Ember Resources Inc.
TSX : EBR

Ember Resources Inc.

March 20, 2009 08:00 ET

Ember Resources Inc. Reports 2008 Annual Results and Updates 2009 Capital Budget

CALGARY, ALBERTA--(Marketwire - March 20, 2009) -

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. ("Ember") (TSX:EBR) announced today that it has filed its audited financial statements and related management's discussion and analysis ("MD&A") for the year ended December 31, 2008 on www.sedar.com.



Financial Highlights

----------------------------------------------------------------------------
Three Three
months months Year Year
ended ended ended ended
(000s except per December December Percent December December Percent
share amounts) 31, 2008 31, 2007 Change 31, 2008 31, 2007 Change
----------------------------------------------------------------------------
Natural gas sales $ 17,521 $ 3,890 350 $ 39,520 $ 13,338 196
----------------------------------------------------------------------------
Funds from
operations $ 9,581 $ 1,552 517 $ 21,548 $ 6,094 254
----------------------------------------------------------------------------
- per share
basic &
diluted(1) $ 0.19 $ 0.11 283 $ 0.82 $ 0.43 91
----------------------------------------------------------------------------
Net income (loss) $ (1,800) $ 1,186 (252) $ 125 $ 44 184
----------------------------------------------------------------------------
- per share
basic & diluted $ (0.04) $ 0.03 (233) $ 0.00 $ 0.00 NA
----------------------------------------------------------------------------
Capital investment
additions $ 8,387 $ 7,178 17 $ 24,419 $ 20,987 16
----------------------------------------------------------------------------
Property
acquisition $ - $ (173) 100 $ - $ 8,633 (100)
----------------------------------------------------------------------------
Property
disposition $ 1,750 $ - NA $ 1,750 $ - NA
----------------------------------------------------------------------------
Corporate
acquisition $ (31) $ - NA $ 187,968 $ - NA
----------------------------------------------------------------------------
Total assets $387,368 $ 108,315 258 $ 387,368 $108,315 258
----------------------------------------------------------------------------
Net bank debt and
working capital $100,728 $ 19,681 411 $ 100,728 $ 19,681 411
----------------------------------------------------------------------------
Shares outstanding 51,367 14,441 256 51,367 14,441 256
----------------------------------------------------------------------------
(1) See "Non-GAAP Measurements".



Operating Highlights

----------------------------------------------------------------------------
Three Three
months months Year Year
ended ended ended ended
(000s except per December December Percent December December Percent
unit amounts) 31, 2008 31, 2007 Change 31, 2008 31, 2007 Change
----------------------------------------------------------------------------
Daily avg gas
production (Mcf/d) 28,930 7,175 303 14,700 5,829 152
----------------------------------------------------------------------------
Daily avg
production (BOE/d) 4,822 1,196 303 2,450 971 152
----------------------------------------------------------------------------
Average sales
price ($/Mcf) 6.58 5.89 12 7.35 6.27 17
----------------------------------------------------------------------------
Realized gain
derivative ($/Mcf) 0.27 - NA 0.12 - NA
----------------------------------------------------------------------------
Royalties ($/Mcf) 0.80 0.53 51 0.82 0.44 86
----------------------------------------------------------------------------
Operating expenses
($/Mcf) 1.39 1.71 (19) 1.55 1.33 17
----------------------------------------------------------------------------
Transportation
expenses ($/Mcf) 0.19 0.19 - 0.19 0.20 (5)
----------------------------------------------------------------------------
Operating netback
($/Mcf) 4.47 3.46 29 4.91 4.30 14
----------------------------------------------------------------------------
Operating netback
($/BOE) 26.82 20.80 29 29.42 25.89 14
----------------------------------------------------------------------------
CBM wells drilled
(gross/net) 11.0/8.6 17.0/16.5 (35)/(48) 64.0/44.6 41.0/37.3 56/20
----------------------------------------------------------------------------
- Mannville -/- -/- -/- -/- 1.0/1.0 (100)/
(100)
----------------------------------------------------------------------------
- Horseshoe
Canyon 11.0/8.6 17.0/16.5 (35)/(48) 64.0/44.6 40.0/36.3 60/23
----------------------------------------------------------------------------
Land (000s of
net acres) 488 285 71 488 285 71
----------------------------------------------------------------------------


