Fairborne Energy Ltd.
TSX : FEL

Fairborne Energy Ltd.

November 03, 2011 00:05 ET

Fairborne Announces Third Quarter 2011 Results

CALGARY, ALBERTA--(Marketwire - Nov. 3, 2011) - Fairborne (TSX:FEL) is pleased to provide this summary of its financial and operating results for the third quarter of 2011. A complete copy of the Company's interim consolidated financial statements as at and for the three and nine months ended September 30, 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.

HIGHLIGHTS

  • Third quarter production of 15,206 BOE per day, an increase of 9% from the second quarter (13,971 BOE per day);
  • Current production is approximately 15,500 BOE per day;
  • Third quarter production is essentially flat compared to the prior year, despite a property disposition of approximately 1,800 BOE per day in March 2011;
  • Funds generated from operations was $31.5 million ($28.4 million after deducting interest expense), an increase of 16% from the second quarter;
  • Quarter end net bank debt was $146.5 million, down 32% from the prior year (September 30, 2010 – $216.7 million);
  • Completed mid-year borrowing base review and received unanimous consent from lenders to maintain the current borrowing base at $325 million, even after giving effect to the first quarter disposition of 1,800 BOE per day of production;
  • Corporate operating costs of $8.33 per BOE in the third quarter represent a decrease of 6% from the second quarter operating costs of $8.89 per BOE and are a result of continued cost savings associated with the start-up of the Marlboro gas plant and the sale of higher operating cost properties in the first quarter;
  • Continued strong operating netback of $24.85 per BOE reflects light oil, high heat content natural gas and NGL content as well as an increasingly competitive cost structure;
  • Three high rate Wilrich wells, drilled in the third quarter, have now been brought on production with 30 day average flow rates of 9.3, 5.7 and 5.0 MMcf per day respectively plus approximately 10 bbls of associated natural gas liquids per MMcf of gas;
  • An active fourth quarter capital program includes drilling three horizontal wells at Marlboro, one horizontal well at Harlech and one vertical well at Harlech;
  • The Board of Directors has approved a capital budget of $130 million for 2012, with $60 million allocated to projects prior to spring break-up. The 2012 capital program is expected to approximate cash flow.
FINANCIAL & OPERATING SUMMARY
THREE MONTHS ENDED SEPTEMBER 30 , NINE MONTHS ENDED SEPTEMBER 30 ,
2011 2010 2011 2010
Financial ($THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Petroleum and natural gas revenue 53,350 54,718 156,323 177,733
Funds generated from operations (1) 31,504 32,532 88,578 107,549
Per share – basic $0.31 $0.32 $0.87 $1.05
Per share – diluted $0.31 $0.31 $0.86 $1.04
Cash flow from operations
(including changes in working capital) 34,089 27,380 83,287 98,197
Per share – basic $0.33 $0.27 $0.81 $0.96
Per share – diluted $0.33 $0.26 $0.80 $0.95
Profit 1,323 3,201 34,625 16,647
Per share – basic $0.01 $0.03 $0.34 $0.16
Per share – diluted $0.01 $0.03 $0.33 $0.16
Exploration and development expenditures 45,191 44,074 142,886 132,782
Acquisition of P&NG properties 71,316 71,316
Proceeds from the sale of P&NG properties (141,380 )
Working capital deficit
(excluding convertible debentures) 21,257 22,622 21,257 22,622
Bank indebtedness 125,196 194,042 125,196 194,042
Net debt (excluding convertible debentures) 146,453 216,664 146,453 216,664
Convertible debentures 99,353 97,058 99,353 97,058
Operations
Average production
Natural gas (Mcf per day) 72,303 68,910 67,040 65,563
Crude oil (bbls per day) 2,262 2,916 2,419 3,008
Natural gas liquids (bbls per day) 845 1,036 876 958
Sulphur (tonnes per day) (2), (4) 48 66 57 70
Total (BOE per day) 15,206 15,503 14,525 14,963
Average sales price (3)
Natural gas ($ per Mcf) 4.27 4.79 4.36 5.12
Crude oil ($ per bbl) 85.96 74.09 86.99 76.37
Natural gas liquids ($ per bbl) 65.89 42.29 60.97 41.39
Sulphur ($ per tonne) (4) 138.02 48.25 119.35 35.51
Netback per BOE ($ per BOE)
Petroleum and natural gas sales (3) 37.35 38.41 38.94 40.84
Sulphur block revenue 2.58
Royalties (2.98 ) (3.32 ) (4.05 ) (4.64 )
Operating expenses (8.33 ) (8.92 ) (8.85 ) (8.94 )
Transportation (1.19 ) (1.11 ) (1.10 ) (1.08 )
Operating netback 24.85 25.06 24.94 28.76
Wells drilled (gross) 15 16 40 33
Undeveloped land (net acres) 225,997 261,945 225,997 261,945

(1) The calculation of funds generated from operations and cash flow from operations for the three months ended September 30, 2011 excludes $3.1 million (2010 - $3.4 million) of interest expense which is classified as finance expense under IFRS. Similarly, for the nine months ended September 30, 2011, $10.9 million (2010 - $9.6 million) of interest expense 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.

