FairWest Energy Corporation
TSX VENTURE : FEC

FairWest Energy Corporation

March 09, 2011 09:30 ET

FairWest Energy Announces Sale of Lands and Farm-Out in Provost, Alberta, Conversion of Preferred Shares and Corporate Update

CALGARY, ALBERTA--(Marketwire - March 9, 2011) - FairWest Energy Corporation ("FairWest" or the "Company") (TSX VENTURE:FEC) is pleased to announce the sale of certain land interests and a farm-out agreement in the Provost area of Alberta, the conversion of its preferred shares and a corporate update.

Sale of Land Interests and Farm-out Agreement in Provost, Alberta

FairWest has sold 20% of its working interests in certain undeveloped lands in the Provost area of east central Alberta to a company controlled by a significant shareholder of the Company ("Oilco") for cash consideration of $1 million. FairWest and Oilco subsequently entered into a farm-out and option agreement (the "Agreement") covering approximately 4.5 sections of the joint lands with a private junior oil and gas company (the "Farmee"). 

Under the terms of the Agreement, the Farmee is committed to drill two (2) horizontal wells (the "Test Wells") prior to July 1, 2011, to evaluate the resource potential of the Viking formation. The Farmee will pay 100% of the costs to drill, complete and equip the Test Wells to earn a 60% working interest in up to 3.5 sections of FairWest and Oilco lands. The Agreement allows the Farmee to earn the remaining lands by drilling one (1) additional horizontal well. FairWest and Oilco will be entitled to 32% and 8% respectively of the production from all lands earned by the Farmee through drilling. 

Conversion of Preferred Shares

On March 7, 2011, FairWest converted all of its 211,259 Series 1 Convertible Retractable Redeemable Preferred Shares (the "Preferred Shares") to FairWest Common Shares. Each Preferred Share had a stated value of $10.00 and in the event that FairWest Common Shares traded at or above $0.15 per share for 10 consecutive days, FairWest had the right to convert all of the outstanding Preferred Shares into FairWest Common Shares at a conversion factor of 66.66 Common Shares for each Preferred Share. The conversion resulted in the issuance of 14,082,524 Common Shares including 5,552,577 issued to insiders. 

Corporate Update

Viking Light Oil Resource Play

FairWest holds high working interests in 100 sections (64,000 acres) of undeveloped land that is prospective for Viking light oil and natural gas within the Redwater-Halkirk resource trend in East Central Alberta. Horizontal drilling and completion technologies have brought a resurgence of interest in the Viking oil resource play during the past two years. Approximately 59 sections of the Company's undeveloped lands located on this play were included in a significant farm-out and option agreement announced January 26, 2011 and a further 4.5 sections were included in the recent farm-out agreement in Provost. FairWest has 36.5 sections (23,360 acres) of prospective land at Provost on which to independently pursue the Viking oil resource play.

Berry Creek

The Company is pleased to announce that it has successfully completed its first horizontal well at Berry Creek as an oil well. FairWest operated the drilling and completion of the well and holds a 39% working interest. The well tested commercial amounts of oil and gas and has been equipped as a pumping oil well. A gas pipeline was constructed to transport solution gas from the well to the Company's Berry Creek gas plant. Further development work on this prospect will be evaluated following a period of production from the well. The Company has identified several follow up horizontal locations that could be drilled on the prospect.

Neutral Hills

In late 2010, FairWest drilled two wells into its main Dina oil pool at Neutral Hills with a 50% working interest. The first well encountered a wet area of the reservoir and was abandoned. The second well was completed as a Dina oil well that commenced production in December at approximately 20 Boe/d (10 Boe/d net). The Company intends to drill two exploratory Dina oil locations in 2011 in the general area and to conduct optimization work including expansion of water handling capacity at the Neutral Hills battery. In October 2010, FairWest and a partner successfully reactivated a Dina oil producer previously suspended in 2004. The well has averaged approximately 30 Boe/d (6.5 Boe/d net) since October. FairWest also recompleted a Dina oil well that has averaged approximately 10 Boe/d (6.8 Boe/d net) since October. A number of suspended wells in the area are being reviewed for further optimization and reactivation work.

