Fairborne Energy Ltd.

Fairborne Energy Ltd.

May 25, 2011 16:05 ET

Fairborne Announces First Quarter 2011 Results and Updated Corporate Presentation

CALGARY, ALBERTA--(Marketwire - May 25, 2011) - Fairborne (TSX:FEL) is pleased to provide this summary of its financial and operating results for the first quarter of 2011. A complete copy of the Company's unaudited consolidated interim financial statements for the three months ended March 31, 2011, along with management's discussion and analysis in respect thereof will be filed on SEDAR and is available on the Company's website at www.fairborne-energy.com.

Fairborne has also updated its corporate presentation. The updated presentation is available at www.fairborne-energy.com by clicking "Download Our Corporate Presentation" on the home page.


--  Average quarterly production of 14,388 BOE per day (4% higher than the
    first quarter of 2010) despite production interruptions;
--  Production disruptions at the Semcams operated Kaybob
    K3 gas plant restricted production and reduced average daily production
    by approximately 2,100 BOE per day in the first quarter;
--  Closed the sale of non-core assets (approximately 1,800 BOE per day) for
    net proceeds of $123.5 million;
--  Current production is approximately 15,500 BOE per day with 700 BOE per
    day behind pipe due to spring breakup conditions;
--  Continued strong netback of $25.72 per BOE reflecting light oil and NGL
    content as well as a competitive cost structure;
--  Operating costs of $9.39 per BOE in the first quarter of 2011; cost 
    reductions from the new Marlboro gas plant are expected to result in
    operating costs between $8.00 and $9.00 per BOE for the remainder of
--  Funds generated from operations of $29.8 million ($25.7 million after
    deducting interest expense) on $48.5 million of petroleum and natural
    gas revenues;
--  Exploration and development spending totaled $71.7 million with $49.7
    million on drilling and completion activities, $3.8 million on land and
    seismic and $18.1 million on well equipment and facilities, of which
    $14.3 million was expended on construction of the Marlboro gas plant; 
--  First quarter drilling program, which focused on light oil and liquids
    rich natural gas, included 22 (16.2 net) wells resulting in 11 (8.7 net)
    oil wells and 11 (7.5 net) natural gas wells, concentrated on the
    Company's Marlboro, Harlech and Sinclair properties;
--  Completed construction of the Company operated Marlboro gas plant (on
    time and on budget) which was successfully commissioned and started up
    on May 11, 2011 with processing capacity of 40 MMcf per day;
--  In conjunction with completion of the Marlboro gas plant, Fairborne
    entered into an agreement in principle to sell a 40% interest in the
    plant for estimated proceeds of $18 million, while retaining a 42%
    working interest as well as priority access to the divested capacity and
    operatorship of the facility;
--  The Company has received approval from its banking syndicate to maintain
    its borrowing base at the current level of $325 million.

FINANCIAL & OPERATING SUMMARY                                               
THREE MONTHS ENDED MARCH 31,             2011           2010        CHANGE
Financial ($THOUSANDS, EXCEPT                                               
 PER SHARE AMOUNTS)                                                         
Petroleum and natural gas                                                   
 revenue                               48,531         63,382           (23%)
Funds generated from
 operations (1)                        29,833         42,756           (30%)
 Per share - basic                      $0.29          $0.42           (31%)
 Per share - diluted                    $0.29          $0.41           (29%)
Cash flow from operations                                                   
(including changes in working                                               
 capital)                              25,096         44,544           (44%)
 Per share - basic                      $0.24          $0.43           (44%)
 Per share - diluted                    $0.24          $0.43           (44%)
Profit                                 32,650         11,085           195% 
 Per share - basic                      $0.32          $0.11           191% 
 Per share - diluted                    $0.31          $0.11           182% 
Exploration and development                                                 
 expenditures                          57,353         67,216           (15%)
Marlboro gas plant expenditures        14,303              -             -
Total capital expenditures             71,656         67,216             7% 
Property dispositions                (123,460)             -             -  
Working capital deficit                                                     
 (excluding convertible                                                     
 debentures)                           47,175         34,741            36% 
Bank indebtedness                     101,774        102,536            (1%)
Convertible debentures                 98,135         95,958             2% 

