Longbow Resources Inc.
TSX VENTURE : LBR

Longbow Resources Inc.

May 07, 2007 17:42 ET

Longbow Resources Clarifies Reporting of Goodwill Write Down

CALGARY, ALBERTA--(CCNMatthews - May 7, 2007) - Longbow Resources Inc. (TSX VENTURE:LBR) ("Longbow" or the "Company") has been requested by the TSX Venture Exchange (the "Exchange") to clarify its public disclosure as it pertains to an acquisition completed in February, 2006 whereby Longbow acquired certain oil and gas properties owned principally by four limited partnerships managed by Discovery Drilling Funds (the "Discovery Acquisition").

Background

The first financial presentation of the Discovery Acquisition occurred within the Company's interim financial statements and accompanying management discussion and analysis ("MD&A") for the calendar quarter ended March 31, 2006 (the "Q1 Statements") The cost of the Discovery Acquisition was $7,247,442, of which $4,466,632 was allocated to Goodwill.

The $4,466,632 in Goodwill was largely attributed to Discovery's Saskatchewan Assets which have seen significant changes in third party engineering values due to lower gas rates in analog wells, substantially higher drilling and completion costs, increases in future capital requirements, higher operating costs and fluctuations in the gas price forcasts.

These values have varied from:



$16,240,000 - (Longbow News Release Dec 21, 2005), Third Party Engineering
Report March 31, 2005;

$15,124,900 - (December 31, 2005 NI-51-101 Third Party Engineering Report
for Longbow dated April 27, 2006);

$2,960,000 - (Preliminary Draft "Revised" December 31, 2005 NI 51-101
Third Party Engineering Report for Longbow dated May 17,
2006); and

$1,874,000 - (December 31, 2006 NI-51-101 Third Party Engineering Report
for Longbow dated April 26, 2007).


In the Q1 Statements, the Company wrote down the $4,466,632 allocated to Goodwill and completed a ceiling test write down on the property interests acquired in the Discovery Acquisition, in the amount of $4,660,641.

The Exchange has expressed concern to the Company that the disclosure of the Goodwill write down and the ceiling test write down was confusing and needed to be clarified. Accordingly, the Company agreed to issue this news release and in addition has included a note of clarification in its MD&A accompanying the Company's December 31, 2006 audited financial statements, both of which were filed on SEDAR on April 30, 2007.

Goodwill Write down

It is current management's belief that the former Chief Financial Officer ("CFO"), using both finalized reports and the "Preliminary Draft "Revised" December 31, 2005 NI 51-101 Third Party Engineering Report for Longbow dated May 17, 2006, determined that it would be appropriate to writeoff the $4,466,632 allocated to Goodwill in the Discovery Acquisition in the Q1 Statements.

The Company has now received its NI 51-101 Third Party Engineering Report completed with an effective date of December 31, 2006, on the property interests acquired in the Discovery Acquisition. Accordingly, the decision of the Company's previous management to respond to significant fluctuations in the value of the Discovery assets by booking a lower value for property and equipment and allocating the more speculative value of the assets to Goodwill initially (and subsequently writing off the amount allocated to Goodwill) appears to have been appropriate in the circumstances. As a result, no further write down of the property interests acquired in the Discovery Acquisition was required in the Company's audited annual financial statements for the year ended December 31, 2006.

The Company continues to believe the Discovery Acquisition will add shareholder value as a result of strengthening gas prices and lower drilling costs, and due to the Company's development drilling plans for the acquired assets.

For further information regarding the accounting treatment of the Discovery Acquisition, reference should be made to the Company's audited annual financial statements and annual MD&A for the fiscal year ended December 31, 2006, which have been filed on SEDAR.

Ceiling Test Write down

In addition to the Goodwill write down, the Q1 Statements contained a ceiling test write down of $4,660,641. Current management believes this write down was completed as the Company's former CFO assumed that Probable Reserves could not be included in his ceiling test calculation.

Subsequent to filing the Q1 Statements, upon consulting with Longbow's auditor, the former CFO discovered that Probable Reserves should have been included in the calculation. Consequently, the Company recalculated the ceiling test and reversed the write down. The reversal of the $4,660,641 ceiling test write down was disclosed in the Company's amended Q1 Statements, which were filed on SEDAR on June 7, 2006.

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

Contact Information