Grand Banks Energy Corporation
TSX VENTURE : GBE

Grand Banks Energy Corporation

March 05, 2008 15:15 ET

Grand Banks Provides 2007 Reserves Summary

CALGARY, ALBERTA--(Marketwire - March 5, 2008) - Grand Banks Energy Corporation (TSX VENTURE:GBE) ("Grand Banks" or "Company") is pleased to provide its December 31, 2007 reserves information. These results, which are summarized below, will be filed in greater detail in NI 51-101 format on SEDAR at a later date, along with our 2007 year-end financial information.

Grand Banks achieved exceptional growth in reserves and reserves per share in the year ending December 31, 2007. Grand Banks' total reserves were determined by its independent engineers, Paddock Lindstrom & Associates Ltd. ("Paddock Lindstrom") of Calgary, Alberta.



Highlights

- Proved reserves increased 48.6% from December 31, 2006 to: 2,947.7 mboe

- Proved plus Probable (P+PA) reserves increased 30.0%
from December 31, 2006 to: 4,930.8 mboe

- Estimated Net Asset Value ("NAV") per fully diluted
share (see table below)
5 percent discounted P+PA reserve value before tax $3.95/share
10 percent discounted P+PA reserve value before tax $3.12/share

- Finding & Development Cost Proved with future
development capital (FDC) $14.94/boe

- Finding & Development Cost P+PA with future
development capital (FDC) $19.85/boe

- Proved plus Probable Reserves Replacement 409%

- Proved plus Probable Reserve Life Index
(Based on 2007 exit production of 1,350 boe/d) 10.0 years

Summary of Company Working Interest Reserves and Values

Total
Proved
Proved Total Total plus
Producing Proved Probable Probable
----------------------------------------------------------------------------
Light/Medium Oil (mbbls) 1,001.0 1,619.3 1,653.4 3,272.7
Natural Gas (mmcf) 7,375.6 7,813.5 1,844.6 9,658.1
Natural Gas Liquids (mbbls) 22.4 26.1 22.3 48.4
Oil Equivalent (mboe) 2,252.6 2,947.7 1,983.1 4,930.8
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Before Tax Present Value ($000's)
----------------------------------------------------------------------------
Discounted (at)
5% 66,287.7 84,960.7 60,538.2 145,498.9
10% 56,139.4 70,803.0 45,269.6 116,072.6
----------------------------------------------------------------------------

Grand Banks had an estimated $54.7 million in tax pools at December 31,
2007.
The above summary of reserves and values was based on the following price
and cost assumptions.

Summary of Pricing and Inflation Rate Assumptions at December 31, 2007 -
Forecast Prices and Costs:

Natural Gas
Edmonton Ref Alberta Spot Inflation
WTI Cushing Price Price Rate Exchange Rate
Year ($US/bbls) ($Cdn/bbls) ($Cdn/mmbtu) (%/year) ($US/$Cdn)
----------------------------------------------------------------------------
2008 90.00 88.75 6.62 2.0 1.00
2009 88.00 86.73 7.10 2.0 1.00
2010 84.00 82.70 7.24 2.0 1.00
2011 82.00 80.67 7.38 2.0 1.00
2012 80.00 78.65 7.53 2.0 1.00
----------------------------------------------------------------------------
Note: All prices and costs escalated at 2% per year after 2012.

Grand Banks Working Interest Reserves Reconciliation (Forecast Prices and
Costs, unaudited)

----------------------------------------------------------------------------
Total Proved
Oil Equivalent (mboe) Total Proved plus Probable
----------------------------------------------------------------------------
Opening Balance December 31, 2006 1,983.6 3,793.3
Acquisitions/Dispositions (151.3) (411.6)
Extensions/Revisions/Discoveries 1,483.8 1,917.5
Production (368.4) (368.4)
Closing Balance December 31, 2007 2,947.7 4,930.8
Reserve Replacement Ratio 3.6 4.1
Reserve Life Index (RLI) (yrs) 6.0 10.0
----------------------------------------------------------------------------
(RLI based on 2007 exit production rate of approximately 1,350 boe/d)

Grand Banks Finding, Development and Acquisition Costs (FD&A) (unaudited)

During 2007, Grand Banks spent approximately $14.7 million on exploration,
development and acquisitions (net of sales proceeds of $8.3 million) and
estimates its finding and development costs as follows:

----------------------------------------------------------------------------
Proved
FD&A Costs ($/boe) unaudited Proved plus Probable
----------------------------------------------------------------------------
FD&A including FDC $14.94 $19.85
----------------------------------------------------------------------------

Grand Banks Recycle Ratio (unaudited)

Grand Banks estimated 2007 operating netback was $39.40/boe.
----------------------------------------------------------------------------
Proved
Recycle Ratio Proved plus Probable
----------------------------------------------------------------------------
All-in, including FDC 2.64 1.98
----------------------------------------------------------------------------

Grand Banks 2007 Net Asset Value per Fully Diluted Share Information
(unaudited)

Using Reserve Value at December 31, 2007 - Forecast Pricing and Costs:
----------------------------------------------------------------------------
($000's except share amounts) 5% Before Tax 10% Before Tax
----------------------------------------------------------------------------
Proved Plus Probable Reserve Value
(includes future capital) 145,499 116,073
Undeveloped property at cost (land & seismic) 2,745 2,745
Option Proceeds 3,272 3,272
Estimated Net Debt (12,822) (12,822)
Estimated Total Net Assets 138,694 109,268
Fully Diluted Shares Outstanding (000's) 35,073 35,073
----------------------------------------------------------------------------
Estimated Net Asset Value per Fully Diluted
Share $3.95 $3.12
----------------------------------------------------------------------------


Reserves Discussion

Sinclair Torquay/Three Forks Light Oil play

The Sinclair light oil play, located in Manitoba and southeastern Saskatchewan, was the area where Grand Banks was able to achieve the largest increase in reserves during 2007. Grand Banks drilled six horizontal wells targeting 42 degree API light sweet crude oil from the Torquay (Three Forks) formation in the summer of 2007, and achieved average initial production rates from these wells (unstimulated) in the 75 bopd range, a substantial increase over the initial rates that had been achieved from vertical wells drilled in 2005 and 2006. We also, during the summer of 2007, shot two 3D seismic surveys covering a total of 22 square miles, and interpreted the data from these surveys during the fourth quarter. Grand Banks integrated the information from these seismic programs with its geological data to identify over 30 horizontal drilling locations on its lands.

During the fourth quarter, Grand Banks used the new "Packers Plus" technology for performing multiple fracture treatments on horizontal wells, to fracture an existing producing well that was drilled in August 2007. After the treatment, the production from the well increased from about 15 bopd to rates in the 70 bopd range. A new horizontal well, located using 3D seismic data, was spudded in December and finished drilling in January 2008. This well was completed and stimulated with a multiple fracture treatment, and commenced production at initial rates of over 150 bopd.

Grand Banks has now demonstrated the advantage of developing the Torquay play exclusively with horizontal wells using "Packers Plus" fracturing technology. We have recently done a multiple fracture treatment on another horizontal well that was drilled in 2006, and the production has increased from 15 bopd to over 100 bopd. We have also commenced the drilling of two more horizontal wells expected to be drilled and completed before spring breakup.

Grand Banks now produces over 500 bopd from the Sinclair property with over 450 bopd coming from its eleven operated horizontal oil wells, all of which receive substantial royalty holidays in both Saskatchewan and Manitoba. With the current price received of about $100 per barrel, we estimate current field netbacks to be in excess of $80 per barrel.

Company reserves at December 31, 2007 (working interest before royalty) attributable to the play are estimated to be 873.7 Mstb on total proved basis, and 1,785.0 Mstb on a proved plus probable basis. The royalty holidays for horizontal wells (about 60,000 barrels on Crown lands in Manitoba and 100,000 barrels in Saskatchewan) along with the premium oil prices (Edmonton sweet par plus $2.00 per barrel) result in a NPV of $54.7 million (on a proved plus probable, before tax, 10% discount) for the Sinclair property.

Kingsford Light Oil Play

Grand Banks' Kingsford oil property, located in southeastern Saskatchewan immediately adjacent to the Steelman Midale Unit, produces light 32 degree API oil. Midale wells in this area are very steady, long life producers, and the adjacent unit still produces substantial volumes over 40 years after the field was first developed. Grand Banks, in 2005, drilled a number of wells and expanded and upgraded a pipeline connected battery. The eight oil wells that we operate currently give us net sales volumes of about 170 bopd.