Average production                                                          
 Natural gas (Mcf per day)             63,550         60,878             4% 
 Crude oil (bbls per day)               2,710          3,000           (10%)
 Natural gas liquids (bbls per                                              
  day)                                  1,020            686            49% 
 Sulphur (tonnes per day)(2),(4)           67             54            24% 
 Total (BOE per day)                   14,388         13,886             4% 
Average sales price (3)                                                     
 Natural gas ($ per Mcf)                 4.35           5.75           (24%)
 Crude oil ($ per bbl)                  81.78          79.24             3% 
 Natural gas liquids ($ per                                                 
  bbl)                                  54.68          48.71            12% 
 Sulphur ($ per tonne) (4)              98.26              -             -  
Netback per BOE ($ per BOE)                                                 
 Petroleum and natural gas                                                  
  sales (3)                             39.14          44.97           (13%)
 Sulphur block revenue                      -           5.57             -  
 Royalties                              (2.99)         (4.43)          (33%)
 Operating expenses                     (9.39)         (8.64)            9% 
 Transportation                         (1.04)         (1.03)            1% 
 Operating netback                      25.72          36.44           (29%)
Wells drilled (gross)                      22             16            38% 
Undeveloped land (net acres)          227,513        229,270            (1%)

(1) Funds generated from operations is calculated using cash flow from      
    operations as presented in the consolidated statement of cash flows     
    before non-cash working capital and asset retirement expenditures. The  
    calculation of funds generated from operations and cash flow from       
    operations for the three months ended March 31, 2011 excludes $4.2      
    million (March 31, 2010 - $3.0 million) of interest expense which is    
    classified as finance expense under IFRS.                               
(2) A BOE conversion ratio has been calculated using a conversion rate of   
    one tonne of sulphur to one barrel.                                     
(3) Excludes the change in fair value of derivatives.                       
(4) Excludes the sale of inventory at the West Pembina sulphur block.       


First quarter production of 14,388 BOE per day was 4% higher than the comparative first quarter of 2010 despite numerous production disruptions (approximately 2,100 BOE per day) experienced throughout the quarter as well as the sale of non-core properties which closed late in the quarter (approximately 1,800 BOE per day).

Wetter than normal breakup conditions in Manitoba and southeast Saskatchewan has also restricted the Company's production on its Sinclair property beginning in April 2011. With wet conditions and road bans continuing to the present day, the full impact on second quarter daily production can not yet be determined.

Benefiting from the recent start up of the Marlboro gas plant and improved drying conditions in Manitoba and Saskatchewan, Fairborne's current production is approximately 15,500 BOE per day with an additional 700 BOE per day still restricted due to third party operations and wet conditions in Manitoba and Saskatchewan.


Fairborne continued to realize strong operating netbacks of $25.72 per BOE during the first quarter of 2011. With a production base composed of light crude oil and liquid rich, high heat content natural gas, Fairborne's corporate realized prices have enabled the Company to maintain strong netbacks despite low market prices for natural gas. Crude oil and NGLs represented 26% of Fairborne's first quarter production at average realized prices of $81.78 per bbl and $54.68 per bbl, respectively. The higher heat content of Fairborne's natural gas and the Company's active risk management program contributed to a realized natural gas price of $4.35 per Mcf for the first quarter, which was 15% higher than the AECO daily benchmark.

Fairborne's focus on operating efficiencies and cost management is also key to maintaining strong operating netbacks. Fairborne recorded $9.39 per BOE of operating costs in the first quarter and expects to realize operating cost reductions through the balance of 2011. With the start-up of the Marlboro gas plant, Fairborne expects to achieve operating cost reductions for its existing Marlboro production with incremental production resulting in further reductions on a BOE basis. In addition, the properties included in the non-core asset disposition, which was completed late in the first quarter, had a combined operating cost exceeding Fairborne's corporate average. All considered, the Company expects operating costs to range between $8.00 and $9.00 per BOE for the balance of 2011.


Operations on the Company's Marlboro property continue to proceed as planned. Construction costs for the gas plant were consistent with expectations and the plant has been running for two weeks at full capacity (40 MMcf per day). Fairborne currently has 13 (9.6 net) Wilrich horizontal wells on production with combined volumes, net to Fairborne, in excess of 5,500 BOE per day. One (0.5 net) additional well is currently awaiting completion. Based on planned operations, Fairborne will utilize one drilling rig from mid-June 2011 until spring of 2012 to consecutively drill 10 (6.5 net) Wilrich wells. Fairborne's current inventory of Wilrich locations at Marlboro has grown to 70 gross wells. At current realized capital efficiencies, low operating costs, drilling incentives and with a well defined type curve, the Wilrich offers highly economic returns in today's commodity price environment.


