Ember Resources Inc.
TSX : EBR

Ember Resources Inc.

March 05, 2009 13:17 ET

Ember Resources Inc. Reports 2008 Operating Results Highlighting Significant Growth in Production and Reserves

CALGARY, ALBERTA--(Marketwire - March 5, 2009) -

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Ember Resources Inc. (TSX:EBR) ("Ember" or the "Company") today released un-audited fourth quarter and full-year 2008 operating results together with its 2008 year-end reserve report. Fourth quarter production increased 303% year over year to 28,930 Mcfe/d (4,822 BOE/d) based on 100% drilling success in the Company's Horseshoe Canyon coalbed methane ("CBM") properties, and the acquisition of Cordero Energy Inc. ("Cordero") in September 2008. A summary of results is as follows:



Operating Highlights

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Three months ended Twelve months ended
December 31, December 31,
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2008 2007 change 2008 2007 change
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Production
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Gas (Mcfe/d) 28,930 7,175 303% 14,700 5,829 152%
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Oil equivalent (BOE/d) 4,822 1,196 303% 2,450 971 152%
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Production per million shares
(BOE/d) 94 83 13% 94 69 36%
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Drilling activity
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Gross wells 11.0 17.0 (35%) 64.0 41.0 56%
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Net wells 8.6 16.5 (48%) 44.6 37.3 20%
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Success rate 100% 100% - 100% 97% 3%
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Reserves (Bcfe)
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Proved 100.3 31.3 220%
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Probable 43.0 20.0 115%
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Possible 36.7 8.1 353%
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Total 180.0 59.3 203%
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2P Reserve life index - years 13.6 19.6 (31%)
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FD & A costs after future capital ($/BOE)
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Proved 26.08 16.54 58%
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Proved & Probable (2P) 20.44 11.81 73%
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Proved, Probable & Possible (3P) 16.24 6.74 141%
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Operating netback ($/BOE) (1) 26.82 20.80 29% 29.42 25.89 14%
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2P Recycle ratio 1.4 2.2 (36%)
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Net asset value @ 10% BT
($millions ) 402.3 98.5 308%
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Per share ($/share) 7.83 6.84 15%
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(1) Operating netbacks are calculated as revenue less royalties, operating
costs and transportation expenses


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.

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 3P reserve booking of 54 Bcf with current production of 5.2 MMcf/d.

- On September 5, 2008 Ember acquired Cordero for $253 million adding 104 Bcf of 3P 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.

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

2008 Highlights

- Increased total reserve base 203% to 180 Bcfe of 3P reserves at year end

- Increased Q4 production by 111% over Q3 to a Q4 average of 28.9 MMcf/d

- Production per share growth in Q4 was 13% and 36% for the full year

- Finding and development costs per BOE including future capital of $7.57 proved, $4.36 for 2P and $3.06 for 3P reserves

- Finding, development and acquisition costs per BOE including future capital of $26.23 proved, $20.55 for 2P and $16.33 for 3P reserves

- Realized an operating netback in Q4 of $26.82/BOE which included reductions in operating costs and general and administrative costs from Q4 2007.

- Increased BT net asset value @10% by 308% to $402.3 million and net asset value per share by 15% to $7.83/share

Reserves

Reserve information 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. Certain minor properties representing less than 5% of total proved plus probable reserves were evaluated by Sproule & Associates and are included in the McDaniel report. The report was prepared in accordance with the COGE Handbook and National Instrument 51-101- Standards of Disclosure for Oil and Gas Activities ("NI 51-101"). Complete NI 51-101 reserve disclosure will be included in Ember's Annual Information Form ("AIF") which will be filed on SEDAR in March 2009.

Ninety one percent of Ember's reserves are attributable to the Horseshoe Canyon coals. The remaining reserves are conventional in nature with 65% of those reserves now producing from the same wellbores as the Horseshoe Canyon reserves. Ember has provided reserve information that includes Proved, Proved & Probable (2P reserves) and Proved, Probable & Possible (3P reserves) reserve classifications. Probable and Possible reserves are made up of two sub-classifications:

- 31 Bcfe of Probable and Possible reserves are producing reserves with a forecast for higher recoveries from existing wells: and

- 48 Bcfe of Probable and Possible reserves are attributable to future drilling locations and re-completions.

