Fortress Energy Inc.

Fortress Energy Inc.

April 27, 2012 18:51 ET

Fortress Energy Announces 2011 Financial and Operating Results

CALGARY, ALBERTA--(Marketwire - April 27, 2012) -

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

Fortress Energy Inc. ("Fortress" or the "Company") (TSX:FEI) today announces its financial and operating results and reserves for the year ended December 31, 2011. The Company's financial statements, management's discussion and analysis and notes to the financial statements and statement of reserves data and other oil & gas information for the year ended December 31, 2011 are available on the Company's website (www.fortressenergy.ca) or SEDAR (www.sedar.com).

Financial and Operating Summary

Three months ended December 31, Year ended December 31,
($000's except per share amounts) 2011 2010 2011 2010
Financial
Natural gas sales 316 209 855 11,387
Funds from (used in) operations (1) (812 ) (2,195 ) (3,428 ) 2,206
Per share - basic (0.01 ) (0.04 ) (0.06 ) 0.04
Per share - diluted (0.01 ) (0.04 ) (0.06 ) 0.04
Net loss (2,124 ) (2,041 ) (7,104 ) (27,634 )
Per share - basic (0.04 ) (0.04 ) (0.13 ) (0.50 )
Per share - diluted (0.04 ) (0.04 ) (0.13 ) (0.50 )
Working capital (deficiency) (1) (1,383 ) 5,331 (1,383 ) 5,331
Operations
Average production:
Natural gas (Mcf/d) 602 433 416 6,822
Natural gas liquids (bbl/d) 14 9 10 18
Total (Mcfe/d) 688 488 474 6,991
Average sales price:
Natural gas ($/Mcf) 3.62 3.77 3.70 4.37
Natural gas liquids ($/bbl) 87.74 69.06 83.29 61.63
Total ($/Mcfe) 4.99 4.68 4.94 4.46
Operating netback (1)(2) ($/Mcfe) 0.97 (2.85 ) 1.64 3.63

(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.

(2) Operating netback includes realized gains (losses) on commodities contracts.

Summary of Oil and Gas Reserves - Forecast Prices and Costs

Summary of Oil and Gas Reserves

As of December 31, 2011

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 0.0 1,277 1,021 30.0 24.0
Developed Non-Producing 0.0 0.0 0.0 0.0 0.0 0.0
Undeveloped 0.0 0.0 0.0 0.0 0.0 0.0
Total Proved 0.0 0.0 1,277 1,021 30.0 24.0
Probable 0.0 0.0 2,144 1,789 24.1 19.2
Total Proved plus Probable 0.0 0.0 3,421 2,809 54.1 43.3

Summary of Net Present Values of Future Net Revenue

As of December 31, 2011

Forecast Prices and Costs

Before Income Tax
Discounted At
After Income Tax
Discounted At
0% 5% 10% 15% 20% 0% 5% 10% 15% 20% Unit Value
$/BOE Net
Reserves
Discounted
at 10%
before
Income
Tax
(M$) (M$) (M$) (M$) (M$) (M$) (M$) (M$) (M$) (M$) ($/BOE)
Proved
Developed Producing 3,593 2,716 2,170 1,805 1,547 3,593 2,716 2,170 1,805 1,547 11.18
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 3,593 2,716 2,170 1,805 1,547 3,593 2,716 2,170 1,805 1,547 11.18
Probable 6,308 4,336 3,118 2,315 1,759 6,308 4,336 3,118 2,315 1,759 9.83
Total Proved plus Probable 9,901 7,052 5,288 4,120 3,307 9,901 7,052 5,288 4,120 3,307 10.34

Notes:

(1) The Sproule Report estimates Fortress' share of future capital expenditures necessary to achieve the estimated present worth of future net cash flows based on escalating costs from Proved Reserves to be $nil and Proved and Probable Reserves to be $1,459,000.

