Grand Banks Energy Corporation
TSX VENTURE : GBE

Grand Banks Energy Corporation

November 22, 2006 18:10 ET

Grand Banks Energy Announces Third Quarter 2006 Results

CALGARY, ALBERTA--(CCNMatthews - Nov. 22, 2006) -

NOT FOR DISTRIBUTION TO THE UNITED STATES NEWSWIRE SERVICES OR FOR DISSEMINATION TO THE UNITED STATES.

Grand Banks Energy Corporation (TSX VENTURE:GBE) has provided its operating results and filed its unaudited interim financial statements, and related management discussion and analysis (MD&A) for the quarter ended Sept. 30, 2006. Select operational and financial results are outlined below and should be read in conjunction with the company's unaudited interim financial statements and related MD&A which can be found on the company's website or on SEDAR.

Third Quarter Highlights:

- Completed testing operations on successful, operated 4,900 meter Leduc exploration well at Tower Creek (Harley) that is expected to add 400 to 500 net barrels of oil equivalent per day when production commences in 2007.

- Participated in the drilling of 9 (5 net) wells, resulting in 8 (4.5 net) oil wells, and 1 (0.5 net) gas wells, for a 100% success rate.

- Increased corporate production of oil and gas during the third quarter to an average rate 813 boe/d from a second quarter level of 787 boe/d. Grand Banks production mix during the quarter was 70% light oil, and 30% natural gas. Current corporate production rates are approximately 970 boe/d.

- Achieved high operating netback of $37.03 per boe during the quarter.

- Achieved cash flow of $2.48 million ($0.08 per share) and net income of $0.23 million ($0.01 per share).

- Completed drilling of third successful Bakken exploration well (50% working interest) in the Stoughton area of southeast Saskatchewan on 30,000 gross acre wide-area farm-in deal, setting up over 70 gross (over 25 net) horizontal development locations on the 6,000 acres earned to date, based on 8 wells per section.

- Completed drilling of key horizontal well on Torquay/Three Forks play in Manitoba and Eastern Saskatchewan. That and other wells drilled after Q3 have tripled our current production from the play area to about 330 boe/d.

- Corporate net debt at September 30, 2006 was $9.57 million. Shares outstanding at September 30 were 29.89 million, or 32.77 million fully diluted. Subsequent to the end of the quarter, 2 million flow-through common shares were issued at a price of $2.10, raising $4.2 million gross, or about $4 million after expenses.

Gas Areas

The third quarter, ending September 30, 2006, was highlighted by the successful testing of the Grand Banks et al Tower Creek 2-21-55-27 W5M Leduc reef gas discovery. Grand Banks, as operator, led a consortium of companies in the successful drilling and completion of this 4,900 meter exploration well earlier in the year. The well tested gas at a final (restricted) stabilized rate of 14.7 mmscf/d at a flowing tubing pressure of 26,000 kPa (3,770 psi). A reserve evaluation with an effective date of August 31, 2006 was performed on the 2-21 well by an independent engineering firm. That report estimated that the reservoir contains, on a proved plus probable basis, original raw gas in place of 49.0 bcf. Grand Banks 16.67% share of the gas, on a sales basis (after shrinkage due to processing), was estimated to be 1.732 bcf proved, and 5.067 bcf proved plus probable. Total gas reserves reported for the Company at our last annual filing, effective Dec 31, 2005, were 1.826 bcf proved and 3.109 bcf proved plus probable (with no reserves assigned to the 2-21 well at that time), which illustrates the significance of the 2-21 discovery. The estimates of reserves for individual properties may not reflect the same confidence level as estimates of reserves for all properties, due to the effect of aggregation. An agreement has been reached with a mid-stream company whereby they will install 11 miles of 8 inch sour gathering line at their cost to allow the processing of the gas from the well at the Kaybob K3 sour gas plant.