Due to the predictability and low risk nature of Horseshoe Canyon reserves, Ember is of the view that these categories should be viewed with reference to Ember's 100% historical drilling success and reserve performance which has seen consistent positive revisions since the Company's inception.

The following table summarizes the Company's reserve information based on the McDaniel's report and using the published McDaniel (2009-01) price forecast.



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Reserves Net Present Values Before
Bcfe Income Tax ($ millions)
(Sales) (1) Discounted at
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0% 10% 15%
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Proved
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Developed producing 56.9 330.7 212.3 182.1
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Developed non-producing 2.5 10.0 6.9 5.9
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Undeveloped 40.9 168.0 80.5 58.2
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Total proved 100.3 508.7 299.7 246.3
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Probable 43.0 248.1 103.0 74.4
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Total proved plus probable 143.3 756.9 402.8 320.6
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Possible 36.7 240.3 80.7 55.0
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Total proved, probable & possible 180.0 997.2 483.5 375.7
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(1) The Company has 173 Mbbls of 3P oil and liquids that has been converted
to equivalent Mcfe at a conversion rate of 6 Mcfe per barrel of oil and
liquids. Total reserves include 206 MMcfe of 3P royalty interest
reserves.


Price Forecast

The following table summarizes McDaniel's (2009-01) price forecast.

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NATURAL GAS
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Henry Hub AECO-CSpot Exchange Rate
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YEAR ($US/ MMBtu) ($Cdn/MMBtu) ($Cdn/$US)
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Forecast
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2009 7.25 7.40 0.85
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2010 7.75 8.00 0.85
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2011 8.60 8.45 0.90
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2012 9.35 8.80 0.95
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2013 10.10 9.05 1.00
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2014 10.30 9.25 1.00
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2015 10.50 9.45 1.00
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2016 10.70 9.60 1.00
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2017 10.90 9.80 1.00
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2018 11.15 10.00 1.00
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There after escalation of 2%/year
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The weighted average realized sales price for Ember for the year ended December 31, 2008 is estimated at $7.16/Mcf for natural gas.

Reserves Reconciliation

The following table sets forth the changes between the reserve volume estimates made as at December 31, 2008 and the corresponding estimates as at December 31, 2007, based on forecast prices, before royalties:



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Reserves (Bcfe) Proved
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Non
Producing Producing Undeveloped Total Probable Possible Total
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December 31,
2007 14.6 0.4 16.4 31.3 20.0 8.1 59.3
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Extensions/
Discoveries 0.4 - 2.2 2.6 2.1 2.0 6.7
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Improved
Recovery/
Technical
revisions 7.7 - 1.5 9.2 2.0 6.7 17.8
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Transfer from
other categories 8.7 (0.4) (3.9) 4.4 (6.3) (0.3) (2.2)
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Acquisitions 31.1 2.5 24.7 58.4 25.3 20.3 104.0
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Dispositions - - - - - - -
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Economic factors - - - - - - -
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Production
(Estimate) (5.6) - - (5.6) - - (5.6)
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December 31,
2008 56.9 2.5 40.9 100.3 43.0 36.7 180.0
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Finding, Development and Acquisition Costs

Ember's FD&A costs are dominated by the September 2008 acquisition of Cordero, in which the Company paid full value for the reserves in a competitive and public takeover battle. The acquisition was strategic for Ember as it improved cost efficiencies and increased its scale of opportunities based on a larger operational footprint. The acquisition represents approximately 75% of Ember's historical capital costs including future capital and is the major component in Ember's current year and 3 year FD&A costs. Ember's 2008 finding and development costs excluding the Cordero acquisition were $7.57/BOE proved, $4.36/BOE 2P and $3.06/BOE 3P. These low F&D costs were accomplished from efficient drilling and positive reserve revisions at our Acme property. Ember's three year average FD&A costs for Horseshoe Canyon CBM excluding the Cordero acquisition are $11.81/BOE Proved, $9.95/BOE 2P and $8.16/BOE 3P.

The following table summarizes Ember's efficiency in capital spending during 2008, the comparative 2007 period and the corresponding three year averages.