Ember's CBM strategy- Horseshoe Canyon Coals

Background - Horseshoe Canyon Coals

The Horseshoe Canyon trend in Alberta has seen in excess of 14,000 wells drilled since 2001 and currently produces an estimated 700 MMcf/d. The industry drills 1,500 to 2,000 wells per year resulting in a growing production base, as well as a de-risking of the estimated 36 Tcf of resource potential. The Horseshoe Canyon coals cover a trend area in Alberta of about 32,000 sections, or about 20 million acres. (1) Technologies used to exploit this resource continue to improve, while total costs have declined over this time. In 2009, the Alberta government further enhanced the economics of this play with a reduction in royalties for low productivity wells, typical of Horseshoe Canyon producers. Operators, including Ember, estimate the breakeven cost for a typical Horseshoe Canyon well at $3 to $4 per Mcf which includes both capital and operating costs, making it one of the lowest cost natural gas plays in North America.

(1) Resource potential and areal extent based on Canadian Energy Research Institute & Canadian Society for Unconventional Gas Study dated November 2006

Top Operator in the Horseshoe Canyon

Over the past two years Ember has made significant strides in solidifying its strategy as a major Horseshoe Canyon player:

- In 2007, Ember acquired its Acme property for $8.75 million and has since put in place the necessary infrastructure and drilled 75 CBM wells (65 net) resulting in a year-end proved, probable and possible reserve booking of 54 Bcf with current production of 5.2 MMcf/d.

- On September 5, 2008 Ember acquired Cordero adding 104 Bcfe of proved, probable and possible reserves and production of 20 MMcf/d. Ninety three percent of the Cordero asset base is concentrated on the Horseshoe Canyon trend in the Bashaw area.

Ember is now ranked among the top five operators currently developing this significant resource play, which has been dominated by major North American independents. With in excess of 400 drilling locations in inventory and an operational footprint over 161,000 gross acres, Ember is positioned to significantly increase its producing asset base well into the future.

Highlights

Financial performance

- Funds from operations increased 254% to $21.5 million ($0.82/share diluted) from $6.1 million ($0.43/share diluted) in 2007. Fourth quarter funds from operations were $9.6 million ($0.19/share diluted) compared with $1.6 million ($0.11/share diluted) in fourth quarter 2007.

- The Company recorded net income of $0.1 million in 2008 ($0.00/share diluted) as compared to net income of $0.04 million ($0.00/share diluted) in 2007. Net loss for the quarter was $1.8 million (net loss $0.04/share diluted) versus net income of $1.2 million ($0.03/share diluted) in Q4 2007.

- The Company completed the corporate acquisition of Cordero Energy Inc. on September 5, 2008 for a net purchase price of $188.0 million resulting in a 263% increase in production rates prior to the acquisition.

- Capital expenditures including property acquisitions and dispositions totaled $22.7 million in 2008 as compared to $29.6 million spent in 2007. Net capital expenditures for the fourth quarter totaled $6.6 million as compared to $7.0 million in Q4 2008.

- At year-end 2008 Ember had net bank debt and working capital totaling $100.7 million. Currently the Company has a $120 million line of credit.

- Net asset value before tax as at December 31, 2008 is estimated at $7.83/share. Net asset value is calculated using net present value of proved, probable plus possible reserves discounted at 10% with McDaniel forecasted prices.

- Ember continues to improve its cost efficiencies. Fourth quarter operating costs were $8.37/BOE, general and administrative costs were $2.79/BOE and the effective royalty rate was 12.2%. For 2009 Ember expects these costs to continue to decline to $8.00/BOE, $2.50/BOE and 10% respectively, making Ember one of the highest netback natural gas producers in Alberta.