Grand Banks is proceeding with the design, acquisition, and installation of the needed field processing facilities for the well. Based upon production testing, initial gross raw gas production rates are estimated to be between 20 and 25 mmcf/d. After shrinkage estimated at 27% due to acid gas content and processing losses, Grand Banks' 16.67% working interest share of the gas from the 2-21 well is expected to be 2.4 to 3.0 mmcf/d, or about 400 to 500 boe/d.

A follow up well, Grand Banks et al Tower Creek 11-26-55-27 W5M, which will target a "Musreau" type, over-pressured, fractured Wabamun reservoir at a depth of 4,500 meters has been licensed and is scheduled to be spudded early 2007. Grand Banks will pay 19.64% of the costs of the well to earn a 17.56% working interest. Based upon production history from an analog well less than 6 miles from our 11-26 location, initial production rates of 30 mmcf/d are achievable. Grand Banks' initial working interest sales volumes from a successful well with similar productivity would be about 650 boe/d.

Grand Banks (50%) and its partner recently completed the drilling of a step-out gas development well at Kakwa. The well is located in the "Deep Basin" area of west central Alberta and has been completed and tested in three productive zones. The well is slated for tie-in next year after a down-spacing application is submitted and approved. Initial gross production rates of about 500 Mcf/d are anticipated for the well.

The production rates from the Grand Banks Virginia Hills 12-30 gas well (88.75% w.i.), that was brought on production in early 2005, have leveled off and the well is producing steadily at a rate of about 820 Mcf/d (about 110 boe net sales).

Subsequent to the end of the third quarter, Grand Banks entered into an agreement to participate in the drilling of a 3,600 meter Doig test in the Noel area of north east British Columbia. Grand Banks will pay 20% of the costs of this exploration well to earn a 12.5% interest in three sections of land, with an option to earn an additional three sections by participating in a second exploration well. The primary zone of interest in the earning well is the Doig, which, based on analogs and the estimated pool size from 3D seismic mapping, has gross reserve potential of over 20 bcf. Successful Doig wells in the area have initial gross raw gas production rates of five to ten million cubic feet per day.

Oil Areas

1. S.E. Saskatchewan Wide-Area Farm in Joint Venture: Grand Banks has placed on production its third Bakken horizontal oil well on an exploration joint venture that it operates (with a 50% working interest) in the Stoughton/Viewfield area of southeast Saskatchewan. This most recent well is currently producing at a gross rate of about 60 bopd. A fourth Bakken horizontal is completing drilling operations and will be completed and equipped for production in the next few weeks. Grand Banks has earned interests in roughly 6,000 acres of land to date in the area (average working interest of 38%) with an additional 25,600 acres under farm-in agreement. On the earned lands alone, Grand Banks has identified the potential for over 70 Bakken horizontal locations (over 25 net) based on eight wells per section.

2. Manitoba and East Saskatchewan Three Forks/Torquay Light oil play: Grand Banks has been involved in a program of leasing and exploratory drilling (generally at a 100% working interest) on this play since late 2004. The play is attractive because the wells are relatively shallow (about 1,100 meters) and the oil is a very high quality light sweet crude that attracts a premium price, equivalent to Edmonton par price for light sweet crude oil. The economics are further enhanced by generous royalty holidays in both Manitoba and Saskatchewan, especially for horizontal producers. To date, we have leased about 22,000 net acres of land. We initially drilled 15 wells (of which 13 were successfully completed as oil producers and all but one were vertical wells) to determine the extent and quality of the reservoir over some of our lands. As of September, the total net stabilized production from these 13 wells (after higher flush production rates) was about 90 bopd.

Grand Banks has recently drilled and placed on production three new horizontal wells on the play in the Frys/Sinclair area of the play along the Saskatchewan-Manitoba provincial border. Initial completion and production volumes indicate a combined net 225 to 250 bopd from the new wells. These wells appear to be the best wells drilled by Grand Banks on the play to date. This area has the potential for up to eight horizontal wells per section with significant upside from future water flooding. Additionally, a vertical well drilled on our acreage to the south of has proven up an extension to the Sinclair pool discovered by Grand Banks in early 2005. Delineation of this pool, with vertical and horizontal wells, will continue in 2007. We also recently performed a "surgi-frac" on the one horizontal well that we had drilled in 2005. That well was drilled at a time when we had less knowledge of the reservoir and was not optimally located in the zone. The fracture treatment, which is based on new technology developed for the Bakken play at Viewfield, Saskatchewan, was performed without problems, and we have begun pumping back the frac fluid from the treatment to evaluate the productivity of the well.

