NAL Oil & Gas Trust
TSX : NAE.UN

NAL Oil & Gas Trust

January 23, 2008 13:05 ET

NAL Forecasts Strong Performance and a Growing Opportunity Base

CALGARY, ALBERTA--(Marketwire - Jan. 23, 2008) - NAL Oil & Gas Trust (TSX:NAE.UN) is meeting with investment analysts today in Calgary to provide an update on NAL's 2007 performance and to outline further detail on 2008 plans. The presentation is available for viewing on NAL's website.

2008 STRATEGIC DIRECTION AND PRIORITIES

NAL's strategic direction for 2008 focuses on performance and opportunities. The management team remains committed to delivering top quartile performance, effectively executing our current plan and generating new attractive opportunities. NAL plans to retain its attractive balance sheet, continue to maintain available lines of credit and add to its growing tax pool base. As a result, we are well positioned to make the transition to a dividend paying corporation in the future.

2008 GUIDANCE

NAL has a strong operating and financial plan for 2008 which follows up on the positive performance of 2007. President and CEO Andrew Wiswell commented: "Production volumes and funds from operations are forecast to be higher in 2008 compared to 2007. Our capital program of $110 - 120 million is consistent with last year's spending, and rig and service costs are anticipated to be lower than in 2007. NAL has increased its inventory of opportunities significantly by adding new prospecting capability, broadening opportunities and extensions in our core areas, and working through the new prospects acquired in the Seneca acquisition in 2007. Financially, NAL expects to be able to maintain distributions assuming current commodity prices and has an active hedging program, which has locked in average prices above our Base Case forecast. NAL's debt to cash flow ratios are expected to improve in 2008 and we have over $100 million of available committed bank lines to take advantage of opportunities which continue to be available".



Our guidance for 2008 is outlined below:

2008 Full Year Guidance - Base Case
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Average total production (boe/d) 23,000 - 24,000
Capital expenditures ($MM) 110 - 120
Operating costs ($/boe) 9.50 - 9.80
G&A ($/boe) 1.90 - 2.10
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NAL's assumptions for our 2008 guidance are as follows:

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Base Case Sensitivity Case
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WTI Oil Price (US$/bbl) 80.00 90.00
AECO Natural Gas Price (C$/GJ) 6.50 7.00
Exchange Rate (Cdn/USD) 1.00 0.98
Base Decline Rate (%) 20 20
Interest Rate (%) 5.4 5.4
DRIP Participation (%) 17 17
DRIP Proceeds ($MM) 30 30
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PRODUCTION

NAL is forecasting relatively consistent quarterly production within the guidance range of 23,000 - 24,000 barrels of oil equivalent (boe) per day, and with a 2008 year end exit rate of approximately 23,600 boe per day. The production mix is expected to be weighted 50 percent to crude oil, and seven percent to natural gas liquids with 43 percent being natural gas. Geographically on a boe basis, 54 percent of production is expected to originate in Alberta, 34 percent in Saskatchewan, nine percent in British Columbia and three percent in Lake Erie in Ontario. This production diversification and the nature of our volumes in Alberta results in limited impact from the proposed changes in Alberta royalties.

CAPITAL EXPENDITURES

Based upon a $113 million capital budget (excluding acquisitions), NAL will allocate its capital as follows:



2008 Capital Budget
($ millions)
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Exploration & Development:
Drill, Complete & Tie-in 84
Plant & Facilities 15
Land & Seismic 6
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Subtotal 105

Other
Office Equipment 2
Capitalized G&A 5
Capitalized Long term Incentive Plan (LTIP) 1
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Total 113
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NAL's 2008 capital spending will be consistent with its historical trend, with 60 percent of capital targeted to be spent during the last six months of 2008. This profile allows NAL considerable flexibility to accelerate or defer portions of the program depending on market conditions.



2008 Quarterly Capital Budget
($ millions)
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Q1 26 25%
Q2 15 14%
Q3 36 34%
Q4 28 27%
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Total 105 (1) 100%
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(1) Exploration and development


OPERATIONAL HIGHLIGHTS

NAL plans to drill 97 (50 net) wells in 2008 at an estimated drill, complete and tie-in cost of $84 million. Significant capital will be invested in the Nottingham gas plant expansion ($6 million) and the Stanmore water flood upgrade ($3 million). These facilities projects are expected to add significant value through future reserve additions to existing pools and provide additional revenue streams from third parties. The Trust expects to spend $6 million on land and seismic to support current initiatives.

We expect to drill 46 (18 net) wells in Southeast Saskatchewan. NAL recently purchased 6,000 hectares of new land in the Hoffer area, executed a 3D seismic program and picked the first two vertical Mississippian locations to be tested in 2008. In Stoughton, a three well horizontal Bakken program will follow up on five successful 2007 drills. The Trust will also pursue an additional four well Bakken program on other lands keying off recent industry activity. We will continue to exploit our existing core areas around Alida, Nottingham, Steelman and Elswick with 37 drills, including several water flood projects, scheduled for 2008.

During 2007, we focused significant time on mapping and testing concepts to in-fill and extend existing Cardium oil trends in Alberta. Our geological staff have identified over 230 prospects on NAL land that will be pursued in a measured approach over the next several years. Land strategy, oil price, spacing approvals, surface access and infrastructure will be considered carefully to ensure value is maximized from these opportunities. For 2008, the Trust anticipates drilling 14 wells to further delineate and test our in-fill strategies.