Operating performance

- Average production for the year increased 152% to 14.7 MMcf/d from 5.8 MMcf/d in 2007. Fourth quarter production, which reflects a full quarter of the Cordero assets, increased 303% to 28.9 MMcf/d from 7.2 MMcf/d in fourth quarter 2007. Since inception in the third quarter of 2005, Ember has grown its Horseshoe Canyon CBM production base over 10-fold from 2.7 MMcf/d to 28.9 MMcf/d.

- The drilling program recorded 100% success during the year with activity focused on Ember's Acme property. In 2008 Ember drilled 64 wells (44.6 net) of which 57 wells (38.0 net) were drilled at Acme. The remaining wells were drilled at Fenn Big Valley and the Bashaw area on the newly acquired Cordero lands. All of the wells drilled in 2008 targeted the highly predictable Horseshoe Canyon coals.

- Proved, probable and possible reserves increased 203% to 180.0 Bcfe up from 59.3 Bcfe in 2007. Proved developed producing reserves increased 292% to 56.9 Bcfe. Ember's reserve life index based on fourth quarter production is estimated at 9.2 years total proved, 13.6 years total proved plus probable and 16.5 years for proved, probable and possible reserves.

- Ember's 2008 total finding, development and acquisitions costs, including changes in future capital, are estimated at $26.08/BOE for proved reserves; $20.44/BOE for proved plus probable reserves and $16.24/BOE for proved, probable and possible reserves.

- Excluding the Cordero acquisition, Ember's finding and development costs for 2008, including changes in future capital, are estimated at $7.57/BOE for proved reserves; $4.36/BOE for proved plus probable reserves and $3.06/BOE for proved, probable and possible reserves.

- Excluding the Cordero acquisition, Ember's three year finding and development and acquisitions costs including future development costs for the Horseshoe Canyon coals only are estimated at $11.81/BOE for proved reserves; $9.95/BOE for proved plus probable reserves and $8.16/BOE for proved, probable and possible reserves.

- Operating netbacks for 2008 were $29.42/BOE resulting in a recycle ratio, including changes in future capital, of 1.1 for proved reserves, 1.4 for proved plus probable reserves and 1.8 for proved, probable and possible reserves.

- Ember's inventory of Horseshoe Canyon development locations has increased to over 400 net wells; 355 net wells were recognized in Ember's year-end reserves, of which 223 are considered proved undeveloped. The success rate on Ember's Horseshoe Canyon programs has essentially been 100% with only one mechanical failure in the past three years. In addition, the Company has recorded consistent results as measured by both production rates and reserve additions.

First quarter 2009 operational update

- Ember drilled and completed a 13-well program (7.3 net) at Acme and Fenn Big Valley in first quarter 2009. In addition to the drilling program, an 8-well workover program was completed in the Bashaw area targeting Horseshoe Canyon coals that were behind pipe. Both programs had 100% success with average per well stabilized additions in the 100 Mcf/d range.

- In February Ember closed the acquisition of an 8.5% royalty interest that was payable on all of its production at Acme for $3.3 million. Currently the Acme property is producing approximately 5.2 MMcf/d and has 54 Bcf of remaining proved, probable and possible reserves. The elimination of this royalty interest will further reduce Ember's overall effective royalty rate to less than 10%.

- Sales of non-core assets generated $0.7 million in proceeds during the quarter.

- Production has been averaging approximately 27 MMcf/d. This quarter has seen a number of cold periods resulting in well freeze offs resulting in disruption of production. With the return of warmer weather and recent drilling and workovers Ember expects to exit the quarter above the 27 MMcf/d level.

The economic times

It is mandatory that Ember maintains a conservative approach to its business during the current economic climate. The global credit crisis, the economic downturn and the impact on equity markets have significantly reduced access to both debt and equity, and created uncertainty with respect to natural gas prices.