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Year ended December 31, ($ 000's) Proved Proved, Probable
Proved & Probable & Possible
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2008
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Finding & development capital 24,419 24,419 24,419
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Change in future capital costs (4,006) (14,268) (13,044)
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Total finding & development capital 20,413 10,151 11,375
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Reserve additions (MBOE) 2,695 2,326 3,716
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F&D cost, before future capital
($/BOE) 9.06 10.50 6.57
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F&D cost, after future capital
($/BOE) 7.57 4.36 3.06
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Acquisition capital 249,317 249,317 249,317
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Future capital from acquisitions 54,502 73,248 81,054
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Total acquisition capital
(net of dispositions) 303,819 322,565 330,371
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Reserve acquisitions, net (MBOE) 9,736 13,950 17,327
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Acquisition cost, before future
capital ($/BOE) 25.61 17.87 14.39
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Acquisition cost, after future
capital ($/BOE) 31.21 23.12 19.07
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FD&A cost before future capital
($/BOE) 22.02 16.82 13.01
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FD&A cost after future capital
($/BOE) 26.08 20.44 16.24
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Operating net back ($/BOE) 29.42 29.42 29.42
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Recycle ratio 1.1 1.4 1.8
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Reserve life index (years) based
on Q4 production 9.5 13.6 17.1
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2007
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FD&A cost before future capital ($/BOE) 9.66 6.84 8.55
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FD&A cost after future capital ($/BOE) 16.54 11.81 6.74
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Operating net back ($/BOE) 25.89 25.89 25.89
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Recycle ratio 1.6 2.2 3.8
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FD&A cost after future capital ($/BOE)
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Horseshoe Canyon only (1) 14.30 11.79 10.58
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3 Year Average
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FD&A cost before future capital
($/BOE) 20.11 14.81 11.69
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FD&A cost after future capital
($/BOE) 24.37 18.94 15.42
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Operating net back ($/BOE) 27.33 27.33 27.33
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Recycle ratio 1.1 1.4 1.8
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FD&A cost after future capital ($/BOE)
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Horseshoe Canyon only (1) 23.03 17.90 14.63
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and excluding Cordero acquisition 11.81 9.95 8.16
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(1) FD&A costs for 2007 and the three year average respectively, included
$5.4 million and $22.3 million in capital expenditures on Ember's
Mannville resource and do not reflect the efficiencies of Ember's
current focus on the Horseshoe Canyon CBM. Ember did not incur any
significant costs on its Mannville resource in 2008. For comparative
purposes Ember has provided FD&A costs excluding activities associated
with the Mannville resource.


Future development costs and drilling locations

Ember has a significant number of drilling locations booked within the various reserve categories. In accordance with the COGE handbook the classification of these future drilling locations is based on distance from nearest producing wells. The reserve classifications are as follows:

- Proved undeveloped - the location must be in the adjacent quarter section normally less than 1/2 mile in distance

- Probable undeveloped - the location can not be more than one mile from the closest producing well

- Possible undeveloped - the location can not be more than 1 1/2 miles from the closest producing well

Essentially all of Ember's undeveloped drilling locations target the Horseshoe Canyon coals as their primary target. By its nature, the Horseshoe Canyon trend encompasses a very large aerial extent and generally is prevalent within Ember's core properties. Ember's historical experience has been 100% success in drilling Horseshoe Canyon wells regardless of their reserve classification. The following table details Ember's future development capital and drilling locations.



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Future development Future drilling
costs ($millions) locations
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Gross Net
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Proved 80.0 271 223
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Probable 30.1 104 88
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Total proved plus probable 110.1 375 311
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Possible 13.8 52 44
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Total proved, probable & possible 123.9 427 355
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Undeveloped Lands and Mannville resources

Ember has a significant land position with rights to the Mannville coals. From 2005 to early 2007 Ember committed capital ($45.2 million) and technical expertise in an attempt to commercialize this resource. To date, Ember has achieved individual well success, but has not been successful in a larger multi-well development program. Due to the higher costs and higher risk associated with the Mannville resource, Ember has elected to focus on the more profitable and predictable Horseshoe Canyon coals. Other industry participants continue to pursue the Mannville resource in areas adjacent to Ember's land holdings. Ember will continue to hold these lands, subject to expiries, and will re-activate its investigation of these coals if economic conditions and technical advances warrant further capital investments. Ember's internal resource assessment prepared by Ember's internal qualified reserve evaluators and effective December 31, 2008 estimates contingent recoverable resources on Company interests Mannville lands at 125 Bcf (Low estimate), 279 Bcf (Best estimate) and 506 Bcf (High estimate).

