FairWest Energy Corporation

FairWest Energy Corporation

March 30, 2007 08:00 ET

FairWest Energy Corporation Announces Financial and Operational Results for 2006

CALGARY, ALBERTA--(CCNMatthews - March 30, 2007) - FairWest Energy Corporation ("FairWest")(TSX:FEC) is pleased to announce its financial and operational results for the year ended December 31, 2006. 2006 was a year marked by the review and exploitation of assets acquired in 2005, assumption of operatorship in most of its core operating areas, the acquisition of land and 3D seismic information, and the drilling of 21 wells (9.28 net). Drilling activities were focused in Antelope and Berry Creek, Alberta. In Provost, Alberta and Burstall, Saskatchewan attention was directed to improving the production from existing wells.

Highlights of the financial results for the year ended December 31, 2006 and the 13 months ended December 31, 2005 are summarized below. These highlights should be read in conjunction with the Management's Discussion and Analysis and the associated Financial Statements for the periods, available at www.sedar.com or by request at the offices of FairWest.

December 31, 2006 December 31, 2005
Financial Highlights (12 Months) (13 Months)

Petroleum and natural gas sales, net
of royalties 3,974,032 3,788,321
Other income 346,227 416,729
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Total Revenue 4,320,259 4,205,050
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Depletion, depreciation and
amortization 3,075,644 3,525,848
Operating costs 1,513,433 905,635
Interest and bank charges 256,115 179,235
General and administrative 869,688 887,996
Stock-based compensation 287,413 -
Part XII.6 tax 77,516 62,574
Future income tax (recovery) (1,411,345) (660,400)
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Total Expenses 4,668,464 4,900,888
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Net income (loss) (348,205) (695,838)
Funds flow from operations 1,263,251 1,946,145
Capital expenditures 10,779,717 31,704,870
Basic income (loss) per share (0.006) (0.022)
Diluted income (loss) per share (0.006) (0.022)

For year ended December 31, 2006 the company's revenue net of royalties from petroleum and natural gas sales increased to $3.97 million from $3.79 million in 2005. This increase to revenue occurred despite the significant drop in natural gas prices experienced in 2006. For the year ended December 31, 2006, FairWest's funds flow from operations decreased to $1.26 million from $1.95 million in 2005.

Capital expenditures during 2006 were $10.8 million compared to $31.7 for the 2005. The majority of FairWest 2006 capital expenditures related to the cost of undeveloped land, 3D seismic, drilling, completion and tie in of the 21 wells that were drilled during the year. During 2005, the most significant capital expenditures related to the corporate acquisitions that were concluded during the period and the various exploration and development programs that were conducted by FairWest. The table that follows details the type of expenditures made during 2006 and 2005.

December 31, 2006 December 31, 2005
Capital Expenditures (12 Months) (13 Months)
Lease rental 17,317 19,901
Seismic 730,618 3,034,062
Drilling and completions 5,654,916 1,641,146
Equipping and tie-in 2,775,225 457,606
Corporate acquisitions (disposals) (769,945) 23,731,241
Undeveloped land acquisition 1,469,128 -
Mining asset - 2,172,323
Other 51,660 256,840
Capitalized overhead 850,798 391,721
Total 10,779,717 31,704,840

In order to comply with MI 52-109, FairWest outsourced the work associated with management's assessment of its disclosure controls and procedures and internal control over financial reporting. In March 2007, our service provider reviewed the state of FairWest's internal controls with our Audit Committee and made recommendation for changes. During the balance of 2007, Management will implement the changes to our internal control systems recommended by our internal control consultants.

Subject to Toronto Stock Exchange and regulatory approval, FairWest intends to issue 10,000,000 flow-through common shares ("FT Share") at $0.50 per FT Share, raising $5,000,000 to be expended on FairWest's exploration and drilling program during 2007. It is anticipated that the private placements will close on or prior to April 30, 2007.

Highlights of the operational results for the year ended December 31, 2006 and the 13 months ended December 31, 2005 are summarized below. Further information on the operations of FairWest is available in the Annual Information Form of FairWest, filed at www.sedar.com, or by request at the offices of FairWest.

