Fairmount Energy Inc.
TSX VENTURE : FMT

Fairmount Energy Inc.

June 25, 2009 19:43 ET

Fairmount Announces Filing of Annual Financial Statements and NI 51-101 Reserves Data for the Year Ended March 31, 2009

CALGARY, ALBERTA--(Marketwire - June 25, 2009) -

NOT FOR DISTRIBUTION TO UNITED STATES NEWS WIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES OF AMERICA.

Fairmount Energy Inc. ("Fairmount" or the "Company") (TSX VENTURE:FMT) is pleased to present a summary of its operating and financial results for the year ended March 31, 2009. For a complete copy of Fairmount's annual financial statements and management's discussion and analysis ("MD&A") and Fairmount's Statement of Reserves Data in accordance with NI 51-101 with the related reports please visit www.sedar.com. Certain information contained in this news release, including reserves and present value of future net revenues, development plans, drilling locations, and anticipated production from Gold Creek, constitute forward-looking information which are subject to risks and uncertainties. See "Forward-Looking Information".

Highlights:

- Cash flow from operations of $1,156,096 or $0.07 per share for the year.

- Record company production in the fourth quarter of 565 boe/day with full year production averaging 366 boe/day.

- Before tax present value of Gross Proved plus Probable reserves discounted at 10% and using forecast prices of $27,116,000 at March 31, 2009.

- Gross Proved plus Probable reserves of 1,596,000 boe at March 31, 2009.

- Before tax present value of Gross Proved reserves discounted at 10% and using forecast prices of $15,272,000 at March 31, 2009.

- Gross Proved reserves of 872,000 boe at March 31, 2009.

- During the year ended March 31, 2009, Fairmount disposed of 939,000 Gross Proved plus Probable boe through the sale of its interests in the Harmattan and Crossfield properties for aggregate gross proceeds of $14.25 million before closing adjustments.

- The Board of Directors continues to assess various strategic alternatives to maximize shareholder value.



Operations

----------------------------------------------------------------------------
Year Ended Three Months Ended
March March December September June
31, 31, 31, 30, 30,
2009 2009 2008 2008 2008
----------------------------------------------------------------------------
Wells drilled - gross 6 0 2 3 1
----------------------------------------------------------------------------
Wells drilled - net 3.8 0 0.8 2.5 0.5
----------------------------------------------------------------------------
Natural gas production -
mcf/day 1,390 2,262 990 914 1,412
----------------------------------------------------------------------------
Oil production bbl/day 5 2 2 8 7
----------------------------------------------------------------------------
NGL production bbl/day 130 186 89 84 162
----------------------------------------------------------------------------
Average daily production -
boe/day 366 565 256 245 404
----------------------------------------------------------------------------
Average selling price -
natural gas $/mcf $ 7.03 $ 4.79 $ 7.13 $ 8.73 $ 9.40
----------------------------------------------------------------------------
Average selling price -
oil $/bbl $ 103.07 $ 48.56 $ 54.04 $ 111.12 $ 123.35
----------------------------------------------------------------------------
Average selling price -
NGL's $/bbl $ 47.86 $ 31.75 $ 43.56 $ 62.73 $ 60.73
----------------------------------------------------------------------------
Average selling price -
$/boe $ 45.00 $ 29.81 $ 43.16 $ 57.82 $ 59.34
----------------------------------------------------------------------------

----------------------------------------------------------------------------
Year Ended Three Months Ended
March March December September June
31, 31, 31, 30, 30,
2008 2008 2007 2007 2007
----------------------------------------------------------------------------
Wells drilled - gross 6 2 3 0 1
----------------------------------------------------------------------------
Wells drilled - net 2.9 1.0 1.8 0.0 0.1
----------------------------------------------------------------------------
Natural gas production -
mcf/day 1,370 1,439 1,307 1,333 1,402
----------------------------------------------------------------------------
Oil production bbl/day 15 12 13 19 17
----------------------------------------------------------------------------
NGL production bbl/day 139 162 138 116 140
----------------------------------------------------------------------------
Average daily production -
boe/day 383 414 369 357 390
----------------------------------------------------------------------------
Average selling price -
natural gas $/mcf $ 6.59 $ 7.94 $ 6.07 $ 5.17 $ 7.06
----------------------------------------------------------------------------
Average selling price - oil
$/bbl $ 81.85 $ 97.84 $ 86.70 $ 78.61 $ 69.99
----------------------------------------------------------------------------
Average selling price -
NGL's $/bbl $ 46.29 $ 52.91 $ 48.01 $ 40.26 $ 41.99
----------------------------------------------------------------------------
Average selling price -
$/boe $ 43.67 $ 51.16 $ 42.55 $ 36.51 $ 43.41
----------------------------------------------------------------------------


Total Company-2009

In the first quarter daily production was consistent with the prior year exit rate with Gold Creek contributing 225 boe/day and Harmattan contributing 138 boe/day.

