Grand Banks Energy Corporation

Grand Banks Energy Corporation

April 11, 2007 21:02 ET

Grand Banks Announces 2006 Results

CALGARY, ALBERTA--(CCNMatthews - April 11, 2007) - Grand Banks Energy Corporation (the "Corporation" or "Grand Banks")(TSX VENTURE:GBE) is pleased to announce its financial results for the year ended December 31, 2006. The Corporation previously announced its oil and gas reserves for the year ended December 31, 2006 on March 8, 2007.

2006 Highlights:

- Successfully drilled a 4,900 meter Leduc gas discovery at Tower Creek,
- Drilled 28 gross (15.6 net) wells with a 90% success rate
- Increased undeveloped land holdings to approximately 30,800 net acres
- Increased corporate proved plus probable reserves to 3.79 million boe
- Achieved proved plus probable recycle ratio of 2.35 and reserve life of
12.2 years
- Achieved net earnings of $627,000 or $.02 per share
- Estimated Net Asset Value ("NAV") per fully diluted share at December 31,
5 percent discounted P+PA reserve value before tax $2.35/share
10 percent discounted P+PA reserve value before tax $1.84/share

Year ended December 31
2006 2005 % Change
Average Sales Volumes:
Crude oil & liquids - bbls/day 592 258 129
Natural gas - mcf/day 1,556 3,834 (59)
Sales volumes - boe/day (6:1) 852 898 (5)

Financial Results (Canadian $000's)
Gross revenues $ 17,504 $ 17,377 1
Net income $ 627 $ 930 (33)
Funds flow from operations $ 9,706 $ 9,066 7
Capital expenditures $ 25,956 $ 22,255 17
Working capital (deficiency)(i) $ (10,562) $ 1,777
Flow-through obligations (next 12 months) $ 3,855 $ 6,740
Total assets $ 52,251 $ 42,336 23
(i) Includes Bank Debt of $6,328 in 2006 and $0 in 2005.

Product Prices and Netback Analysis
Crude oil and liquids price, $/bbl $ 63.07 $ 56.63 11
Natural gas price, $/Mcf $ 6.70 $ 8.50 (21)
Blended price per boe (6:1), $/boe $ 56.11 $ 52.61 7
Royalty expense, $/boe $ 10.71 $ 14.35 (25)
Operating costs $ 8.89 $ 6.18 44
Operating netback, $/boe $ 36.51 $ 32.08 14

2006 was a pivotal year for the Corporation. The highlight of the year was the successful drilling of a 4,900 meter exploratory well located near Hinton, Alberta. As operator, we drilled and completed (with a 16.67% working interest), the Grand Banks et al Tower Creek 2-21-55-27 W5M well which is indicated by geological information and production testing to be a very significant Leduc sour gas discovery. That discovery, along with success in our light oil focus areas, has given us our best year ever in terms of reserves and value per share and positions us for strong growth going forward.

Our gross revenues totaled $17.5 million in 2006, a modest increase over 2005. Funds flow from operations improved slightly to $9.7 million or $0.31 per share. We achieved high operating netbacks of $36.51 per boe due to the high prices received for our light oil production and the effect of royalty holidays in our main operating areas.

During 2006 we raised $4.2 million by way of a flow-through common share financing consisting of 2 million shares at a price of $2.10 per share. At year end 2006 we had 31.92 million common shares outstanding and 2.85 million options outstanding for a total of 34.77 million shares, fully diluted.

Operational Highlights

During 2006, we drilled 28 gross (15.6 net) wells for an overall success rate of 90%. Although our average production for the year, at 852 boe/d, was down slightly from our 2005 average of 898 boe/d, we ended 2006 in a much stronger position as we essentially doubled our proved reserves while replacing production 4.2 times. The reserve life index of the Corporation as at December 31, 2006, was 6.9 years proved and 12.2 years proved plus probable compared to 4.2 years and 6.4 years, respectively, at the end of 2005. This increase was achieved almost entirely with the drill bit.

Successful drilling in Saskatchewan and Manitoba increased average 2006 crude oil and liquid volumes by 129% to 592 bbls/day compared to an average of 258 bbls/day in 2005. This increase in light oil production largely offset a reduction in natural gas volumes due primarily to expected declines from a high deliverability but limited reserve gas well located at Virginia Hills, Alberta. Corporate natural gas volumes are expected to increase substantially once the Tower Creek 2-21 well commences production. During the second quarter of 2007 the 12 mile tie in and the construction of a $12 million dehydration facility for the well are scheduled to be completed, and the well is expected to commence production at sustained gross rates of about 20 MMcf, giving Grand Banks net sales volumes in the range of about 2.4 MMcf/d, equivalent to about 400 boe/d.

Grand Banks has increased its undeveloped landholdings to over 30,800 net acres, of which 23,000 net acres are located in the Williston Basin, a light oil prone region located in southeast Saskatchewan and Manitoba. Grand Banks now produces oil from three separate light oil focus areas located in the Williston Basin.