December 31, 2006 December 31, 2005
Highlights of Operations (12 Months) (13 Months)
Natural gas
Natural gas sales ($) 3,020,559 3,776,102
Volume - mcf/day 1,245 1,120
$/mcf 6.65 9.24
Oil and NGLs
Oil and NGL sales ($) 1,106,797 1,230,855
Volume - bbl/day 49 57
$/bbl 61.54 59.28
Barrel of oil equivalent
Total sales ($) 4,127,356 5,006,957
Volume - boe/day 257 244
$/boe 44.04 56.32

Average production for the year was 257 barrels of oil equivalent per day, of which approximately 81 percent was natural gas, compared to 244 boe/d in 2005. Production increases from drilling in 2006 were delayed until the end of January 2007 as the Antelope gathering system took longer to complete than anticipated. This low pressure gathering system connects our production to an underutilized gas plant that is capable of processing our gas at very attractive processing fees compared to competitive rates at other plants.

FairWest has projected proved plus probable production will average approximately 650 boepd for 2007. This projection does not take into account new production from exploration activities and production from the proposed acquisition of Strike Petroleum Ltd. Capital of $3.2 million will be required for various activities to achieve these levels. The funds to complete these activities will be generated from cash flow.


The following table sets out the Company's gross proved plus probable reserves, based on forecast prices and costs, before income taxes by area:

Cumulative Cash
Flow (BIT),
Light and discounted at 10
Medium Oil Sales Gas NGL percent/year
Property MSTB MMscf Mbbls M$
Antelope 0 3,445 0 10,589
Berry Creek 40 1,547 31 5,931
Provost 126 2,275 6 9,597
Other 0 662 21 2,131
Total Alberta 166 7,929 58 28,248
Burstall 0 1,486 0 1,971
Total Saskatchewan 0 1,486 0 1,971
Total 166 9,415 58 30,219

Reserves calculations for 2006 have been adjusted downwards from reserves calculations for 2005. The engineering evaluation for 2005 contained a category called "probable undeveloped" or "undrilled locations". In the report relating to our 2005 reserves, this amounted to 1,246 MBOE of undrilled reserves. In the report relating to our 2006 reserves, this amount was reduced to 178 MBOE. The undrilled reserve volumes in the 2005 report may still be valid and provided they meet economic criteria will be drilled in the future. Management of FairWest are in full support of the decision to reduce the "probable undeveloped" category and intends to continue using this method of forecasting less aggressive targets and results for future drilling. In addition, this methodology will be utilized in the evaluation of any proposed acquisitions.

FairWest has added to its geological staff. This geological team will review all of the locations in the 2005 and 2006 "probable undeveloped" category and recommend suitable drilling prospects.

Plan of Arrangement with Strike Petroleum Ltd.

On March 12, 2007, FairWest and Strike announced a Plan of Arrangement whereby FairWest will make an offer to acquire all of the issued and outstanding shares of Strike Petroleum Ltd. ("Strike") and settle the majority of Strike's unsecured debt. The majority of Strike's production and reserves are located in proximity to FairWest's core operating areas in East Central Alberta. Should the shareholders and creditors of Strike accept the Plan of Arrangement, Mr. Richard Clark, Chairman of the Board of Strike, has expressed his willingness to join the board of directors of FairWest.

Pursuant to the terms of the FairWest offer, Strike shareholders will be offered shares in FairWest based on a ratio of 1 FairWest share for every 1.798 Strike shares. Representatives of Strike and FairWest have met with unsecured creditors who represent approximately 70% of the trade payables as of December 31, 2006 (the "Indebtedness"). In these meetings, the amount of the Indebtedness was confirmed and agreement in principle was reached by the parties as to the most effective manner to settle the Indebtedness. For every $1.00 of Indebtedness, FairWest is prepared to pay the unsecured creditor either: (i) $0.50 cash plus 1 FairWest common share valued at $0.50 per common share, or (ii) 2 FairWest common shares valued at $0.50 per common share. FairWest estimates that it will issue 6,000,000 common shares and $3.0 million to the unsecured creditors. The offer to the unsecured creditors will be included in an information circular that will be sent to the Strike shareholders and creditors in late March 2007.