Harmattan was sold at the end of the second quarter, on September 30, 2008. During the second quarter, Harmattan contributed 140 boe/day to production. However, production from Gold Creek was only 63 boe/day in the second quarter due to a longer than anticipated plant shut down of the BP Canada South Wapiti plant for a major scheduled plant turn-around. Due to the three week shut down, flush production from other wells which had priority over our wells restricted our capacity for most of the quarter.

In the third quarter, Gold Creek contributed 220 boe/day of production as the restrictions caused by the plant turnaround were removed and we were allowed to produce more volume and tie-in new wells. Full productive capacity at Gold Creek was hampered by various bottlenecks which were largely resolved by the end of this quarter.

In the fourth quarter, Gold Creek contributed 509 boe/day of production as the capacity constraints and bottlenecks previously encountered were eliminated with production coming on-stream from most wells.

Gold Creek

The Gold Creek area is located on the southern flank of the Peace River Arch, near Grande Prairie, Alberta. Fairmount has working interests ranging from 30% to 84% in 13.75 contiguous sections of land in the Gold Creek area. Fairmount is the operator of all of its existing Gold Creek wells.

During the year, Fairmount participated in the drilling of 3 new wells (1.3 net) at Gold Creek. Two (1.0 net) wells were tied-in and brought onto production during the year, with one (0.30 net) standing awaiting tie-in operations at March 31, 2009.

Gold Creek contributed an average of 509 boe/day of production for the three months ended March 31, 2009 with an average of 253 boe/day for the year ended March 31, 2009 as compared to 132 boe/day in the prior year. Much of the year was spent working with our partners and the infrastructure owners in the Gold Creek area to add capacity to the gathering system by removing production restrictions due to various bottlenecks and bring our wells onto production. We now believe we have addressed all of the capacity bottlenecks which have constrained production levels historically and we anticipate being able to flow all current wells without restriction going forward.

Fairmount and partners own gathering and compression facilities sufficient to process 11 mmcf/day of raw gas from the Gold Creek area. Based on the productive capability of existing wells and anticipated productive capability from planned future wells, there is potential the current infrastructure capacity will not be sufficient to allow unrestricted production from future wells. This means the Company may need to create new or expand existing infrastructure to handle the total productive capability of current and future Gold Creek wells. The Company has started planning alternatives to provide additional capacity should this be required.

Based on the results of the ten wells drilled to date on this property, geologic mapping, and/or 2D and 3D seismic Fairmount has identified an additional 6 drilling locations on existing Company lands.

Certain information contained in this section is forward-looking and as such is subject to certain risks and uncertainties. Reference should be made to the discussion of risks and uncertainties that may influence Fairmount's actual results contained under the headings "Forward-Looking Information" and "Risks".

Thorsby

The Thorsby property is located in west central Alberta, approximately 32 kilometres southwest of Edmonton. Fairmount entered into a farm-in agreement with a major Canadian independent oil and gas company and drilled a successful exploratory well in January 2008, and as a result earned a 100% working interest in 2 sections of land, with drilling options on additional lands. The well was completed in 3 zones and was placed on production during September 2008. During the quarter ended March 31, 2009, this well contributed 16 boe/day of production or 11 boe/day of production for the full year period ended March 31, 2009.

Fairmount drilled and cased 1 well (0.5 net) at Thorsby during the third quarter and the well was successfully completed during the fourth quarter. This well is currently standing with tie-in operations awaiting further area development. As a result of the two successful wells drilled to date, Fairmount has identified additional follow-up locations for potential future drilling.

Chin Coulee

The Chin Coulee property is located in southern Alberta, approximately 50 kilometres east of Lethbridge. Fairmount drilled and cased two wells (2.0 net) on these lands during the second quarter but completion operations were not successful and these wells were abandoned in the third quarter.

Harmattan

The Harmattan property is located approximately 105 kilometres north west of the city of Calgary. Fairmount had an interest in approximately 20 sections of land at Harmattan, with an average working interest of approximately 8%. Most wells at Harmattan are oil wells with associated gas and natural gas liquids production. Fairmount also owned 10% of the gathering and field compression facilities at Harmattan.