Grand Banks recently acquired a lease located about two miles west of its battery, and has, using 3D seismic, identified two low risk horizontal development locations that are to be drilled after spring breakup. We also plan to drill one lease-line horizontal (50% working interest) adjacent to existing producing wells. We have identified about three additional horizontal locations that may be drilled contingent on drilling results of the other wells.

Company reserves at December 31, 2007 (working interest before royalty) attributable to this property are estimated to be 634.5 Mstb on a total proved basis, and 1,186.9 Mstb on a proved plus probable basis with a NPV of $25.8 million (on a proved plus probable, before tax, 10% discount).

Tower Creek Leduc Gas Property

Grand Banks is the operator, with a 20.167% working interest, of the Grand Banks et al Tower Creek 2-21-55-27 W5M sour gas well, located near Hinton, in west central Alberta. Grand Banks operated the drilling of this 4,900 meter Leduc sour gas discovery in 2006, and also operates a dehydration facility, constructed at a total joint venture cost of over $14 million. The well commenced production in July 2007. Since that time, it has produced steadily at gross raw gas rates in the 20 to 22 MMcf/d range. To date, the well has produced approximately 4.5 billion cubic feet of raw gas.

Grand Banks recently commissioned Fekete Associates Inc. ("Fekete"), an independent engineering firm specializing in well pressure analysis, to perform a Rate Transient Analysis to determine the gas in place and confirm reservoir characteristics for the Leduc pinnacle reef reservoir from which gas is produced. A production forecast was also generated by Fekete to estimate ultimate recovery under a proposed compression scenario.

The Fekete report estimated that the minimum initial gas-in-place in the reservoir is 67.2 billion cubic feet.

Based upon the Fekete report, along with geological and production data, Paddock Lindstrom agreed that the data supported an increase of the original gas in place in the reservoir from what had been estimated (using a much less certain volumetric analysis) a year earlier. For the December 31, 2007 report, Paddock Lindstrom used recovery factors of about 70% (proved) and 80% (proved plus probable) of the gas in place, respectively, to assign proved remaining sales gas reserves (after shrinkage of about 30%) of 6.3 billion cubic feet to Grand Banks' working interest, and proved plus probable reserves of 7.3 billion cubic feet with a NPV of $18.5 million (on a proved plus probable, before tax, 10% discount). The Fekete report estimates that, with the installation of compression, the 2-21 well will recover 85% of the original gas in place, and will produce sour natural gas at commercial rates for approximately 23 more years.

Grand Banks recently replaced the choke on the well, which had been restricting the flow at the surface and has gradually increased the production rate of the well to current gross raw rates of about 23 MMcf/d. This results in total sales gas of about 16.1 MMcf/d, or about 2,700 boe/d. Grand Banks share of sales from the well is currently approximately 540 boe/d. The processing of the gas also yields gross sulphur production of over 100 tonnes per day that is formed and sold at the SemCams Kaybob 3 gas plant. In January, 2008 the Company sold 336 tonnes of sulphur production from the 02-21 well for an average price of over $300/tonne.

Other Properties

The three operated core properties described above account for about 85% of Grand Banks' total reserves, on a proved plus probable basis.

Grand Banks produces from a number of smaller, but good quality properties located in Alberta. Most of Grand Banks' Alberta oil is produced at Wood River, in central Alberta, where Grand Banks has interests in three Leduc light oil wells that produce at restricted rates, resulting in very stable net production of about 80 bopd. Grand Banks also has net gas production of about 1 MMcf/d from a number of gas wells in Alberta.

Alberta Royalty Situation

On October 25, 2007, the provincial government of Alberta announced changes to the existing royalty structure. This new oil and gas royalty regime is to take effect on January 1, 2009. The changes are intended to increase the royalties for conventional oil and natural gas, with sliding scale sensitivities to both commodity prices and well productivity rates. The Company requested its independent reserve engineers estimate the impact to its reserves evaluation based upon the currently released information on the new royalty regime. As of December 31, 2007, the Province had not introduced the enabling legislation nor had they provided enough clarity on a number of the issues for our independent reserve engineers to provide a precise calculation of net reserves and the net present value under the proposed new royalty regime. It is possible that the announced changes may be amended before coming into force. Under their forecast price assumptions, our independent reserve engineers have estimated that the change to the net present value, discounted at 10%, of the net revenue from our proved plus probable reserves would be a reduction of 0.9% from $116.1 million to $115.0 million.