The Strike acquisition is expected to increase FairWest's cash flow, cash flow per share, income tax pools, production, reserves, undeveloped and technical and administrative staff.. The transaction will add approximately 500 boe/d of production that can, through the net expenditure of $1.43 million, be increased to 850 boe/d of production by the end of 2007. Proved plus probable reserves acquired by FairWest are estimated at 1.15 million barrels of oil equivalent (93 percent natural gas). Based on the reserve component of the acquisition, FairWest has determined that the acquisition costs are $17.05 per boe and, based on the expected production in April 2007, FairWest has estimated the cost per flowing boe per day to be $36,004. FairWest will acquire 8,000 acres of undeveloped land, add up to 20 drilling locations and increase it tax pools by $23.3 million. Based on the expected bank credit lines and equity financing will result in a strong balance sheet with anticipated year end debt to cash flow ratio of less than one.

The shareholders of Strike Petroleum Ltd. ("Strike") will hold a special shareholder meeting to consider the plan of arrangement entered into between Strike and FairWest on April 30, 2007.


As FairWest matures into an established producer, we are looking forward to 2007 as a year of continued growth. By adhering to our own proven exploration and production cycle, along with the integration of the people and assets acquired through the Strike acquisition, FairWest aims to exit 2007 at a production rate of 1,500 boe/d.

FairWest's ability to successfully complete and exploit its planned exploration and development program is contingent upon the continuation of favourable commodity prices, the maintenance of its existing reserve and production base and internally generated cash flow from operations. For the period ended December 31, 2007, the Company's external engineering report calls for the expenditure of $1.66 million to develop its proven resource base and $3.23 to develop its proven and probable reserve base. The cash flow from operations under the expected proved and proved plus probable case together with planned flow-through share financing and property sales is more that sufficient to cover the anticipated capital expenditures. In the event that there is a sustained drop in commodity prices or a material reduction in FairWest's reserve and production base, FairWest will either curtail some of its planned exploration and development activities or it will sell a portion of its existing assets to fund its capital expenditure program.

FairWest believes global, North American and domestic supply and demand factors will result in continued strong prices for crude oil and natural gas for the balance of 2007 and into 2008. FairWest does not see a significant change in the current US$/CDN$ exchange rate. It expects to reduce operating costs on a per share basis. As a substantially larger company than one year ago, FairWest's general and administrative expenses will increase on an absolute basis, but as the Company's production rises, it is anticipated that the per unit cost will decrease substantially.

FairWest Shareholder Meeting

The Annual and Special Meeting of FairWest shareholders will be held at Bankers Hall Auditorium, Lower Level A/P3, 315 - 8 Avenue S.W. Calgary, Alberta T2P 4K1 on April 30, 2007 at 2:30 p.m. (Calgary time). All shareholders are encouraged to attend. Following the formal business of the meeting, management will provide a short presentation on the Company's plans for 2007.

FairWest (TSX:FEC) is a Calgary, Alberta based junior oil and gas company engaged in the acquisition, exploration, development and production of crude oil and natural gas in the provinces of Alberta and Saskatchewan.
Forward Looking Statements: Statements in this release which describe FairWest's intentions, expectations or predictions, or which relate to matters that are not historical facts are forward-looking statements. These forward-looking statements involve known and unknown risks and uncertainties which may cause the actual results, performances or achievements of FairWest to be materially different from any future results, performances or achievements expressed in or implied by such forward-looking statements. FairWest may update or revise any forward-looking statements, whether as a result of new information, future events or changing market and business conditions.

Reserves Estimates: Although every reasonable effort is made to ensure that reserve estimates are accurate, reserve estimation is an inferential science. The process of estimating reserves requires significant judgments and decisions based on available geological, geophysical, engineering and economic data. Revisions to reserve estimates can arise from changes in oil and gas prices or other economic conditions, reservoir performance, new geological or production information and many other factors. Such revisions can be either positive or negative. FairWest's reserves were evaluated by an independent evaluator.

BOE Disclosure: Disclosure provided herein in respect of barrels of oil equivalent (BOE) may be misleading, particularly if used in isolation. A BOE conversion ratio of 6 Mcf: 1bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

Contact Information

  • FairWest Energy Corporation
    James G. Gettis
    President and Chief Executive Officer
    (403) 264-4949
    (403) 269-1761 (FAX)
    FairWest Energy Corporation
    Marion D. Mackie
    Chief Financial Officer
    (403) 264-4949
    (403) 269-1761 (FAX)
    Website: www.fairwestenergy.com