On September 30, 2008 the Company completed the sale of its interests in the Harmattan area to Pengrowth Energy Trust for $12,000,000 before closing adjustments. The Harmattan property was assigned 528,000 boe of proved reserves with a net present value before tax discounted at 10% of $10,556,000 in the Company's NI 51-101 compliant independent reservoir engineering report as at March 31, 2008 (1). Prior to the sale on September 30, Harmattan contributed 140 boe/day of production for the six months ended September 30 or 70 boe/day for the full year period ended March 31, 2009.

The Harmattan property was the Company's first oil and gas property. Fairmount participated in the drilling of 47 wells (3.8 net) during the four years prior to its sale. The sale of the Harmattan property was the final step in the full cycle business model with respect to this property. Over the past four years, Fairmount participated in the drilling and the construction of infrastructure to bring this property onto production and create reserve value. The exploration and development opportunity for this property was largely exhausted and the reserve value confirmed through production history. As a long life producing asset, Harmattan no longer fit with the Company's high growth business model and was successfully monetized.

Crossfield

Fairmount had a land position of approximately 5 sections with an average working interest of approximately 47.5% in the Crossfield area, north west of Calgary. On August 15, 2008 the Company completed the sale of its interests in the Crossfield area to Bonavista Energy Trust for $2,250,000 before closing adjustments. The Crossfield property was assigned 89,000 boe of proved reserves with a net present value before tax discounted at 10% of $1,602,000 in the Company's NI 51-101 compliant independent reservoir engineering report as at March 31, 2008(1). This same report assigned 117,000 boe of proved plus probable reserves with a net present value before tax discounted at 10% of $1,842,000(1). Prior to the sale on August 15, Crossfield contributed an average of 22 boe/day in the current fiscal year.

1. Additional information regarding the Company's reserves can be found in the Company's NI 51-101 F1 Statement of Reserves Data and Other Oil and Gas Information for 2008 as filed on Sedar at www.sedar.com. The reader is cautioned that the estimates of reserves and future net revenue for individual properties may not reflect the same confidence level as estimates of reserves and future net revenue for all properties due to the effects of aggregation.



Financial Results and selected financial information

----------------------------------------------------------------------------
Year Ended Three Months Ended
March March December September June
$ except number 31, 31, 31, 30, 30,
of shares 2009 2009 2008 2008 2008
----------------------------------------------------------------------------
Natural gas
sales 3,567,541 975,540 649,772 734,434 1,207,795
----------------------------------------------------------------------------
Crude oil and
natural gas
liquids sales 2,447,580 539,187 367,986 566,234 974,173
----------------------------------------------------------------------------
Interest
income - - - - -
----------------------------------------------------------------------------
Royalties (1,534,820) (449,440) (220,285) (250,232) (614,863)
----------------------------------------------------------------------------
Revenue 4,547,060 1,065,287 754,849 1,307,152 1,419,772
----------------------------------------------------------------------------
Production
expenses 1,258,014 446,925 253,395 216,791 340,903
----------------------------------------------------------------------------
General and
administrative
expenses 1,621,993 573,850 366,528 322,300 359,315
----------------------------------------------------------------------------
Depletion,
depreciation
& accretion 3,397,550 1,470,661 562,261 478,442 886,186
----------------------------------------------------------------------------
Interest
expense 457,607 33,996 54,641 171,763 197,207
----------------------------------------------------------------------------
Net income
(loss) before
income taxes (2,432,080) (1,527,373) (468,388) 42,713 (479,032)
----------------------------------------------------------------------------
Recovery of
future income
taxes - - - - -
----------------------------------------------------------------------------
Net income
(loss) (2,432,080) (1,527,373) (468,388) 42,713 (479,032)
----------------------------------------------------------------------------
Net income
(loss) per
share - basic $(0.14) $(0.09) $(0.03) $0.00 $(0.03)
- diluted $(0.14) $(0.09) $(0.03) $0.00 $(0.03)
----------------------------------------------------------------------------
Weighted
average common
shares
outstanding:
----------------------------------------------------------------------------
- basic 16,856,068 16,348,756 16,702,606 17,167,204 17,198,400
----------------------------------------------------------------------------
- diluted 16,856,068 16,348,756 16,702,606 17,277,979 17,198,400
----------------------------------------------------------------------------