Any gas price recovery will require a rebalancing of supply/demand fundamentals. Right now, natural gas storage levels remain high as we exit the prime heating season. A reduction in demand is expected with the weak U.S. economy, but the current and predicted level of drilling in North America is likely to result in a decline in natural gas supplies. While this would provide support for pricing, it is difficult to predict when a gas price recovery will take hold.

Still, during such times, Ember has distinct competitive advantages as a CBM producer. The entire production base is low decline, long-life natural gas. With the shallow and low-risk nature of the Horseshoe Canyon trend, drilling costs are low and our drilling success has been 100% over the past three years. With such predictable production additions from new wells, the Horseshoe Canyon has proven to be one of the lowest cost plays in North America.

Prudent plans in 2009

Current economic conditions and low natural gas prices dictate a conservative capital budget and level of drilling activity. Capital expenditures this year will remain within cash flows, while non-core asset divestitures and excess cash flow will be used to reduce debt.

Since the release of Ember's budget in January, natural gas prices have continued to decline. In keeping with the stated objective of spending within cashflows, the 2009 capital budget has been reduced to $25 million from $35 million, which is forecasted to yield average production of 26-27 MMcf/d, essentially flat with current production levels. An estimated 35-45 net wells are planned with drilling focused on core Horseshoe Canyon CBM areas at Acme, Fenn-Big Valley and Bashaw. To improve drilling efficiency, about 80% of the program is scheduled for the second half of the year in order to avoid seasonal spring rains and limited surface access due to agricultural activities.

Gas prices will be closely monitored and spending adjusted accordingly. Ember's cashflow is highly sensitive to gas prices; every $1 per Mcf change results in an annualized change in cashflow estimated $10 million per year.

Debt management is an important focus for 2009 and the Company has a debt reduction target of $10 million by year end, which will come from the sale of non-core assets acquired in the Cordero acquisition, mainly undeveloped lands prospective for conventional exploration. To date, $2.45 million has been generated from the divestiture of 13 BOE/d and 31,000 net acres of undeveloped land. Ember is continuing to market other non-core assets comprised of 300 BOE/d and 100,000 net acres of undeveloped land. The proceeds will be used to achieve our debt reduction target.

"Since inception, Ember has grown over 10-fold or 280% on an annualized basis. With a drilling inventory in excess of 400 locations, we expect to resume our historical growth profile as the business environment and natural gas prices recover," said Doug Dafoe President and CEO. "Ember's low cost structure, low decline rates and predictable drilling results give the Company a competitive advantage during the current economic downturn and we are well positioned for a recovery in gas prices."

As referred to above, Embers' audited financial statements and related MD&A for the year ended December 31, 2008 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 audited 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 2008 year end results will take place on March 20, 2009 at 9:00 AM MDT (11:00 AM EDT). The conference call can be accessed by dialing in 15 minutes prior to the scheduled start at 1-877-407-0778. 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 1-877-660-6853 and enter the account #286 and conference ID #315182.

Reader Advisory

FORWARD-LOOKING STATEMENTS

This press release may contain forward-looking statements including future production, anticipated capital expenditures and development plans. 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. Actual results, performance or achievement could differ materially from those expressed in, or implied by, such forward looking statements and accordingly, no assurances can be given that any of the events anticipated by the forward looking statements will transpire or occur. Except as required by law, Ember undertakes no obligation to update or revise any forward looking statements. 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.

BOE Disclosure: Disclosure provided herein in respect of barrels of oil equivalent (BOE) may be misleading, particularly if used in isolation. A BOE conversion ratio of 6 Mcf: 1 Bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

Reserve information in this press release is based on an independent reserve evaluation report prepared by McDaniel & Associates Consultants Ltd. ("McDaniel") dated March 4, 2009 with an effective date of December 31, 2008.

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
    President & CEO
    (403) 270-0803
    (403) 270-2850 (FAX)
    or
    Ember Resources Inc.
    Mr. Terry S. Meek
    Executive Vice-President & COO
    (403) 270-0803
    (403) 270-2850 (FAX)
    Website: www.emberresources.com