Ember Resources Inc.
TSX : EBR

Ember Resources Inc.

May 08, 2009 08:30 ET

Ember Resources Inc. Reports First Quarter 2009 Results

CALGARY, ALBERTA--(Marketwire - May 8, 2009) -

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Ember Resources Inc. ("Ember") (TSX:EBR) announced today that it has filed its unaudited financial statements and related management's discussion and analysis ("MD&A") for the quarter ended March 31, 2009 on www.sedar.com.



Financial Highlights

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Three months Three months
ended ended
March 31, March 31, Percent
(000s except per share amounts) 2009 2008 Change
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Natural gas sales $ 12,281 $ 5,475 124
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Funds from operations $ 7,312 $ 2,651 176
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- per share basic & diluted (1) $ 0.14 $ 0.18 (22)
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Net income (loss) $ (3,673) $ 68 (5,501)
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- per share basic & diluted $ (0.07) $ 0.00 NA
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Capital investment additions $ 3,950 $ 3,052 29
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Property acquisition $ 3,161 $ - NA
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Property disposition $ 684 $ - NA
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Total assets $ 380,656 $ 111,372 242
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Net bank debt and working capital
deficit $ 101,206 $ 20,082 404
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Shares outstanding 51,367 14,441 256
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Operating Highlights

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Three months Three months
ended ended
March 31, March 31, Percent
(000s except per unit amounts) 2009 2008 Change
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Daily avg gas production (Mcf/d) 27,167 7,963 241
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Daily avg production (BOE/d) 4,528 1,327 241
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Average sales price ($/Mcf) 5.02 7.56 (34)
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Realized derivative gain ($/Mcf) 0.54 - NA
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Royalties ($/Mcf) 0.40 0.79 (49)
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Operating expenses ($/Mcf) 1.22 1.80 (32)
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Transportation expenses ($/Mcf) 0.19 0.19 -
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Operating netback ($/Mcf) 3.75 4.78 (22)
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Operating netback ($/BOE) 22.51 28.62 (21)
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CBM wells drilled (gross/net)
- Horseshoe Canyon 13.0 / 7.3 18.0 / 8.8 (28) / (17)
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Land (000s of net acres) 504 285 77
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Q-1 2009 Highlights

Financial performance

- Funds from operations increased 176% to $7.3 million ($0.14/share diluted) from $2.7 million ($0.18/share diluted) in Q-1 2008.

- Net loss was $3.7 million ($0.07/share diluted) versus net income of $0.07 million ($0.00/share diluted) in Q-1 2008.

- Capital expenditures totaled $6.4 million including property acquisitions net of dispositions compared with $3.1 million in Q-1 2008.

- Cost efficiencies have continued to improve. Operating costs declined $3.46/BOE from Q-1 2008 to $7.33/BOE; general and administrative costs declined $1.49/BOE to $2.55/BOE.

- Total cash costs, including operating, transportation, general and administrative and interest costs, declined 30% in the quarter to $13.03/BOE from $18.61/BOE in Q-1 2008.

- The effective royalty rate declined to 8% from 10.5% in Q-1 2008, which reflects the new Alberta Crown royalty rate, offset by higher freehold royalties on purchased production. Royalty rates are expected to decline further with the acquisition of an 8.5% overriding royalty on Ember's Acme property that was completed on February 20, 2009. For the month of March, Ember's effective royalty rate is estimated at 6%.

- Net bank debt and working capital has been reduced to $96.6 million, down from $101.2 million at the end of Q-1 2009. The decline resulted from the sale of non-core assets effective April 1, 2009 which generated gross proceeds of $4.55 million.

- Subsequent to quarter end, the Company negotiated a new $102 million borrowing facility with its banking syndicate. The facility is comprised of a $5 million dollar revolving working capital amount and a $97 million revolving term facility.

- Net asset value, before tax, is estimated at $5.14/share using strip pricing from March 24, 2009, and year-end 2008 reserves. Net asset value is calculated using net present value of proved, probable plus possible reserves discounted at 10%, plus land value of $17.2 million, minus net bank debt and working capital deficit of $101.8 million.

Operating performance

- Average production increased 241% to 27.2 MMcf/d from 8.0 MMcf/d in Q-1 2008. Production was down 6% from fourth quarter 2008 as a result of declines from flush production from 30 net wells put on stream in the fourth quarter and limited new drilling in the Q-1 2009.

- The operating netback for the quarter was $22.50/BOE as compared to $28.62/BOE in Q-1 2008. Low gas prices contributed to a revenue decline of $11.97/BOE, offset by a $3.48/BOE increase in operating and transportation expenses and a $2.37/BOE decrease in royalties.

- The drilling program recorded 100% success based on 13 wells (7.3 net) drilled at Acme and Fenn-Big Valley, all of which were on stream by the end of the quarter. In addition, production was added from a nine-well workover program (9.0 net) on existing wellbores in the Bashaw area.

- Ember acquired an 8.5% gross overriding royalty payable on all of its production and undrilled lands at Acme for $3.3 million. Acme is currently producing approximately 5.2 MMcf/d and has 54 Bcf of remaining proved, probable and possible reserves. The royalty was acquired at an estimated cost of $0.87/Mcf on a net basis.

