Emerge Oil & Gas Inc.

February 24, 2011 19:38 ET

Emerge Reports Strong Growth in Year-End 2010 Reserves

CALGARY, ALBERTA--(Marketwire - Feb. 24, 2011) - Emerge Oil & Gas Inc. ("Emerge" or the "Company") (TSX:EME), is pleased to provide summary results of its independent reserves evaluation for the year ended December 31, 2010.

2010 Year-End Reserve Highlights:

-- Total proved plus probable reserves of 13.6 million boe (98% oil) and
total proved reserves of 7.0 million boe (98% oil), representing year-
over-year increases of 51% and 58%, respectively;

-- Proved plus probable reserves per common share (diluted) increased 32%
over year-end 2009;

-- Net present value of proved plus probable reserves before tax discounted
at 10% of $283.6 million, representing a 65% increase from year-end

-- Finding and development costs of $15.18 per boe on a proved plus
probable basis excluding changes in future development costs ("FDC"),
and $17.23 per boe including a $7.6 million change in FDC;

-- All-in finding, development and acquisition costs on a proved plus
probable basis of $15.39 per boe excluding changes in FDC, and $17.26
per boe including a $12.0 million change in FDC;

-- Reserve replacement of 244% on proved reserves and 357% on proved plus
probable reserves;

-- Q4 2010 average sales volumes of 6,000 boe/d, a 146% increase from Q4
2009 sales volumes of 2,440 boe/d; and

-- Proved plus probable reserve life index (based on Q4 2010 average sales
of 6,000 boe/d) of 6.2 years, up from 5.7 years at year-end 2009.

Reserves at December 31 2010 2009 % Change
Proved Producing (Mboe) 5,024.5 3,021.9 66
Total Proved (Mboe) 7,028.2 4,443.4 58
Proved plus Probable (Mboe) 13,632.2 9,015.5 51

Total Proved Reserves per 1,000 Diluted Shares
(boe) (1) 70.4 51.1 38
Proved plus Probable Reserves per 1,000
Diluted Shares (boe) (1) 136.6 103.8 32

Proved plus Probable Reserve Replacement 357% 1429% NM (2)
Proved plus Probable Reserve Life Index
(years) 6.2 5.7 9

Proved plus Probable F&D Costs per boe -
Excluding FDC 15.18 10.75 41
Proved plus Probable F&D Costs per boe -
Including FDC 17.23 26.81 -36
Proved plus Probable FD&A Costs per boe -
Excluding FDC 15.39 13.79 12
Proved plus Probable FD&A Costs per boe -
Including FDC 17.26 18.12 -5

Operating Netback per boe (3) 21.77 16.93 29
Proved plus Probable Recycle Ratio (Proved
plus Probable FD&A Excluding FDC) 1.4x 1.2x 17


1. Based on year-end outstanding common shares plus in-the-money stock
options outstanding
2. Not meaningful, as the 2009 figure reflects a sizable reserve
acquisition late in that year and little relative production
3. Calculated on a per boe basis as average realized sales price plus other
income, less royalty, operating and transportation expenses

The reserve data provided in this news release represents only a portion of the disclosure required under National Instrument 51-101 ("NI 51-101"). All of the required disclosure information will be contained in the Company's Annual Information Form for the year ended December 31, 2010, which the Company anticipates filing on SEDAR (accessible at www.sedar.com) on or about March 23, 2011.

Certain financial and operating results included in this news release such as finding, development and acquisition costs, production information, operating netbacks, recycle ratios and net asset value calculations are based on unaudited estimated results. These estimated results are subject to change upon completion of the audited financial statements for the year ended December 31, 2010, and changes could be material. Emerge anticipates filing its audited financial statements and related management's discussion and analysis for the year ended December 31, 2010 on SEDAR on or about March 23, 2011.

Management Summary

Strong 2010 reserves growth and reserves replacement is reflective of the Company's capital program of reactivations of shut-in wells, step-out and infill development drilling and facility expansions to improve production efficiencies in our Lloydminster heavy oil area. Production growth in 2010 to 6,000 boe/d (Q4 2010 average) from 2,440 boe/d (Q4 2009 average) was based on the development and optimization of the two major acquisitions completed by Emerge in 2009 plus one property acquisition in 2010 of 400 boe/d in the Ear Lake/Reward area of south Lloydminster.

Reserves growth of 51% in 2010, from 9.0 million boe to 13.6 million boe (98% oil) on a proved plus probable basis confirms the growth potential envisioned from the base assets acquired in 2009. Of particular note, base production declines throughout 2010 were shown to be lower than the previous reserve reports indicated, achieved by the Company's focused capital program and improved production practises. The lower base decline rate in 2010 is a recognition of the longer reserve life and potential higher recovery factors to the average Lloydminster cold flow, heavy oil well.