Following up on success from this horizontal drilling and the application of fracturing technology, Grand Banks has identified the potential for over 30 net drilling locations on the play.

3. Kingsford, Saskatchewan: Grand Banks has completed the upgrades on its operated production facility at the Kingsford Midale light oil property, which is strategically located adjacent to the Steelman Midale Unit. Starting in late 2005 we drilled up an extension to the Steelman Midale Pool, which has been on production since 1954. The Midale formation at Steelman is a good quality oil reservoir that produces 32 degree API oil and is characterized by high recovery factors. The potential of the pool has been further enhanced recently by the success of the miscible CO2 flood on a similar reservoir located at Weyburn, Saskatchewan.

We currently produce almost 300 net barrels per day of oil from eight wells. Our production battery, which has the capacity to process gross fluid volumes of over 4,000 bbls/d, creates the potential for increased oil volumes through the optimization of pumping equipment on our existing wells and the drilling and tie-in of new wells in the area. We have identified two low-risk horizontal development locations on our lands, slated for drilling in 2007, that with success could add over 200 barrels oil per day of initial net production to Grand Banks.

4. Wood River, Alberta: Grand Banks (68% working interest) has successfully completed the drilling of a re-entry well located in the Wood River area of Alberta that produces oil from a Leduc reservoir. We have completed the well and are making arrangements to re-activate the existing pipeline that is connected to a production facility.

Outlook:

Grand Banks, as of September 30, 2006, had a net debt (including working capital deficiency) of $9.57 million. Current bank lines are $10.5 million, and the Company expects that its lending limits will be increased after the Tower Creek 2-21 well is placed on production. Current cash flow is in the $600,000 to $700,000 per month range, but this is expected to increase towards year end as we bring on new oil production from our ongoing drilling program. November production is expected to average about 970 boe/d. Year end production guidance is 1,000 to 1,100 boe/d, of which over 80% is high-netback light oil.

Gross corporate production rates are expected to increase to about 1,500 boe/d once the Tower Creek (Harley) Leduc well commences production in mid-2007. The follow up well that we are planning at Tower Creek (targeted to spud in February, 2007) has the potential to increase net production by another net 500 to 600 boe/d, to the 2,000 boe/d range, later in the year.

Mr. McFeely, Chairman and C.E.O. of Grand Banks stated: "We are in the best position in respect of reserves, production potential, drilling inventory, and share value that we have ever been in the history of the Company."

"The decline in natural gas price has created additional opportunities to access land and deals for the drilling of other high impact exploration wells. Our new gas exploration joint venture at Noel is an example of that. Grand Banks is currently reviewing opportunities to add to our exploration prospect inventory. We are also looking at acquisition opportunities for both oil and natural gas. As the result of proposed legislation changes respecting the taxation of income trusts and the slow down in drilling and financing activities in Canada, we believe that the opportunities to acquire good quality properties at a reasonable price will much better that we have seen in recent years. Also, the proposed tax changes respecting income trusts will put Grand Banks in a better competitive position respecting acquisitions, because we possess over $48 million in tax pools."

Mr. McFeely further stated: "Our exploration successes, together with our extensive land position in south east Saskatchewan and Manitoba, have put our Corporation in a particularly favorable strategic position. Our large area joint venture exploration farm-in in Saskatchewan is looking more and more promising as we and other companies drill light oil wells and develop drilling and fracturing technologies that enhance the economics of the Stoughton/Viewfield Bakken light oil play. A significant portion of the land is located in an area where there has been successful exploratory drilling and recent acquisition and divestiture activity. The dramatic increase in drilling, both exploration and development, in south east Saskatchewan generally, makes the wide area deal more prospective than ever, since any successful well that is drilled near any lands that we control will help to reduce risk and prove up value to those lands."

