Fairborne Energy Ltd.

Fairborne Energy Ltd.

April 16, 2012 06:00 ET

Fairborne Announces Strategic Asset Sale, Provides Update on Operations and Hedging Activity and the Engagement of Financial Advisors

CALGARY, ALBERTA--(Marketwire - April 16, 2012) - Fairborne Energy Ltd. (TSX:FEL) ("Fairborne" or the "Company") is pleased to announce the following:

--  The Company has entered into an agreement with a private oil and gas
    company to sell its interest in the Greater Sinclair area located in
    Manitoba and Saskatchewan (the "Assets") which includes approximately
    700 bbls/d of oil production for gross proceeds of $80 million, subject
    to normal course closing adjustments. The transaction excludes
    approximately 100 bbls/d of oil production in the Kingsford area of
    south east Saskatchewan; 

--  Current corporate production, prior to the proposed disposition, is
    15,300 boe/d (with an additional 1,000 boe/d shut in at Wild River due
    to low natural gas prices). The Company's second Cardium horizontal well
    has averaged 1,000 boe/d (including 165 bbls/d of condensate and 85
    bbls/d of natural gas liquids) in its first 30 days of production and is
    currently producing at a rate of 925 boe/d; 

--  Natural gas hedges on an average of 31,000 mcf/d of the Company's
    natural gas production for the period of April to October 2012 have been
    executed at a floor price of $2.06 per mcf with a 50% participation
    position in prices higher than the floor price; and

--  The Company has engaged FirstEnergy Capital Corp. and RBC Capital
    Markets as co-lead financial advisors for its previously announced
    strategic review process. 

Asset Disposition

Fairborne has executed a definitive agreement for the sale of its oil assets in south west Manitoba and southeast Saskatchewan for $80 million, subject to normal course closing adjustments. Details of the Company's divested Assets are as follows:

--  Reserves attributed to the Assets on a proved basis are 1.6 million
    bbls(1) and on a proved plus probable basis are 3.1 million bbls(1); 
--  Current production attributed to the Assets is approximately 700 bbls/d;
--  Transaction metrics are $48.87 per barrel on a proved reserve basis,
    $25.46 per barrel on a proved plus probable reserve basis and $114,286
    on a flowing barrel basis. 

1.  As evaluated by GLJ Petroleum Consultants Ltd. effective December 31,

Impact to Fairborne

--  Reduces December 31, 2011 net debt by 31%; 
--  Based on the April 13, 2012 closing price of $1.84: 
    --  290% premium to Fairborne's current enterprise value per flowing
        barrel valuation based on production of 15,300 boe/d; 
    --  260% premium to Fairborne's current enterprise value per proved plus
        probable reserves; and 
    --  Divested Assets represent 4% of 2011 exit volumes and proceeds
        represent 42% of current market capitalization and 18% of current
        enterprise value. 

The transaction will have an effective date of March 1, 2012, and is scheduled to close during the month of May 2012 and will be subject to standard industry closing conditions. The proceeds from the transaction will be applied to reduce indebtedness under Fairborne's outstanding credit facilities. Combined with the January 31, 2012 announced Clive divestiture, which is expected to close near the end of the second quarter of 2012, Fairborne anticipates net debt to be approximately $140 million post the closing of the two transactions and the effect of the dispositions will be integrated into the annual borrowing base review process which is currently being reviewed by the Company's bank syndicate.


Fairborne had an active winter drilling program that included three (2.7 net) horizontal Wilrich wells at Marlboro, one (0.75 net) Cardium horizontal well at Harlech and one net vertical well at Harlech. Except for one Wilrich horizontal well, which will be completed after spring breakup, all the wells are on production, giving Fairborne a current production level of 15,300 boe/d (with an additional 1,000 boe/d remaining shut in at Wild River due to low natural gas prices).

The Company's second Cardium horizontal at Harlech (75% WI) has been on production for 30 days and has produced at an average rate of 1,000 boe/d which includes 165 bbls/d of condensate and 85 bbls/d of natural gas liquids. The well has had a very strong production profile and is currently producing at 925 boe/d. The Company has identified a Cardium horizontal drilling inventory, on its existing Harlech land base, of 300 net wells (three wells per section spacing) on this regionally extensive and consistent sandstone reservoir trend.

Using current natural gas and condensate prices, production from the Cardium well has a netback of approximately $24 per boe and has had cumulative operating income of $720,000 in its first 30 days of production. Drilling, completion and facilities costs are forecast to be approximately $7.0 million per well and the Company currently plans to drill two additional horizontal Cardium wells in the second half of 2012.

Commodity Price Risk Management

Fairborne has added the following oil and gas hedges to protect the Company's cash flow over the next six months:

Q2 Summary                                                                  

Crude Oil     500 bbls/d     $107.90 CDN                                    
Natural Gas   28,728 mcf/d   $2.07/mcf floor + 50% participation above floor
              3,100 mcf/d    Nymex less $0.385 US/mmbtu                     

Q3 Summary                                                                  

Crude Oil     700 bbls/d     $106.82 CDN                                    
Natural Gas   33,297 mcf/d   $2.06/mcf floor + 50% participation above floor

Strategic Review Process

The Company initiated a strategic review process in March and is pleased to announce the engagement of FirstEnergy Capital Corp. and RBC Capital Markets as co-lead financial advisors to the Special Committee established for such purpose and the Board of Directors of the Company in connection with the strategic review process.

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

Forward-Looking Statements:

Certain information set forth in this press release contains forward-looking statements including management's assessment of future plans and operations, drilling plans, timing of completion of the sale of Assets and the use of proceeds therefrom, net debt after completion of dispositions, timing of completion of wells and cost to drill, complete and tie-in of wells. By their nature, forward-looking statements are subject to numerous risks and uncertainties, some of which are beyond Fairborne's control, including the risk that all of the conditions to closing of the transaction (various of which are not within Fairborne's control) are not satisfied or waived, 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. 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 there from. 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:

Natural gas volumes are converted to barrels of oil equivalent (boe) on the basis of 6,000 cubic feet (mcf) of gas for 1 barrel (bbl) of oil. The term "barrels of oil equivalent" may be misleading, particularly if used in isolation. A boe conversation ratio of 6 mcf to 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. Given that the value ratio based on the current price of crude oil as compared to natural gas is significantly different from the energy equivalency of 6:1, utilizing a conversion on a 6:1 basis may be misleading as an indication of value.


Netbacks are calculated by subtracting royalties, transportation costs and operating costs from revenues.

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