Fortaleza Energy Inc.

March 31, 2014 14:30 ET

Fortaleza Energy Announces 2013 Financial and Operating Results

CALGARY, ALBERTA--(Marketwired - March 31, 2014) -

THIS NEWS RELEASE IS NOT FOR DISSEMINATION IN THE UNITED STATES OR TO ANY UNITED STATES NEWS SERVICES.

Fortaleza Energy Inc. ("Fortaleza" or the "Company") today announces its financial and operating results and reserves for the year ended December 31, 2013. The Company's financial statements, management's discussion and analysis, and Annual Information Form for the year ended December 31, 2013 are available on the Company's website (www.fortalezaenergy.com) or under the Company's profile on SEDAR (www.sedar.com).

Financial and Operating Summary
Three months ended December 31, Year ended December 31,
($000's except per share amounts) 2013 2012 2013 2012
Financial
Natural gas sales 298 183 946 800
Funds from (used in) operations (1) 1,137 (888 ) (404 ) (3,812 )
Per share - basic and diluted 0.02 (0.02 ) (0.01 ) (0.07 )
Net income (loss) 5,040 1,831 2,779 (2,177 )
Per share - basic and diluted 0.08 0.03 0.05 (0.04 )
Working capital (deficiency) (1) 3,087 (4,109 ) 3,087 (4,109 )
Operations
Average production:
Natural gas (Mcf/d) 538 416 469 510
Natural gas liquids (bbl/d) 16 8 12 12
Total (Mcfe/d) 632 464 542 581
Average sales price:
Natural gas ($/Mcf) 3.90 3.44 3.59 2.56
Natural gas liquids ($/bbl) 72.89 68.15 74.68 74.88
Total ($/Mcfe) 5.12 4.28 4.78 3.77
Operating netback (1) ($/Mcfe) 2.56 1.94 2.07 1.18
(1) The terms "funds from operations", "operating netback" and "working capital" are not recognized measures under IFRS. Management believes that in addition to net income, funds from operations and operating netback are useful supplemental measures as they provide an indication of the results generated by the Company's principal business activities before the consideration of how those activities are financed. Investors are cautioned, however, that these measures should not be construed as alternatives to net income determined in accordance with IFRS. The Company's method of calculating funds from operations may differ from that of other companies, and, accordingly it may not be comparable to measures used by other companies. The Company calculates funds from operations by taking cash flow from operating activities as determined under IFRS before changes in non-cash operating working capital and abandonment expenditures. Operating netback is calculated on a per Mcfe basis taking petroleum and natural gas sales and deducting royalties, operating expenses and transportation expenses. Working capital is calculated as current assets less current liabilities.

Reserves Data

Management engaged Sproule Associates Limited ("Sproule") to provide an independent engineering evaluation of the Company's petroleum and natural gas reserves as of December 31, 2013 (the "Sproule Report"). The Sproule Report is contained in the Company's Annual Information Form dated March 31, 2014 for the year ended December 31, 2013.