Fairborne is well-positioned to achieve its corporate objectives in 2011. An extensive inventory of opportunities on core properties, which was further concentrated with the non-core divestiture during the quarter, allows the Company to focus on growing production and generating sound economic returns. Fairborne's financial flexibility remains solid with bank credit facilities renewed at $325 million despite the first quarter property disposition which represented approximately 1,800 BOE per day of production. Net debt, including convertible debentures, was $248.9 million at the end of the first quarter, which included $14.3 million of capital expenditures for construction of the Marlboro gas plant. The partial divestiture of the plant, which is expected to close in the second quarter, combined with planned capital expenditures is expected to result in net debt, including convertible debentures, of approximately $230 to $235 million.

The Company will continue to focus on light oil and liquids rich natural gas projects for the remainder of 2011. Capital expenditures of $100 million are budgeted for the balance of 2011 with $20 million allocated to the second quarter and $80 million planned for the last six months of the year. Planned drilling operations include approximately 31 (23.1 net) wells largely concentrated on the Company's Marlboro and Sinclair properties.

Based on the Company's planned capital expenditure program for the balance of 2011, Fairborne expects to achieve the following in 2011:

--  Second quarter average production of 13,300 to 13,600 BOE per day,
    reflecting the estimated impact of the Kaybob K3 gas plant outage, 
    Kaybob KA gas plant interruptions and plant turnarounds at the Rimbey
    gas plant and Brazeau River gas plant of approximately 1,500 BOE per 
    day and the full impact of divesting 1,800 BOE per day late in the first
--  Third quarter average production of 15,000 to 15,500 BOE per day;
--  Fourth quarter average production of 16,000 to 16,500 BOE per day;
--  Exit production of 16,500 to 17,000 BOE per day;
--  Capital expenditures of $150 to $155 million;
--  Drilling and completion of 64 wells, of which 41 are horizontal
    multistage fractured wells;
--  Net debt of approximately $240 to $245 million at year end (assuming 
    bank debt is utilized to pay convertible debentures in December 2011);
--  Year end net debt to annualized fourth quarter 2011 funds from
    operations ratio of 1.7:1.

Fairborne is a crude oil and natural gas exploration, development and production company headquartered in Calgary, Alberta, Canada. Fairborne's shares trade on the Toronto Stock Exchange under the symbol "FEL".

Forward-Looking Statements

Certain information set forth in this press release, contain forward-looking statements including management's assessment of future plans and operations, drilling plans, expected activity levels, expected production levels, the capital expenditure budget, timing and nature of expenditures and impact of capital expenditures for the balance of 2011, the effect of the start-up of the Marlboro gas plant, operating costs for the balance of 2011, net debt at the end of the second quarter and year end 2011 and the ratio of year end net debt to annualized fourth quarter 2011 funds generated from operations. By their nature, forward-looking statements are subject to numerous risks and uncertainties, some of which are beyond Fairborne's control, including the impact of general economic conditions, industry conditions, volatility of commodity prices, risks associated with oil and gas exploration, development, exploitation, production, marketing and transportation, loss of markets, delays resulting from or the inability to obtain required regulatory approvals, inability to retain and delays in retaining drilling rigs and other services, currency fluctuations, imprecision of reserve estimates, environmental risks, competition from other industry participants, the lack of availability of qualified personnel or management, stock market volatility, incorrect assessment of the value of acquisitions, failure to realize the anticipated benefits of acquisitions and ability to access sufficient capital from internal and external sources. The foregoing list is not exhaustive. Additional information on these and other risks that could affect Fairborne's operations and financial results are included in reports on file with Canadian securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com), or at Fairborne's website (www.fairborne-energy.com). Readers are cautioned that the assumptions used in the preparation of such information, although considered reasonable at the time of preparation, may prove to be imprecise and, as such, undue reliance should not be placed on forward-looking statements.

Included herein is an estimate of Fairborne's expected net debt to annualized fourth quarter 2011 funds generated from operations which is based on assumptions as to cash flow, capital spending in 2011 and other assumptions. To the extent such estimates constitutes a financial outlook, it was approved by management of Fairborne on May 25, 2011 and such financial outlook is herein provided to provide readers with information on expected net debt to annualized fourth quarter 2011 funds generated from operations to illustrate the Company's expected liquidity position at the end of 2011 and readers are cautioned that the information may not be appropriate for other purposes. The actual results, performance or achievement of Fairborne could differ materially from those expressed in, or implied by, these forward-looking statements and, accordingly, no assurance can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do so, what benefits that Fairborne will derive therefrom. Fairborne disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable securities laws.

Barrels of Oil Equivalency

Barrel of oil equivalent ("BOE") amounts may be misleading, particularly if used in isolation. A BOE conversion ratio has been calculated using a conversion rate of six thousand cubic feet of natural gas to one barrel and one tonne of sulphur to one barrel. This conversion ratio of six thousand cubic feet of natural gas to one barrel is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

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