Possible Reserves and Pricing upside

In order to quantify some of the additional potential at the Sinclair Torquay/Three Forks property, Paddock Lindstrom evaluated possible reserves attributable to that property. Possible reserves added an incremental 863.3 Mstb with added net present value, discounted at 10%, on a before tax basis, of about $18.5 million. This equates to additional possible value of $0.52 per fully diluted share, and if taken into account would increase Grand Banks total net asset value to approximately $3.64 per share, discounted at 10%.

The Paddock Lindstrom report effective December 31, 2007, used a forecasted Alberta Spot price of $6.62 for 2008 and $7.10 for 2009. Light oil prices (Edmonton reference price) were forecast at $88.75 for 2008, and $86.73 for 2009.

Current prices for both gas and oil are higher than these forecasts, on both a spot and on a futures strip basis. These higher prices, if they persist, could result in additional upward valuation of Grand Banks' properties, and because Grand Banks has no hedges in place, a purchaser of the Company could capture this value by hedging all or some portion of Grand Banks' production at values higher than those shown in the engineering report.

Advisory

The oil and natural gas reserves data set forth above is based on an evaluation performed by Paddock Lindstrom & Associates Ltd. ("Paddock Lindstrom") being a qualified, independent reserves evaluator firm engaged by the Board of Directors to evaluate the Company's oil and natural gas reserves. The above information with an effective date of December 31, 2007 comes from the Paddock Lindstrom Report dated February 25, 2008. These estimates were calculated using forecast prices and costs.

"Unaudited Numbers": Grand Banks annual audit of its financial statements is not yet complete and accordingly all financial amounts referred to in this press release are management's best estimates, which have not been audited.

"Finding and Development Costs": The aggregate of the exploration and development costs incurred in the most recent financial year and any change during that year in estimated future development costs generally will not reflect total finding and development costs related to reserves additions for that year.

"Forecast prices and costs" means future prices and costs used by Paddock Lindstrom in the Reserve Report that are generally accepted as being a reasonable outlook of the future, or fixed or currently determinable future prices or costs to which the Company is bound.

"Reserves Replacement" calculated by dividing the changes in proved plus probable volumes from December 31, 2006 to December 31, 2007, prior to deducting the 2007 production, by 2007 production.

"Working Interest" reserves equate to those reserves that are referred to as "Gross" reserves by the Canadian Securities Administrators ("CSA") in NI 51-101, which are the Company's working interest (operating or non-operating) share before deduction of royalties and without including any royalty interests of the Company.

"Present Value and Net Present Value (NPV)" of future net revenue attributable to Grand Banks' reserves is stated without provision for interest costs and general and administrative costs, but after providing for estimated royalties, production costs, development costs, other income, future capital expenditures, and well abandonment costs for only those wells assigned reserves. It should not be assumed that the undiscounted or discounted net present value of future net revenue attributable to Grand Banks' reserves estimated in the reserve report represent the fair market value of those reserves. The estimates of reserves and future net revenue for individual properties may not reflect the same confidence level as estimates of reserves and future net revenue for all properties, due to effects of aggregations. The recovery and reserve estimates of Grand Banks' oil, natural gas, and NGL reserves provided herein are estimates only and there is no guarantee that the estimated reserves will be recovered. Actual reserves may be greater than or less than the estimates provided herein.

Meaning of Boe and Boe/d

When used in this press release, boe means a barrel of oil equivalent on the basis of 1 boe to 6 thousand cubic feet of natural gas. Boe/d means a barrel of oil equivalent per day. Boe's may be misleading, particularly if used in isolation. A boe conversion ratio of 1 boe for 6 thousand cubic feet of natural gas is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

This press release shall not constitute an offer to sell or the solicitation of an offer to buy the securities in any jurisdiction. The common shares offered 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 many not be offered or sold in the United States except in certain transactions exempt from the registration requirements of the U.S. Securities Act and applicable states securities laws.

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

Contact Information

  • Grand Banks Energy Corporation
    E.C. (Ted) McFeely
    Chairman, President & CEO
    (403) 262-8666
    (403) 262-8796 (FAX)
    or
    Grand Banks Energy Corporation
    John Kalman
    Vice President, Finance & CFO
    (403) 262-8666
    (403) 262-8796 (FAX)
    or
    Grand Banks Energy Corporation
    1600, 444 - 5th Avenue S.W.
    Calgary, Alberta T2P 2T8