SUMMARY OF OIL AND GAS RESERVES
AS OF DECEMBER 31, 2013
FORECAST PRICES AND COSTS
Reserves
Light/Medium Oil
(MBbl)
Natural Gas
(MMcf)
NGL
(MBbl)
Gross Net Gross Net Gross Net
Proved
Developed Producing 0 0 1,151 925 29.7 23.8
Developed Non-Producing 0 0 0 0 0.0 0.0
Undeveloped 0 0 0 0 0.0 0.0
Total Proved 0 0 1,151 925 29.7 23.8
Probable 0 0 2,141 1,774 26.3 21.1
Total Proved plus Probable 0 0 3,292 2,700 56.0 44.8
SUMMARY OF NET PRESENT VALUES OF FUTURE NET REVENUE
AS OF DECEMBER 31, 2013
FORECAST PRICES AND COSTS
Before Income Tax After Income Tax
Discounted At Discounted At
Unit Value
$/BOE Net
Reserves
Discounted
at 10%
before
Income
Tax
0% 5% 10% 15% 20% 0% 5% 10% 15% 20%
(M$) (M$) (M$) (M$) (M$) (M$) (M$) (M$) (M$) (M$) ($/BOE)
Proved
Developed Producing 3,428 2,709 2,233 1,903 1,662 3,428 2,709 2,233 1,903 1,662 12.55
Developed Non-Producing 0 0 0 0 0 0 0 0 0 0 0
Undeveloped 0 0 0 0 0 0 0 0 0 0 0
Total Proved 3,428 2,709 2,233 1,903 1,662 3,428 2,709 2,233 1,903 1,662 12.55
Probable 4,891 3,457 2,535 1,909 1,464 4,888 3,455 2,534 1,908 1,464 8.00
Total Proved plus Probable 8,320 6,166 4,769 3,812 3,127 8,316 6,164 4,768 3,811 3,126 9.64
Notes:
(1) The Sproule Report estimates the Company's share of future capital expenditures necessary to achieve the estimated net present value of future net revenue based on escalating costs from proved Reserves to be $nil and Proved and Probable Reserves to be $1,447,000.

Corporate Highlights

The following are the highlights to date:

On November 19, 2013, the Company announced that it closed a transaction with Petrominerales Ltd. ("Petrominerales") to sell its 25 percent interest in Alvopetro Oil and Gas Investments Inc. ("Alvopetro Investments"), which held its investment in 10 exploration blocks located in the Recôncavo Basin and three marginal fields located in Brazil, for $9,000,000.

At a special meeting of the shareholders held on November 18, 2013, shareholders present in person and by proxy voted 99.6 percent in favor of the transaction and approved a change of name of the Company to Fortaleza Energy Inc. The proceeds of the sale were used to reduce trade payables which the Company incurred to pursue its interests in Brazil and to repurchase the convertible debentures, plus outstanding interest, which were in default. A Special Committee of the Board of Directors continues to examine strategic alternatives and liquidity options available to Shareholders.

The Company increased its production in the three months ended December 31, 2013, to 632 Mcfe/d from 464 Mcfe/d for the comparable quarter in 2012, as a result of workovers completed in June, 2013.

The Company increased its proved and probable reserves for its oil and gas properties to 3,628.6 MMcfe at December 31, 2013 from 3,457.6 MMcfe at December 31, 2012, due to technical revisions resulting from improvements in forecasted natural gas prices and increased production. The net present values of future net revenue of proved and probable reserves, discounted at 10 percent, and before income taxes, increased to $4,769,000 at December 31, 2013 from $3,882,000 at December 31, 2012.

Natural Gas, Crude Oil and Natural Gas Liquids (NGL) Conversions

Certain crude oil and NGL volumes have been converted to cubic feet equivalent (cfe) on the basis of one barrel (bbl) to six thousand cubic feet (Mcf). Cfe may be misleading, particularly if used in isolation. A conversion ratio of one bbl to six Mcf is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent value equivalency at the well head.

Caution to Reader

This news release contains forward-looking information, including without limitation statements concerning the ability to continue as a going concern, reserves, net present values, future capital, oil and natural gas prices, supply and demand. The reader is cautioned that assumptions used in the preparation of such information, although considered reasonable by Fortaleza at the time of preparation, may prove to be incorrect. The actual results achieved in future periods will vary from the information provided herein and the variations may be material.

The common shares of Fortaleza have not and will not be registered under the United States Securities Act of 1933, as amended (the "U.S. Securities Act") or any state securities laws and may not be offered or sold in the United States or to any U.S. person except in certain transactions exempt from the registration requirements of the U.S. Securities Act and applicable state securities laws.

This press release shall not constitute an offer to sell or a solicitation of an offer to buy nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of such jurisdiction. The common shares of Alvopetro have not and will not be registered under the United States Securities Act of 1933, as amended (the "U.S. Securities Act") or any state securities laws and may not be offered or sold in the United States or to any U.S. person except in certain transactions exempt from the registration requirements of the U.S. Securities Act and applicable state securities laws.

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