----------------------------------------------------------------------------
Year Ended Three Months Ended
March March December September June
$ except number of 31, 31, 31, 30, 30,
shares 2008 2008 2007 2007 2007
----------------------------------------------------------------------------
Natural gas
sales 3,303,683 1,039,287 729,918 633,856 900,622
----------------------------------------------------------------------------
Crude oil and
natural gas
liquids sales 2,808,915 888,314 714,465 565,123 641,013
----------------------------------------------------------------------------
Interest
income 12,129 111 3,511 3,840 4,667
----------------------------------------------------------------------------
Royalties (1,621,296) (537,145) (317,908) (345,581) (420,662)
----------------------------------------------------------------------------
Revenue 4,493,474 1,351,713 1,142,088 865,907 1,133,766
----------------------------------------------------------------------------
Production
expenses 1,148,054 328,057 288,903 315,449 215,645
----------------------------------------------------------------------------
General and
administrative
expenses 1,290,150 303,737 247,875 344,248 394,290
----------------------------------------------------------------------------
Depletion,
depreciation
& accretion 3,296,528 907,170 834,993 764,453 789,912
----------------------------------------------------------------------------
Interest
expense 656,560 176,920 164,867 179,169 135,604
----------------------------------------------------------------------------
Net income
(loss) before
income taxes (2,197,035) (408,837) (463,674) (820,840) (503,684)
----------------------------------------------------------------------------
Recovery of
future income
taxes 1,402,166 1,402,166 - - -
----------------------------------------------------------------------------
Net income
(loss) (794,869) 993,329 (463,674) (820,840) (503,684)
----------------------------------------------------------------------------
Net income
(loss) per
share - basic $(0.05) $0.06 $(0.03) $(0.06) $(0.04)
- diluted $(0.05) $0.06 $(0.03) $(0.06) $(0.04)
----------------------------------------------------------------------------
Weighted average
common shares
outstanding:
----------------------------------------------------------------------------
- basic 15,008,384 17,241,614 15,457,889 13,671,889 13,671,889
----------------------------------------------------------------------------
- diluted 15,008,384 17,241,614 15,457,889 13,671,889 13,671,889
----------------------------------------------------------------------------


Reconciliation of cash flow from operations to net income (loss):

The terms "cash flow" or "cash flow from operations" as used below do not have any standardized meaning prescribed by GAAP and should not be considered an alternative to, or more meaningful than, cash flow from operating activities or net income (loss) as determined in accordance with GAAP as an indicator of the Company's performance. In addition, the Company's determination of cash flow from operations may not be comparable to that reported by other companies. The reconciliation between net income (loss) and cash flow from operations is set out below. Fairmount believes this measure is meaningful because it is an indicator of funding sources for on-going efforts to replace production volumes and increase reserve volumes. The Company also presents cash flow from operations per share which is calculated using the same methodology as earnings per share; however this measurement also does not correspond to GAAP.



----------------------------------------------------------------------------
Year Ended Three Months Ended
March March December September June
$ except per share 31, 31, 31, 30, 30,
amounts 2009 2009 2008 2008 2008
----------------------------------------------------------------------------
Net Income (loss) (2,432,080) (1,527,373) (468,388) 42,713 (479,032)
Depletion,
depreciation and
accretion 3,397,550 1,470,661 562,261 478,442 886,186
Stock-based
compensation 243,976 67,228 (13,588) 75,143 115,193
Loss (gain) on
forward commodity
contracts (44,350) - 48,925 (254,285) 161,010
Future income taxes
(recovery) - - - - -
----------------------------------------------------------------------------
Cash flow from
operations 1,165,096 10,516 129,210 342,013 683,357
----------------------------------------------------------------------------
Cash flow per common
share:
----------------------------------------------------------------------------
- Basic $0.07 $0.00 $0.01 $0.02 $0.04
----------------------------------------------------------------------------
- Diluted $0.07 $0.00 $0.01 $0.02 $0.04
----------------------------------------------------------------------------

----------------------------------------------------------------------------
Year Ended Three Months Ended
March March December September June
$ except per share 31, 31, 31, 30, 30,
amounts 2008 2008 2007 2007 2007
----------------------------------------------------------------------------
Net Income (loss) (794,869) 993,329 (463,674) (820,840) (503,684)
Depletion,
depreciation and
accretion 3,296,528 907,170 834,993 764,453 789,912
Stock-based
compensation 299,217 44,666 69,124 83,428 101,999
Loss (gain) on
forward commodity
contracts 44,350 44,350 - - -
Future income taxes
(recovery) (1,402,166) (1,402,166) - - -
----------------------------------------------------------------------------
Cash flow from
operations 1,443,060 587,349 440,443 27,041 388,227
----------------------------------------------------------------------------
Cash flow per common
share:
----------------------------------------------------------------------------
- Basic $0.10 $0.03 $0.03 $0.00 $0.03
----------------------------------------------------------------------------
- Diluted $0.10 $0.03 $0.03 $0.00 $0.03
----------------------------------------------------------------------------