Higher capital expenditures in Q4 2010 totaling approximately $37 million included approximately $10 million invested in oil and water disposal facilities and water gathering systems designed to handle current and future growth in the Company's oil, water and emulsion volumes. These improvements are expected to reduce trucking and third party processing costs, thereby improving Emerge's field netbacks in 2011 and beyond. Finding and development costs for 2010 were approximately $3.00 per boe higher on a proved basis and approximately $2.00 per boe higher on a proved plus probable basis as the result of these upfront capital costs. It is anticipated that facility capital expenditures will be lower in 2011.

Reserves Data

The Company's December 31, 2010 reserves were independently evaluated by McDaniel & Associates Consultants Ltd. ("McDaniel") in accordance with NI 51-101 and the Canadian Oil and Gas Evaluation Handbook. The reserve information presented herein utilizes McDaniel's January 1, 2011 price forecast and cost assumptions.

Unless otherwise stated, reserves information included in this news release is stated on a "company interest" basis, which represents Emerge's working interest (operated and non-operated) share of remaining reserves before deduction of royalties and including any royalty interests. Numbers presented in tables may not add exactly due to rounding. Dollar figures are stated in Canadian dollars, unless otherwise indicated.

Reserves Summary

The following is a summary of the Company's reserves volumes according to reserve category at December 31, 2010.

Light Total
and Natural Oil % of
Medium Heavy Natural Gas Equivalent Proved
Oil Oil Gas Liquids 2010 plus
Reserves Category (Mbbl) (Mbbl) (MMcf) (Mbbl) (Mboe) Probable
Producing 122.4 4,721.0 936.4 25.0 5,024.5 37
Non-Producing 4.4 489.5 34.9 - 499.8 4
Undeveloped 50.9 1,445.0 26.0 3.6 1,503.8 11
Total Proved 177.8 6,655.6 997.3 28.6 7,028.2 52
Probable 227.9 6,243.3 723.8 12.0 6,603.9 48
Total Proved plus
Probable 405.7 12,899.0 1,721.1 40.6 13,632.2 100

Reserves Values

The following table summarizes the estimated future net revenues associated with Emerge's reserves at December 31, 2010 based on the McDaniel January 1, 2011 price forecast. It should not be assumed that the net present values estimated by McDaniel represent the fair market value of the reserves.

Before Income Taxes Discounted at (%/year):
0% 5% 10% 15% 20%
Reserves Category (M$) (M$) (M$) (M$) (M$)
Producing 114,740 109,060 103,756 98,970 94,697
Non-Producing 14,704 12,295 10,477 9,074 7,969
Undeveloped 37,053 31,096 26,360 22,537 19,407
Total Proved 166,497 152,450 140,593 130,581 122,072
Probable 210,212 171,468 143,043 121,562 104,895
Total Proved plus Probable 376,709 323,918 283,637 252,143 226,968

Relevant portions of the McDaniel January 1, 2011 price forecast used in the Company's evaluation are as follows:

River Alberta
WTI Edmonton Hardisty Heavy
Crude Light Crude Crude
Oil Crude Oil Oil Oil Alberta
40 40 25 12 AECO US/CAN
degrees degrees degrees degrees Spot Exchange
Year ($US/bbl) ($C/bbl) ($C/bbl) ($C/bbl) (C$/MMBtu) ($US/$CAN)
2011 85.00 84.20 72.80 66.70 4.25 0.975
2012 87.70 88.40 75.00 68.70 4.90 0.975
2013 90.50 91.80 75.10 68.60 5.40 0.975
2014 93.40 94.80 77.50 70.80 5.90 0.975
2015 96.30 97.70 80.00 73.00 6.35 0.975
2016 99.40 100.90 82.50 75.40 6.75 0.975
2017 101.40 102.90 84.20 76.90 7.10 0.975
2018 103.40 104.90 85.90 78.40 7.40 0.975
2019 105.40 107.00 87.50 80.00 7.60 0.975
2020 107.60 109.20 89.30 81.60 7.75 0.975
Thereafter +2%/yr +2%/yr +2%/yr +2%/yr +2%/yr 0.975

Reserves Reconciliation

The following summary reconciliation of Emerge's reserves compares changes in the Company's reserves as at December 31, 2009 to the reserves at December 31, 2010 based on the McDaniel January 1, 2011 price forecast.