"At Frys East, on the Saskatchewan side of the Sinclair, Manitoba Torquay light oil play, we are very excited about the performance of the three horizontal oil wells that we have recently drilled. Our oil production from the area has more than tripled to a level of about 330 bopd. The performance of these horizontal wells, along with recent vertical wells that have expanded the known area of thicker, better quality reservoir over our lands, have dramatically improved the potential of our 22,000 net acre land base."

"We are currently in the process of planning our capital budget for 2007. The determination of the optimal strategy with respect to developing and exploring our properties, will be driven, as always, by the potential for the timely creation of value, on a per share basis, for our shareholders."

Grand Banks has prepared an updated corporate presentation which has been posted to our website, located at www.grandbanksenergy.com.



HIGHLIGHTS

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Three Months Ended Nine Months Ended
September 30, September 30,
2006 2005 Change 2006 2005 Change
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(000s, except per share
amounts) ($) ($) (%) ($) ($) (%)

Financial Results
Gross revenues 4,469 5,117 (13) 13,189 11,724 12
Income (loss) before
taxes 226 (1,114) (638) (2,344) 73
Net income (loss) 226 (1,114) (638) (377) (69)
Per share - basic 0.01 (0.04) (0.02) (0.01) 100
Per share - diluted 0.01 (0.04) (0.02) (0.01) 100
Funds flow from 2,477 2,783 (11) 7,490 6,320 19
operations (1)
Per share - basic 0.08 0.10 (20) 0.25 0.25 -
Per share - diluted 0.08 0.10 (20) 0.24 0.24 -
Additions to property
and equipment, net
of proceeds 6,097 5,291 15 18,719 13,984 34
Total assets 44,526 34,713 28
Working capital (9,571) 3,725 (357)
Asset retirement
obligation 837 832 1
Flow-through share
obligations 740 5,350 (86)
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(000s) (#) (#) (%) (#) (#) (%)

Share Data

Equity outstanding at
September 30,
Common shares 29,890 28,080 6
Stock options 2,879 2,310 25
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Fully diluted 32,769 30,390 8
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Sales Volumes (average)
Crude oil and liquids
(bbls/d) 569 227 151 579 169 243
Natural gas (mcf/d) 1,464 4,755 (69) 1,622 4,220 (62)
Royalty income (boe/d) - 1 (100) - 2 (100)
Average boe/d (6:1) 813 1,021 (20) 850 874 (3)
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Product Prices (average)
Crude oil and liquids
($/bbl) 70.07 60.41 16 64.46 55.89 15
Natural gas ($/mcf) 5.89 8.74 (33) 6.65 7.83 (15)
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($/boe) ($/boe) (%) ($/boe) ($/boe) (%)

Netback Analysis
Oil and gas revenue
(6:1) 59.68 54.23 10 56.65 48.72 16
Royalty expense 13.68 15.91 (14) 11.18 13.24 (16)
Operating costs 8.97 6.21 44 8.78 5.86 50
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Netback 37.03 32.11 15 36.69 29.62 24
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(1) Funds flow from operations is a non-GAAP measure that represents net
income plus depletion, depreciation and amortization, stock-based
compensation, future taxes and other non-cash expenses. See further
discussion under Non-GAAP Measures in the Management's Discussion and
Analysis.


FORWARD LOOKING STATEMENTS

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.

Netback is the average per unit of volume for oil and gas revenues less royalties and production costs incurred. Netback is expressed in terms of dollars per boe and is calculated in accordance with National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities.


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
    or
    Grand Banks Energy Corporation
    1600, 444 - 5th Avenue S.W.
    Calgary, Alberta T2P 2T8
    (403) 262-8666
    (403) 262-8796 (FAX)
    Website: www.grandbanksenergy.com