Forward - Looking Information

This news release contains forward-looking information, including but not limited to the Company's plans to review strategic alternatives for maximizing shareholder value, estimated reserves and future net revenues, future exploration and development plans and anticipated production levels. Information relating to reserves and related future net revenue has been independently evaluated by GLJ Petroleum Consultants Ltd. and is forward-looking information as it involves the implied assessment, based on certain estimates and assumptions that the reserves described can be profitably produced in the future. Additionally, estimates of future net value involve assumptions relating to production rates, commodity prices and exchange rates, operating costs, capital expenditures and well abandonment costs. This information relates to future events or the Company's future performance. All statements and information other than statements of historical fact are forward-looking information. In some cases, forward-looking information can be identified by terminology such as "may", "will", "should", "expect", "plan", "anticipate", "believe", "estimate", "predict", "potential", "continue", or the negative of these terms or other comparable terminology. Forward-looking information relating to reserves and future net revenue are estimates only. Actual reserves and future net revenues will differ from those estimated by GLJ Petroleum Consultants Ltd. and such differences may be material. By its nature, forward-looking information involves numerous assumptions, known and unknown risks and uncertainties, both general and specific, that contribute to the possibility that the predictions, forecasts, projections and other forward-looking information will not occur. Forward-looking information is based on assumptions, including, among other things, the Company's ability to benefit from the combination of growth opportunities and the ability to grow through the capital markets; the Company's acquisition strategy, the criteria to be considered in connection therewith and the benefits to be derived therefrom; sustainability and growth of production and reserves through prudent management and acquisitions; the emergence of accretive growth opportunities; the impact of Canadian and Alberta governmental regulation on the Company; the strategy of the Company regarding commodity price risk management, changes in oil and natural gas prices and the impact of such changes on cash flow; the level of capital expenditures devoted to development activity rather than exploration; the use of development activity and/or acquisitions to replace and add to reserves; the quantity of oil and natural gas reserves and oil and natural gas production levels; and currency, exchange and interest rates.

Although the Company believes that the expectations reflected in the forward-looking information are reasonable, there can be no assurance that such expectations will prove to be correct. The Company can not guarantee future results, levels of activity, performance, or achievements. Moreover, neither the Company nor any other person assumes responsibility for the accuracy and completeness of the forward-looking information. Some of the risks and other factors, some of which are beyond the Company's control, which could cause results to differ materially from those expressed in the forward-looking statements contained in this press release include, but are not limited to, general economic conditions in Canada, the United States and globally; the actual productive capacity from new and existing wells in the Gold Creek area may differ materially from the Company's forecasted production rates once wells come onto production and the timing of wells coming onto production may differ materially from that expected by the Company; industry conditions, including fluctuations in the price of crude oil, natural gas and natural gas liquids and services used by the Company; uncertainties associated with estimating reserves; royalties payable in respect of oil and gas production; governmental regulation of the oil and gas industry, including income tax and environmental regulation; fluctuation in foreign exchange or interest rates; stock market volatility and market valuations; the impact of environmental events; the need to obtain required approvals from regulatory authorities; unanticipated operating events which can reduce production or cause production to be shut-in or delayed; failure to obtain industry partner and other third party consents and approvals, when required; third party performance of obligations under contractual arrangements; and the current financial downturn has resulted in severe economic uncertainty and resulting illiquidity in capital markets which increases the risk that actual results will vary from forward-looking expectations and these variations may be material. Subject to the company's obligations under applicable securities laws, the Company is not under any duty to update any of the forward-looking information after the date of this press release to conform such statements to actual results or to changes in the Company's expectations.

Per barrel of oil equivalent amounts have been calculated using a conversion rate of six thousand cubic feet of natural gas to one barrel of oil (6:1). Barrel of oil equivalents ("boe") may be misleading, particularly if used in isolation. A boe conversion of ratio 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. Present values of future net revenue do not represent fair market value of Fairmount's reserves.

The TSX Venture Exchange does not accept responsibility for the adequacy or accuracy of this release.

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