Proved Probable Probable
(Mboe) (Mboe) (Mboe)
December 31, 2009 Opening Balance 4,443.4 4,572.1 9,015.5
Drilling Extensions and Improved Recoveries 2,670.3 2,746.6 5,416.9
Technical Revisions 1,310.9 (870.2) 440.7
Acquisitions (1) 400.3 155.5 555.8
Production (1,796.7) - (1,796.7)
December 31, 2010 Closing Balance 7,028.2 6,604.0 13,632.2


1. Presented net of a 0.4 mboe proved / 0.4 mboe proved plus probable

Finding and Development Costs ("F&D")

Emerge's 2010 capital program was dominated by development drilling, well reactivations and facilities expansion in the greater Lloydminster area. The Company drilled 66 (66.0 net) wells resulting in 64 heavy oil wells, 1 service well and 1 D&A well, reactivated and equipped over 100 standing oil wells and invested in water disposal facilities, water gathering systems and its Silverdale central oil battery. The facility improvements, most of which were initiated in Q4 2010, are designed to reduce operating and transportation expenses thereby improving the Company's netbacks go-forward.

NI 51-101 specifies how F&D costs should be calculated if they are to be reported. NI 51-101 requires that the total of the exploration and development costs incurred in the most recent financial year together with the change in future development costs ("FDC") during the most recent financial year be divided by the reserve additions for such year. The costs are to be reported on both a proved and a proved plus probable basis, excluding the effects of acquisitions and dispositions. Emerge has chosen to present F&D costs both excluding acquisitions and including acquisitions ("FD&A"), and has presented F&D and FD&A costs both including and excluding changes in FDC, as management uses these additional figures in assessing performance and capital efficiency.

Proved plus
Proved Probable

Finding and Development Costs (M$)
Exploration and Development Expenditures 88,930 88,930
Change in FDC 7,490 11,995
Finding and Development Costs - Including FDC 96,420 100,925

Finding, Development and Acquisition Costs (M$)
Exploration and Development Expenditures 88,930 88,930
Net Acquisition Costs 9,790 9,790
Finding, Development and Acquisition Costs 98,720 98,720
Change in FDC 7,592 11,995
Finding, Development and Acquisition Costs -
Including FDC 106,312 110,715

Reserve Additions (Mboe)
Exploration and Development (1) 3,981 5,858
Net Acquisitions 400 556
Total reserve additions 4,381 6,414

Finding and Development Costs ($/boe) (2)
Excluding FDC 22.34 15.18
Including FDC 24.22 17.23

Finding, Development and Acquisition Costs ($/boe)
Excluding FDC 22.53 15.39
Including FDC 24.24 17.26


1. Includes technical revisions
2. Total exploration and development costs incurred in the most recent
financial year and the change during that year in estimated future
development capital generally do not reflect the total costs of reserve
additions for that year

Reserve Life Index (RLI)

The Company's reserve life index has been calculated based on December 31, 2010 reserves divided by estimated Q4 2010 sales volumes.

Proved plus
Proved Probable
Company Interest Reserves (Mboe) 7,028.2 13,632.2
Estimated Sales Volumes (Q4 2010 average) (boe/d) 6,000 6,000
RLI (years) 3.2 6.2

Net Asset Value

The following table provides a calculation of Emerge's estimated net asset value ("NAV") under which Emerge's reserves would be "produced-out" at forecast future prices and costs. The value is a snapshot in time and is based on various assumptions including commodity prices and foreign exchange rates that vary over time. It should not be assumed that the NAV represents the fair market value of Emerge's shares. The calculations do not reflect the value of the Company's prospect inventory to the extent that the prospects are not recognized within the NI 51-101-compliant reserve assessment.

Before Income Taxes Discounted at (%/year):
0% 5% 10% 15% 20%
(M$) (M$) (M$) (M$) (M$)
Discounted value of
proved plus probable
reserves 376,709 323,918 283,637 252,143 226,968
Undeveloped land (1) 5,964 5,964 5,964 5,964 5,964
In-the-money stock option
proceeds (2) 15,504 15,504 15,504 15,504 15,504
Bank debt as at December
31, 2010 (37,409) (37,409) (37,409) (37,409) (37,409)
Estimated working capital
deficiency as at
December 31, 2010 (3) (16,162) (16,162) (16,162) (16,162) (16,162)
Estimated net asset value 344,606 291,815 251,534 220,040 194,865

Basic shares outstanding
(000) 92,305 92,305 92,305 92,305 92,305
In-the-money stock
options outstanding
(000) 7,502 7,502 7,502 7,502 7,502
Diluted shares
outstanding (000) 99,807 99,807 99,807 99,807 99,807

Estimated net asset value
per diluted share $ 3.45 $ 2.92 $ 2.52 $ 2.20 $ 1.95


1. Valuation is based on 39,761 undeveloped acres at a value of $150 per
2. In-the-money stock option proceeds are based on the closing December 31,
2010 share price of $3.61
3. Working capital deficiency includes an estimate of the Company's current
liabilities less current assets, excluding unrealized mark-to-market