The first is an oil property at Kingsford where we produce about 240 bopd of Midale oil into a pipeline connected, production facility operated by Grand Banks. We intend to drill selected wells in this area to help maintain the production volumes through our battery.

At a second focus area that we call Sinclair, located in Manitoba and eastern Saskatchewan, we control over 20,000 net acres of land, mostly at a 100% working interest. This area is productive of high value 40 degrees API sweet crude oil from the Devonian Torquay (Three Forks) formation. This is a key development area for Grand Banks. We have drilled and currently operate 18 oil wells in this area. The information and knowledge gained from two years of exploration, as well as our refinements in the drilling and completion of oil wells on this play, have resulted in significant productivity increases in our most recently drilled wells. We have identified three promising "sweet spots" on our land base at Sinclair. We intend to allocate a substantial part of our 2007 budget drilling development wells in the Sinclair area.

Our third oil area is a wide area joint venture farm in deal located in the Stoughton/Viewfield area of south east Saskatchewan. We put this property up for sale in February 2007. The sale process is now well underway. We recently signed a purchase and sale agreement with a purchaser, and anticipate closing on or about May 3, 2007. More details will be announced respecting the sale after closing.


Grand Banks has been built almost entirely with the drill bit. Since the middle of 2003, when our corporate production was less than 100 boe/d, we have raised approximately $32.2 million in equity financings, and over 80% of that equity was raised through the sale of flow through shares. Grand Banks is particularly well suited for flow through financing because we possess tax pools that are now in excess of $50 million. However, flow through funds necessitated that the majority of our budget in 2004 and 2005 be directed towards exploration projects. We were able to deploy the cash flow generated from our exploration successes to acquire land and prospects in south east Saskatchewan and western Manitoba.

In 2006 our capital expenditures, which totaled about $26 million, were financed primarily by cash flow and an expanded bank credit facility. The successful development of our light oil areas, along with our Tower Creek discovery, have created a stable production base which will facilitate further growth. Our budgets going forward will be weighted towards development drilling and funded to a larger extent by cash flow and credit lines. This will enable us to accelerate our growth in production (and value) on a per share basis.

After minimal capital expenditures during the first quarter of this year our current corporate production is about 760 boe/d. After the divestiture of our Stoughton/Viewfield property (about 40 bopd), and once our Tower Creek discovery commences production (expected by June 2007) we expect our corporate production to be about 1,100 boe/d. Based upon a risked analysis of our drilling program and inclusive of declines we have targeted a projected exit rate of 1,400 boe/d.

This exit projection does not include any production volumes for the second Tower Creek well, which we intend to spud before July 1. Grand Banks will operate the drilling of a 4,500 meter exploratory well targeting a well defined "Musreau" type Wabamun type over-pressured sweet gas reservoir. We will pay 19.6% of the projected $18.5 million cost of the well to earn a 17.6% interest. With success, we would expect to have this well tied in and on production during the first quarter of 2008.

We intend to grow our Corporation through lower risk development and exploitation that is supplemented by a prudent mix of high impact exploration. In order to help mitigate the effect of commodity price swings, we will continue to develop both light oil and natural gas production. We expect the ratio of our production of light oil and natural gas to be about 50:50 once the initial Tower Creek well commences production.

The current capital constrained business environment has led to an increase in supply of acquisitions and farm-in opportunities. The prices of acquisitions are also falling to more favorable levels, as are the inflated service costs that were associated with the unusually high activity levels of the past two years. Although Grand Banks has grown primarily in the past with the drill bit, we are now reviewing some acquisition opportunities. Our share price, currently around $1.20 per share, is well below our estimated 2006 year end net asset value (on a 10% dcf before tax basis) of $1.84 per share. This situation reduces our ability to finance an acquisition without the issuance of dilutive equity. We therefore intend to undertake an expanded effort to communicate our success story to investors and financial sources in order to increase the interest in our shares and reduce our cost of capital.

Our goal is to increase our production to the 4,000 to 5,000 boe/d level in three to four years while prudently balancing debt and equity to optimize the growth in our value per share.

Grand Banks is listed on the TSX-Venture Exchange under the Symbol GBE.


This press release contains forward-looking statements including expectations of future production. These statements are based on current expectations that involve a number of risks and uncertainties, which could cause actual results to differ from those anticipated.

BOEs may be misleading, particularly if used in isolation. A BOE conversion ratio of 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.

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

Contact Information

  • Grand Banks Energy Corporation
    E.C. (Ted) McFeely
    Chairman, President and Chief Executive Officer
    (403) 262-8666
    (403) 262-8796 (FAX)
    Grand Banks Energy Corporation
    1600, 444 - 5th Avenue S.W.
    Calgary, Alberta T2P 2T8