- Non-core assets sold during the quarter generated $700,000 and included production of 13 BOE/d. An additional 125 BOE/d was sold on April 1 for $4.55 million. To date, non-core asset dispositions have generated $7.0 million and included 138 BOE/d, 350,000 BOE of proved plus probable reserves and 32 thousand net acres of undeveloped land.

Outlook

- Ember is continuing to focus on development of its CBM properties on trend with the Horseshoe Canyon coals, one of the lowest-cost gas plays in North American and one that can compete with the cost structure of emerging shale gas plays.

- Current production is 26.6 MMcf/d net of recent dispositions and is expected to remain relatively flat for 2009 with drilling offsetting normal declines.

- Ember is targeting to reduce debt to $ 90 million by year end. Additional non-core assets for sale represent 180 BOE/d, 725,000 BOE of proved plus probable reserves and 100,000 net acres of undeveloped land.

- Capital expenditures this year will remain within cash flows, while non-core asset divestitures and excess cash flow will be used to reduce debt. If low gas prices continue, capital spending will be reduced for 2009. As the bulk of drilling is planned for later this year, guidance will be reviewed early in the second half of the year. Minimal activity is planned for the second quarter with cash flows expected to exceed capital spending.

- The current budget of $25 million is forecasted to yield average production of 26-27 MMcf/d, essentially flat with current production. An estimated 35-45 net wells are planned with drilling focused on core Horseshoe Canyon CBM areas at Acme, Fenn-Big Valley and Bashaw.

- An estimated 450 net Horseshoe Canyon locations are in inventory; 355 net locations were recognized in the 2008 year-end reserve report, of which 223 were considered proved undeveloped. Ember has drilled with 100% success in the Horseshoe Canyon over the past three years with only one mechanical failure.

Gas price recovery still unpredictable

Natural gas prices have dropped significantly through a combination factors: a high level of storage from record levels of drilling in 2008, the emergence of high deliverability shale plays and a severe contraction in demand. Current futures are trading at $4.10/mcf for the remainder of 2009 compared with $9.10/mcf averaged in the first six months of 2008.

Any gas price recovery will require a rebalancing of supply/demand fundamentals. A number of factors are coming into play that will ultimately help rebalance the market, but it is difficult to forecast when there will be an impact on pricing. For example, natural gas drilling activity has declined dramatically with rig counts off by more than 50% from last year. Ultimately, this drop will lead to a decline in domestic supply; many analysts are predicting this supply reduction to start to be seen in the second half of 2009.

"This is a difficult period for all natural gas producers. Depressed prices have forced companies to curtail drilling plans and adjust strategies to compete in this environment. Ember's proven low-cost CBM strategy will allow us to weather the storm and react quickly to improving conditions when the market turns," said Doug Dafoe President and CEO. "Ember's Horseshoe Canyon resource play can compete with the best North American shale plays and ensures our success going forward."

Horseshoe Canyon coals & shale gas

Backgrounder

Ember's CBM strategy - 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 making it one of the largest unconventional natural gas resource plays in Canada. 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)

As a result of strategic acquisitions and follow-up drilling activity, 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 450 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.

Horseshoe Canyon CBM is cost competitive with prolific shale plays

Industry attention has turned to development of shale plays in North America. Recent advances in horizontal drilling and multi-stage fracture treatments have generated significant production growth over a short period of time. To many, the shale plays represent a "game changing" supply source that many believe can be developed at a low cost, perhaps as low as $4-6/Mcf.

To compete with these new shale plays, natural gas producers require a similar low cost structure. Ember's Horseshoe Canyon CBM can compete with the shale plays on a cost basis and represents a lower risk profile as it has a longer history of success and reserve recovery. The following highlights Ember's ability to compete:

- Three-year finding, development and acquisition costs of $1.36 - 1.97/Mcf

- Operating and transportation costs based on Q-1 2009 of $1.41/Mcf

- Current royalty rates of 8%

- Total cost of supply (based on reported numbers above) estimated at $3.00 - $3.65/Mcf

- Limited capital exposure of $400,000/well

- Low initial productivity together with low decline rate reduces risk in a low gas price environment

- Two day drilling times allows rapid response to changing conditions

- Based on year-end reserves, 87 Bcf of additional reserves can be converted to producing status

As referred to above, Embers' unaudited financial statements and related MD&A for the quarter ended March 31, 2009 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 first quarter results will take place on May 8, 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 1-877-407-8033. A live webcast will also be provided on: www.emberresources.com. A playback recording of the conference call will be available for 30 days and can be accessed by calling 1-877-660-6853 and enter the account #286 and conference ID #322279.

Reader Advisory

FORWARD-LOOKING STATEMENTS

This press release may contain forward-looking statements including future production, anticipated levels of bank debt, 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. Net asset value calculations do not necessarily represent or equate to fair market value.

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)
    or
    Ember Resources Inc.
    Mr. Bruce C. Ryan
    Vice-President Finance & CFO
    (403) 270-0803
    (403) 270-2850 (FAX)