Operations Update

Current production is approximately 6,200 boe/d based on field reports. Production has been impacted by approximately 200-300 boe/d of temporarily shut-in production in the Furness and Silverdale areas due to the shut-in of producing wells as we drilled and completed offset wells. Emerge has drilled 12 (12.0 net) heavy oil wells in the Lloydminster area to-date in Q1 2011 which are in various stages of being completed, equipped and brought on production. The Company has also drilled its first horizontal well (0.9 net) in the Coronation area targeting Viking light oil which is currently being completed and fracture stimulated. Emerge expects to drill an additional 5-7 heavy oil wells in Q1 2011 before spring break-up, pending weather conditions.


bbl barrel of oil or natural gas liquids

boe barrel of oil equivalent

FDC future development costs

M thousands

M$ thousands of Canadian dollars

Mbbl thousands of barrels

Mboe thousands of barrel of oil equivalent

MM millions

MMbtu million British thermal units

MMcf millions of cubic feet

RLI reserve life index

About Emerge Oil & Gas Inc.

Emerge is engaged in the exploration for and development and production of oil and natural gas in Western Canada. The Company currently operates within two principal areas, namely, the Lloydminster area of West-Central Saskatchewan and East-Central Alberta and the Battlebend area of East-Central Alberta. Emerge is headquartered in Calgary, Canada.

Reader Advisories:

Company Interest Reserves

Unless otherwise specified, all reserves volumes and values included in this news release are presented on a "company interest" basis. "Company interest reserves" consist of "company gross reserves" (as defined in NI 51-101) plus Emerge's royalty interests in reserves. "Company interest reserves" is not a measure defined in NI 51-101 and has no standardized meaning under NI 51-101. Accordingly, our Company interest reserves may not be comparable to similarly-defined reserves presented or disclosed by other issuers.

Barrel of Oil Equivalent

The Company may present petroleum and natural gas production and reserve volumes in barrel of oil equivalent ("boe") amounts. For purposes of computing such units, a conversion rate of 6,000 cubic feet of natural gas to one barrel of oil equivalent (6:1) is used. The conversion ratio of 6:1 is based on an energy equivalency conversion method which is primarily applicable at the burner tip and does not represent value equivalence at the wellhead. Readers are cautioned that boe figures may be misleading, particularly if used in isolation.

Forward-Looking Statements and Information

This news release contains forward-looking statements and forward-looking information within the meaning of applicable securities laws. The use of any of the words "expect", "anticipate", "continue", "estimate", "objective", "ongoing", "may", "will", "project", "should", "believe", "plans", "intends" and similar expressions are intended to identify forward-looking statements or information. More particularly and without limitation, this news release contains forward-looking statements and information concerning: reserves volumes and values, as they involve the implied assessment, based on certain estimates and assumptions, that, among other things, the reserves described exist in the quantities predicted or estimated; estimated capital expenditures in Q4 2010 and the composition thereof; the ability to reduce future operating expenses; and estimated capital expenditures for 2011.

The forward-looking statements and information in this news release are based on certain key expectations and assumptions made by Emerge, including but not limited to expectations and assumptions concerning: prevailing and future commodity prices and foreign exchange rates; applicable royalty rates, tax rates and related laws and regulations; future production rates; the performance of existing and future wells; the success obtained in drilling new wells; the inventory of new drilling locations; the sufficiency of budgeted capital expenditures in carrying out planned activities; the availability and cost of labour and services, including but not limited to drilling and completion equipment and services; adequate weather and environmental conditions for drilling and completion activities, including the transportation of associated equipment; the receipt, in a timely manner, of regulatory and third party approvals; the timing of development and construction plans; and the ability of Emerge to secure adequate product processing and transportation and to market its crude oil and natural gas successfully.

Since forward-looking statements and information address future events and conditions, by their very nature they involve inherent risks and uncertainties, certain of which are beyond the control of the Company. Actual results could differ materially from those currently anticipated due to a number of factors and risks. These include, but are not limited to the risks associated with the oil and gas industry in general such as: operational risks in development, exploration and production; delays or changes in plans with respect to exploration and development projects or capital expenditures; the uncertainty of reserve estimates; the uncertainty of estimates and projections relating to production rates, costs and expenses; health, safety and environmental risks; risks associated with adverse weather and the impact on drilling and completion activities and the transportation of associated equipment; fluctuations in foreign exchange rates and in commodity prices, and in particular in the price of heavy oil; transportation and marketing of crude oil and natural gas and the loss of markets; the impact of competitors; the ability to access sufficient capital from internal and external sources; failure to obtain required regulatory and other third party approvals; unanticipated fluctuations or declines in production; and changes in legislation, including but not limited to tax laws, royalty rates and environmental regulations. Readers are cautioned that the foregoing list of risk factors is not exhaustive. Additional information on these and other factors that could impact Emerge can be found in Emerge's Annual Information Form for the year ended December 31, 2009 which may be accessed through Emerge's SEDAR profile at www.sedar.com.

The forward-looking statements and information contained in this news release are made as of the date hereof and Emerge undertakes no obligation 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.

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