Outlook

2011 Drilling Forecast

FairWest anticipates that 2011 will be a very active year of drilling for the Company. The following table outlines the proposed 2011 drilling program. A total of 18 locations (6.5 net) are forecast to be drilled including 17 locations targeting oil and one (1) location targeting liquids rich natural gas. Up to 14 horizontal locations are forecast to be drilled on Company lands targeting the Viking light oil resource play. This includes 7 commitment horizontal test locations by joint venture parties at no cost to FairWest, an estimated 5 contingent horizontal option locations by joint venture parties at no cost to FairWest and 2 horizontal locations operated and paid for by FairWest. The Company expects to operate the drilling of two (2) horizontal locations at Berry Creek targeting light oil and liquids rich gas and two (2) exploratory vertical locations at Neutral Hills targeting Dina oil. 

    No. of Wells
Area   Gross   Net
Viking Oil (horizontal) (1)   14   4.7
Neutral Hills, Oil (vertical)   2   1.0
Berry Creek, Oil (horizontal)   1   0.4
Berry Creek, Liquids Rich Gas (horizontal)   1   0.4
Total   18   6.5

Note:

  1. Includes 7 Viking horizontal test wells and 5 Viking contingent horizontal option wells at no cost to FairWest and 2 Viking horizontal test wells operated and paid for by the Company.

2011 Capital Forecast

The following table outlines the Company's forecasted net capital budget of $7.4 million for 2011 (gross $34.4 million). A significant portion of the 2011 capital budget will be funded by joint venture parties under two recently signed farm-out agreements. In addition to an active drilling program the Company expects to spend funds on workover and maintenance projects, seismic and land. FairWest owns an inventory of 12 vertical cased wellbores located on lands prospective for Viking oil in the Provost area. During 2011, the Company intends to complete and test four (4) of these wells for vertical Viking oil as a precursor to potential horizontal drilling locations. 

    Gross   Net
    $M   $M
Drilling and Completions   26,000   3,600
Facilities   4,900   1,698
Workovers and Maintenance   2,000   1,640
Land   1,000   300
Seismic   450   180
Total   34,350   7,418

Production Volumes

FairWest's current production is approximately 430 boe/d made up of 100 Bbls/d of oil and NGLs and 1,980 Mcf/d of natural gas. Extreme winter weather conditions including cold temperatures and significant snow accumulations have resulted in curtailed volumes in certain areas and these volumes are expected to return following spring breakup.

Corporate Presentation

FairWest invites interested parties to review its recently updated corporate presentation located on its website at www.fairwestenergy.com.

About FairWest Energy

FairWest (TSX VENTURE:FEC) is a Calgary, Alberta based junior oil and gas company engaged in the acquisition, exploration, development and production of crude oil, natural gas and natural gas liquids in the provinces of Alberta and Saskatchewan.

206,384,144 Common Shares Issued

READER ADVISORY

This news release may contain certain forward-looking statements, including management's assessment of future plans and operations, and capital expenditures and the timing thereof, that involve substantial known and unknown risks and uncertainties, certain of which are beyond the Company's control. Such risks and uncertainties include, without limitation, risks associated with oil and gas exploration, development, exploitation, production, marketing and transportation, loss of markets, volatility of commodity prices, currency fluctuations, imprecision of reserve estimates, environmental risks, competition from other producers, inability to retain drilling rigs and other services, delays resulting from or inability to obtain required regulatory approvals and ability to access sufficient capital from internal and external sources, the impact of general economic conditions in Canada, the United States and overseas, industry conditions, changes in laws and regulations (including the adoption of new environmental laws and regulations) and changes in how they are interpreted and enforced, increased competition, the lack of availability of qualified personnel or management, fluctuations in foreign exchange or interest rates, stock market volatility and market valuations of companies with respect to announced transactions and the final valuations thereof and obtaining required approvals of regulatory authorities. The Company's actual results, performance or achievements could differ materially from those expressed in, or implied by, these forward-looking statements and, accordingly, no assurances 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, including the amount of proceeds, that the Company will derive therefrom. Readers are cautioned that the foregoing list of factors is not exhaustive. All subsequent forward-looking statements, whether written or oral, attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by these cautionary statements. Furthermore, the forward-looking statements contained in this news release are made as at the date of this news release and the Company does not undertake any obligation to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by applicable securities laws.

The terms bbls, bbls/d, boe or boe/d may be misleading, particularly if used in isolation. A boe (barrel of oil equivalent) conversion ratio of 6 mcf per one (1) boe is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

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