PRODUCTION

Continued drilling success at Marlboro contributed to a 9% increase in third quarter average production to 15,206 BOE per day (Q2 2011 – 13,971 BOE per day). Third quarter production included 72.3 MMcf per day of natural gas and 3,107 BOE per day of crude oil and NGLs.

During the first quarter of 2011 Fairborne divested of approximately 1,800 BOE per day of production for $125 million ($70,000 per BOE per day). With successful drilling on the Company's core plays, production is on track to completely replace the divested volumes by the end of 2011. This is evidenced by the comparison of third quarter 2010 volumes of 15,503 BOE per day versus third quarter 2011 volumes of 15,206 BOE per day.

Fairborne currently has one (1.0 net) Wilrich well being completed which, with an on lease tie in, is expected to commence production by mid November. Three additional wells (one horizontal and two vertical) are also scheduled for completion operations in early November.

Fairborne's current production is approximately 15,500 BOE per day.

FINANCIAL AND OPERATING RESULTS

Fairborne reported a 16% increase in funds generated from operations of $31.5 million in the third quarter (Q2 2011 – $27.2 million), with a strong operating netback of $24.85 per BOE. Despite low market prices, Fairborne's third quarter realized natural gas price of $4.27 per Mcf continues to be above the AECO daily benchmark as a result of the higher heat content of Fairborne's natural gas and the Company's active risk management program. Fairborne's light crude oil and liquid rich natural gas production also contribute to the Company's strong netbacks.

Operating costs of $8.33 per BOE in the third quarter reflected cost savings associated with the start up of the Marlboro gas plant during the second quarter as well as the impact of the first quarter asset disposition, which included non-core properties with a combined operating cost exceeding Fairborne's corporate average. The Company expects operating costs to range between $8.00 and $9.00 per BOE for the balance of 2011.

Fairborne's financial flexibility remains solid with bank credit facilities of $325 million and net debt of $246.5 million (including convertible debentures) at the end of the third quarter. Convertible debentures with a principal amount of $100 million are due on December 31, 2011. Assuming they are settled out of existing credit facilities, the Company expects net debt of approximately $245 to $250 million at the end of the year.

EXPLORATION AND DEVELOPMENT ACTIVITIES

Wilrich development at Marlboro/Pine Creek continues to be a successful focus for the Company with new wells achieving initial production rates and overall decline rates consistent with, or better than, existing wells that have been on production in excess of a year. Four (2.5 net) wells were drilled during the third quarter with the three most recent horizontal wells having a 30 day average flow rate of 9.3, 5.7 and 5.0 MMcf per day respectively. Fairborne is on track to complete its fourth quarter 2011 Marlboro drilling program which includes an additional two (1.8 net) Wilrich wells and one (0.8 net) Bluesky well.

Fairborne currently has 17 (12.3 net) Wilrich horizontal wells on production with combined volumes, net to Fairborne, in excess of 36.6 MMcf per day, processed through the Company operated Marlboro gas plant which commenced operations in May 2011. Based on consistent results achieved in this area, plans are underway to expand the facility capacity in 2012 to accommodate Fairborne's growing Wilrich production.

Additionally, the Company recently spud its first horizontal Bluesky well located at 16-3-56-19W5. This location is targeting a 3D seismic defined Bluesky reservoir offsetting successful industry activity in the area with reported natural gas liquids yields of 40 to 50 bbls per MMcf of gas. Based on success, the Company has planned an additional three horizontal development locations offsetting this well.

OUTLOOK

Fairborne is on target to meet its corporate objectives for 2011, based on a capital expenditure program of approximately $155 to $160 million resulting in forecast year end net debt of approximately $245 to $250 million. As previously announced, Fairborne's outstanding convertible debentures mature on December 31, 2011 and the Company plans to utilize its unused bank facility (currently drawn $120 million on a credit line of $325 million) to pay debenture holders in cash.

Looking forward to 2012, the Company has a strong balance sheet and a portfolio of opportunities that will generate solid economic returns and help achieve 2012 objectives of production growth and continued project development. A 2012 capital expenditure budget of $130 million, which approximates expected cash flow, will preserve the Company's financial flexibility moving forward. Two new exciting exploration plays are being drilled in the fourth quarter of 2011 and updates will follow as results become available to the Company.

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, expected operating costs for the balance of 2011, the capital expenditure budget, timing of expenditures and impact of capital expenditures for the balance of 2011, expected repayment of convertible debentures on maturity in cash from existing credit facilities, expected year end net debt and plans to expand the Marlboro gas plant in 2012. 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. 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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