CORPORATE HIGHLIGHTS

The following are the highlights to date:

  • The Company was successful in a dispute that resulted from a reassessment of prior tax years by the Canada Revenue Agency ("CRA") in the amount of $18,000,000. On October 26, 2011, the Company received revised notices of reassessment from the CRA indicating that CRA was vacating its claim, reversing the previous assessments resulting in no federal income taxes or penalties payable. As a result, Fortress no longer required the protection of the Order under the CCAA and on October 28, 2011, the Company applied to the Court of Queen's Bench of Alberta to discharge the Company from the CCAA proceedings.
  • On December 7, 2011, the Company announced that it had entered into a letter of intent to acquire a Brazilian private oil and gas company.
  • On March 5, 2012 the Company announce it has signed a formal purchase and sale agreement to acquire 100% of the shares of the Brazilian private oil and gas company for an acquisition price of up to US$37,000,000. The oil and gas interests to be acquired include a 100% working interest in 7 exploration Blocks located in the Reconcavo Basin, covering an area of approximately 200 sq km and a 100% working interest in three onshore producing oil fields: Bom Lugar, located in the Reconcavo Basin, Jiribatuba, located in the Camamu Basin and Aracaju, located in the Sergipe Basin. These assets have current production of approximately 50 bbls/d of light oil. Closing of the acquisition is subject to receipt of all necessary regulatory approvals including the approval of ANP (Agência Nacional do Petróleo, Gás Natural e Biocombustíveis) in Brazil to permit the Brazilian private company to complete the organization prior to the sale of the shares to Fortress, to permit Fortress to purchase and own the shares and to otherwise consummate the transaction. Closing is also subject to the satisfaction of the other conditions set out in the purchase and sale agreement. To finance the acquisition, the Company entered into a letter of intent with a private equity syndicate to raise $55,000,000 to fund the acquisition price and a portion of the planned capital program. The Company expects to close this financing in May 2012, the funds of which will be held in trust pending the closing of the acquisition which is expected to close in June 2012. The Company has also entered into discussions with various investment banks to raise an additional $20,000,000 that will be directed to the capital program.
  • On April 9, 2012, the Company closed the first round of a convertible debenture financing for $245,000. The Company expects to have additional closings in April and May to raise a total of $1,500,000 to provide working capital to fund the Company's operations until it can close the acquisition of the Brazilian oil and gas company.
  • Proved plus probable reserves of 3.4 billion cubic feet of natural gas and 54,100 barrels of natural gas liquids;
  • Proved plus probable reserve life index (RLI) of 14.9 years based on forecast production.
  • Mr. Avik Dey joined the Company's Board of Directors, effective February 24, 2012. Mr. Dey is President and CEO of Remvest Energy Partners LLC, a private investment company he founded in 2011. Remvest is currently focused on energy investments in Latin America. Mr. Dey has been active in the global energy sector since 1999 with experience across three distinct industries (exploration & production, investment banking and private equity).
  • Mr. Mark Woods, P.Eng., joined the Company as VP Operations and Chief Operating Officer effective February 24, 2012. Mr. Woods was the President and Chief Operating Officer of Gallic Energy Ltd., where he developed exploration permits in the Aquitaine Basin of France and the Canning Basin of Western Australia.
  • Mr. Gerry O'Reilly, P.Geol., took on the role of VP Exploration effective April 20, 2012. Mr. O'Reilly has over 26 years experience developing oil and gas prospects, land sales and property acquisitions in Western Canada including the discovery of a number of oil and gas pools.

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 pending acquisition of the private Brazilian oil and gas company and the Company's ability to close the acquisition and complete the related financing, the ability to close the convertible debenture financing and continue as a going concern, reserves and net present values, natural gas prices, supply and demand. The reader is cautioned that assumptions used in the preparation of such information, although considered reasonable by Fortress 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. There are risks associated with the forward-looking statements including there can be no assurance that a suitable transaction will be identified. Consequently there is no representation by Fortress that it will complete a transaction or pursue any of the future courses of action or alternatives discussed herein.

The common shares of Fortress 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 Fortress 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.

Contact Information

  • Fortress Energy Inc.
    Mr. J. Cameron Bailey
    President and Chief Executive Officer
    (403) 398-3345 extension 2450
    (403) 398-3351 (FAX)
    cbailey@fortressenergy.ca

    Fortress Energy Inc.
    Mr. Jamie Jeffs, CA
    Chief Financial Officer
    (403) 398-3345 extension 2470
    jjeffs@fortressenergy.ca

    Fortress Energy Inc.
    Ms. Jocelyn Tochor
    Corporate Manager
    (403) 398-3345 extension 2466
    jtochor@fortressenergy.ca