The Cordero acquisition included undeveloped lands prospective for conventional exploration, which is outside of Ember's CBM focus. The Company is in the process of divesting these lands. The following table details Ember's undeveloped land holdings as of December 31, 2008.



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Land type Undeveloped Lands (Acres)
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Gross Net Value ($millions) (1)
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Mannville CBM lands 258,829 234,125 11.7
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Horseshoe Canyon CBM lands (2) 27,463 24,889 3.8
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Conventional exploration 143,582 102,663 5.1
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Total 429,874 361,677 20.6
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(1) Based on internal estimates and industry activity
(2) Includes lands the Company believes to be on trend and does not have
drilling locations assigned.


Estimated Net Asset Value - December 31, 2008

The following table summarizes the Company's estimated net asset value which is based on various assumptions. Reference should be made to the forward-looking statements advisory included below. Net asset value represents a calculation at a point in time and should not be assumed to represent the fair market value of the Company or its shares.

   

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$ millions (except per Forecasted Prices - Net present value before tax
share amounts) discounted at 10% at December 31,
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2008 2007
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Reserves
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Proved 299.7 67.9
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Probable 103.1 29.3
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Possible 80.7 12.3
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Total reserve value 483.5 109.5
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Undeveloped land 20.6 8.7
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Bank debt, net of working capital 101.8 19.7
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Net asset value 402.3 98.5
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Common shares outstanding 51.4 14.4
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Net asset value per share ($/share) 7.83 6.84
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2009 Outlook

Current economic conditions and low natural gas prices dictate a conservative approach in capital budgets and future drilling activity. Ember has guided capital expenditures for the year to remain within cash flows while non-core asset divestitures will be used to reduce debt. Ember's low cost structures, low decline rates and predictable drilling results give the Company a competitive advantage to weather the current economic downturn.

Since inception, Ember has grown over 10 fold or 280% on an annualized basis. With a drilling inventory in excess of 400 locations Ember expects to resume its growth profile as the business environment and natural gas prices recover. Although it is difficult to predict when that will occur, it is expected that the current and predicted level of drilling activity for North America will result in a decline in natural gas supplies sometime later in the year. Ember's cash flow is highly sensitive to changes in natural gas prices and due to its low royalty rate any increase in natural gas prices goes directly to the bottom line. It is estimated that for every $1 increase in natural gas prices, Ember's cash flow increases by $10 million per year. An increase in cash flow of $10 million could result in an increase in drilling activity of 20-25 net wells.

Reader Advisory

FORWARD-LOOKING STATEMENTS

This press release may contain forward-looking statements including expectations of estimated reserves and resources and future net revenue, estimated net asset value, future production, funds from operations, earnings, operating expenses and capital expenditures. These statements are based on current expectations that involve a number of assumptions, 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 and resource estimates; the uncertainty of estimates and projections relating to production, costs and expenses, health, safety and environmental risks and changes to legislation related to royalties, taxation and environmental matters), 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.

The reserves and future net revenue and resources in this press release represent estimates only. The reserves and future net revenue from the Company's properties have been independently evaluated by McDaniel and Sproule with effective dates of December 31, 2008. These evaluations include a number of assumptions relating to factors such as initial production rates, production decline rates, ultimate recovery of reserves, timing and amount of capital salvage values, royalties and other government levies that may be imposed during the producing life of the reserves. These assumptions were based on McDaniel price forecasts in use at December 31, 2008 and many of these assumptions are subject to change and are beyond the control of the Company. Actual production, sales and cash flows derived there from, will vary from the evaluation and such variations could be material. The present value of estimated future net cash flows referred to herein should not be construed as the current market value of estimated crude oil and natural gas reserves attributable to the Company's properties. Estimates of future net revenue do not represent fair market value. There can be no assurance that contingencies relating to the contingent resources will be satisfied such that these resources may be classified as reserves. There can be no certainty that it will be economically viable or technically feasible to produce any portion of the resources.

Possible Reserves: Possible reserves are those additional reserves that are les certain to be recovered than probable reserves. There is a 10% probability that the quantities actually recovered will equal or exceed the sum of proved plus probable plus possible reserves.

BOE/Mcfe Disclosure: Disclosure provided herein in respect of barrels of oil equivalent (BOE) and equivalent million cubic feet of natural gas 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.

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 V.P. & COO
    (403) 270-0803
    (403) 270-2850 (FAX)