006 exit rate of 8.0 mmcf/d.

- All of the Company's production growth has come from the drill bit. All of Ember's production is natural gas derived from coal otherwise known as coalbed methane (CBM).

100% drilling success

- During the quarter, we drilled a total of 20 CBM wells (19.5 net), all successful. Seventeen wells (17 net) were drilled at Fenn-Big Valley as part of our ongoing Horseshoe Canyon coal development program. Three horizontal wells (2.5 net) were drilled in our Mannville coal projects, two at Manola and one at Rosalind.

Financial performance

- Funds from operations remained consistent at $1.162 million or $0.03/share diluted from $1.161 million or $0.04/share diluted in third quarter 2005. Production gains were offset by the decline in gas prices and higher operating and general and administrative costs from the same period last year.

- The Company recorded a net loss of $1.04 million for the quarter or $(0.03)/share diluted as compared to a $185,000 net income or $0.01/share diluted in the same period in 2005.

- Capital expenditures for the quarter totaled $12.2 million resulting in a working capital deficit of $7.1 million at the end of the third quarter. This deficit represents a 47% draw on our available lines of credit of $15 million.

Shareholder Rights Plan adopted

- On October 18th, 2006 the Company held a Special Meeting of Shareholders at which the shareholders voted and ratified the Shareholder Rights Plan of Ember which was adopted pursuant to a Shareholder Rights Agreement dated August 9, 2006 between Ember and Olympia Trust Company, as rights agent.

"Operationally, we have had very strong results with double-digit production growth over three quarters and significant progress in the commercialization of our Mannville coals, a very large resource base estimated at 1.3 tcf," said Doug Dafoe, Chairman and Chief Executive Officer. "Our operational momentum should continue as new wells are placed on production and our existing wells continue to de-water through to the end of the year. Due to weak gas prices and uncertainty in the equity markets, we have curtailed our capital spending on new drilling for the rest of the year and will be extremely cautious in deploying capital until we see a recovery in those markets."

Operational Update

Mannville Coals

We were very pleased to see further progress in the commercialization of our Mannville coals with recent modifications to drilling techniques showing significantly better and more consistent results over earlier drilled wells. Since our inception, we have drilled a total of 12 horizontal wells to evaluate Mannville coals in two project areas, Manola and Rosalind. This drilling was conducted in two stages.

The first eight wells were drilled in late 2005, with mixed results. One well produces gas at 280 mcf/d with minimal water; two wells produce gas at rates of 100-150 mcf/d, one well produces gas at 50-100 mcf/d, three at less than 50 mcf/d and one well was suspended due to drilling problems. We conducted a detailed technical review of these wells and concluded the inconsistent results were caused by significant damage to the wellbores caused during drilling and completion.

Based on that evaluation, a second stage of drilling was commenced during the third quarter and continued into the fourth quarter with modifications to our drilling and completion techniques, and early production practices for the new wells. Four wells were drilled in this second stage, three at Manola and one at Rosalind. Results to date have been significantly improved and more consistent than previous wells.

At Manola, the first well was placed on production in late July and is currently producing gas at an increasing rate of 275 mcf/d and 90 bbls/d of water. Two offsetting wells were drilled and will be placed on production in November. Flow characteristics of these two wells are similar to the first well and we expect gas production by year end. The fourth well was drilled at Rosalind, placed on production in early September and is currently producing at an increasing rate of 30 mcf/d and 140 bbls/d of water. Gas production from the well in Rosalind is expected to increase as the well is de-watered.

Technical analysis of the flow characteristics indicates that we have drilled these wells with minimal damage and are seeing the true potential of the coals in these areas. The de-watering phase for these new wells will continue over the next several months with indications of peak gas rates expected next spring.

Current Mannville production is estimated at 830 mcf/d (720 net), with 630 mcf/d from Manola and 200 mcf/d (100 net) from Rosalind. Continued de-watering during the fourth quarter should increase gas production to 1.1 mmcf/d (1.0 mmcf/d net) by year end.

Preparations are underway to ramp up development drilling in both areas. However, due to weak gas prices and uncertain equity markets, the Company will proceed with caution until more certainty returns to the natural gas market. Two wells are planned for Rosalind in the first quarter to offset the new well drilled in the third quarter.

Horseshoe Canyon Coals

Production continued to grow from our Horseshoe Canyon development program. Facilities work and production optimization completed over the summer moved our base production up to 4.5 mmcf/d at the end of September. Average productivity for new wells added in 2006 is 120 mcf/d per well. During the third quarter we drilled 17 new Horseshoe Canyon CBM wells which are currently being put on production. The well additions to date have increased production to 5.8 mmcf/d with an additional 1.2 mmcf/d expected by year end.

Operational performance of our Horseshoe Canyon production continues to improve as additional production and wells lower per unit operating costs. Operating costs averaged $1.10/mcf in the third quarter as compared to $1.54/mcf in the second quarter of this year.

In the current environment of low gas prices and restricted capital spending, the Company will defer its winter Horseshoe Canyon drilling program which was scheduled to start up in December. Instead 10 existing wellbores will be re-completed in the coals and put on production in the first half of 2007. We have now in excess of 100 Horseshoe Canyon CBM wells on production in the Fenn-Big Valley area. One hundred and fifteen wells remain in our drilling inventory and will be drilled at a future date.

Declining Gas Prices

Natural gas prices hit four year lows during the quarter. We averaged $5.31/mcf during the quarter, down from $8.26 in the same period last year. Excess gas supplies in storage and concerns over another warm winter have lowered price expectations in the near term. Equity markets have reacted to this weakness by selling off natural gas stocks. We expect the natural gas industry to react by reducing the number of new wells drilled, which will result in a supply response to bring the market back to balance. Longer term the prospects for natural gas remain strong. Demand growth and the increasing cost for new supply will dictate stronger prices for the future. Resource plays such as coalbed methane will once again come to the forefront as viable long term supplies of natural gas.

2006 Capital Program

In light of weak natural gas prices, the Company has elected to conserve capital and suspended new drilling scheduled for the fourth quarter. Estimated capital expenditures for the full year have been reduced to $35 million from $40 million, with $6.1 million to be spent in the fourth quarter. Capital expenditures for the balance of the year are for completion, tie-in and facility work associated with the third quarter drilling. Estimated net debt at year end is $12 million which represents an 80% draw on our $15 million facility.

Outlook

Ember is an emerging junior natural gas company with a significant resource base in a major new CBM play in Alberta. All gas producers have been affected by progressively weakening pricing this year, however, as a CBM producer, the longer-term economic impact on Ember is different than on conventional gas producers. Ember's CBM assets are of a long term nature; our CBM wells do not experience as significant a production decline as does conventional gas, which is typically in the 30-50% range in the first year. Our CBM production profile is relatively flat to inclining and continues on a longer-term basis. With that production profile, we are not exposed to selling off any significant portion of our gas resources in a period of short-term price weakness.

Still, the current environment has forced us to be cautious in our growth plans. Weak gas prices and the sell off in our shares have limited our access to capital at reasonable values in the near-term. As a result we will restrict our capital deployment in the near term until both the natural gas markets and equity markets recover. Despite the current weakness in the gas and equity markets, our operational momentum will continue. Our production base will increase during this period as we conduct a limited drilling and re-completion program. The continued de-watering of our newly connected Mannville wells provides more certainty on the future commercialization of this significant resource.

As referred to above, Embers' unaudited financial statements and related MD&A for the three and nine month periods ended September 30, 2006 can be located at www.sedar.com or www.emberresources.com. To the extent investors do not have access to the internet, copies of the unaudited financials and related MD&A can be obtained on request without charge by contacting Ember Resources Inc. at 403 270 0803.

Conference Call

A conference call to review Ember's third quarter results will take place on November 7,2006 at 2 PM MDT (4 PM EDT). The conference call can be accessed by dialing in 15 minutes prior to the scheduled start at 1-866-226-1793. A live webcast will also be provided on: www.emberresources.com. A playback recording of the conference call will be available for 90 days and can be accessed by calling 1-800-408-3053 and enter the pass code 3202390#.

FORWARD-LOOKING STATEMENTS

This press release may contain forward-looking statements including expectations of future production, funds from operations and earnings. These statements are based on current expectations that involve a number of risks and uncertainties, which could cause actual results to differ from those anticipated. These risks include, but are not limited to: the risks associated with the oil and gas industry (e.g., operational risks in development, exploration and production; delays or changes in plans with respect to exploration or development projects or capital expenditures; the uncertainty of reserve estimates; the uncertainty of estimates and projections relating to production, costs and expenses, and health, safety and environmental risks), commodity price and exchange rate fluctuation and uncertainties resulting from potential delays or changes in plans with respect to exploration or development projects or capital expenditures. Additional information on these and other factors that could affect the Company's operations or financial results are included in the Company's reports on file with Canadian securities regulatory authorities.

Ember Resources Inc. is a resource company specializing in coalbed methane (CBM) with extensive land and resource holdings in Alberta, Canada. Ember's shares are traded on the Toronto Stock Exchange under the trading symbol "EBR."

Contact Information

  • Ember Resources Inc.
    Mr. Douglas A. Dafoe
    Chairman & CEO
    (403) 270-0803
    (403) 270-2850 (FAX)
    or
    Ember Resources Inc.
    Mr. Terry S. Meek
    President & COO
    (403) 270-0803
    (403) 270-2850 (FAX)
    Website: www.emberresources.com