The Mannville formation continues to be a focus for NAL in Central Alberta, with over 60 stacked potential leads being evaluated on the Trust's land base in the Sylvan Lake and Westward Ho areas. A five well program will be executed in 2008 following four successful drills in 2007, including activity on new land acquired at recent sales.

NAL will continue to expand and exploit the Mannville in the Hanna and Drumheller areas using proven prospecting techniques. The Trust expects to drill 10 - 15 wells in this area during 2008 following up on a successful four well program in 2007 and executing on opportunities from the acquisition of Seneca Energy. NAL will be investing $3 million on recompletions in the area with over 90 opportunities identified to date. The Trust has successfully transferred play concepts from our core areas onto the Seneca acreage near Drumheller. Our most recent recompletion tested at approximately three million cubic feet per day (mmcf/day). In addition, there is an inventory of more than 200 shallow gas opportunities in the W4 area that will be considered when commodity prices support the investment. At this time, there is no plan for any shallow gas development in 2008.

NAL anticipates investing ten percent ($8 million) of our exploration and development budget on exploration wells in 2008, following up on recent successes in the Monkman and Peppers areas.

OPERATING COSTS

NAL estimates an operating cost range of $9.50 to $9.80 per barrel of oil equivalent (boe), up three to four percent from 2007 levels. A higher weighting to B.C. production plus anticipated increases in labour, fuel, power and property tax costs will more than offset higher volumes and lower workover costs.

FINANCIAL HIGHLIGHTS

NAL's financial performance for 2008 is anticipated to deliver the following results, assuming the mid-point of our guidance ranges.



2008 Forecast Financial Results
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Base Case(1) Sensitivity(1)
US$WTI / C$AECO / FX (Cdn/USD) $80 / $6.50 / 1.00 $90 / $7.00 / 0.98
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Funds from Operations ($MM) 250 275
Funds from Operations ($ per unit) $2.70 $3.00
Payout Ratio 71% 64%
Payout including Capital 116% 105%
Payout including Capital and DRIP 104% 94%
Weighted average Units Outstanding
(MM) 91.7 91.7
Debt / Cash Flow 1.2 / 1.6 (2) 1.0 / 1.4 (2)
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(1) Includes realized hedging gains (losses)
(2) Including convertible debentures


2007 UPDATE

NAL provided 2007 guidance in January, and in August we increased our guidance to reflect the acquisition of Seneca Energy plus strong first half performance. NAL's 2007 full year operating and financial results will be announced on February 28, 2008 and are expected to be in the range of the guidance provided in August, 2007.



2007 Full Year Guidance
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August 2007 Guidance
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Average total production (boe/d) 20,500 - 20,800
Capital expenditures ($MM)(1) 115 - 120
Operating costs ($/boe) 8.90 - 9.10
G&A ($/boe)(2) 1.75 - 1.90
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(1) Excluding acquisitions.
(2) Excluding unit-based compensation expense and special retention bonus.


RECENT DEVELOPMENTS

NAL participated in drilling three significant wells during 2007 arising from the Seneca acquisition - one at Peppers in West Central Alberta and two at Monkman in Northeast B.C. Testing operations are ongoing and NAL is encouraged by the results.

The 16-16 Peppers well (19 percent working interest), recently successfully tested an upper Devonian reservoir on a restricted multi-point test with rates ranging from 3 - 5 million mmcf/day of natural gas at a surface flowing pressure of 3,300 psi (20 percent total acid gas). Technical evaluation is ongoing with the timing of the tie-in under review. No volumes have been incorporated into NAL's forecast of 2008 production.

At Monkman, B.C. NAL participated in two deep, Permian wells operated by Talisman Energy. The first well at a-26-E (20 percent working interest) penetrated two distinct natural gas bearing formations in the target zone. The lower zone was tested in December and pressure recorders were left in the wellbore over the year-end. The upper sheet is now being tested.

A second well is being tested at a-44-B (8.45 percent working interest). Production from the a-26-E well is included in NAL's 2008 budget commencing in the second quarter but no 2008 volumes have been included for the a-44-B well.

A drilling rig has been moved to the a-31-K location to test a new structure. NAL has a ten percent working interest in all zones in this well, after entering into a pooling agreement with Talisman. The vertical pooling increases NAL's potential number of wells on this prospect from one to three, and substantially reduces the risk of the a-31-K well. Results are expected late this year. NAL anticipates that it will participate in at least one other well in the Monkman area in 2008.

In December, 2007 the B.C. government auctioned six land sale parcels in the North Brazion and East Bullmoose areas, straddling NAL's existing Monkman acreage. NAL purchased approximately 2,000 net acres of exploratory land in the area.

NAL will update information on these prospects as results become available.

Forward Looking Statements

This press release contains statements that constitute "forward-looking information" or "forward-looking statements" (collectively "forward-looking information") within the meaning of applicable securities legislation. This forward-looking information includes, among others, statements regarding: business plans for drilling, exploration and development; estimates of production and operations performance; estimates of future sales; estimated amounts and timing of capital expenditures; estimates of operating costs and unit operating costs; business strategy and plans or budgets; estimated timing and results of new development; and other expectations, beliefs, plans, goals, objectives, assumptions, information and statements about possible future events, conditions, results of operations or performance.

Various assumptions were used in drawing the conclusions or making the forecasts and projections contained in the forward-looking information contained in this press release. Undue reliance should not be placed on forward-looking information. Forward-looking information is based on current expectations, estimates and projections that involve a number of risks, which could cause actual results to vary and in some instances to differ materially from those anticipated by NAL and described in the forward-looking information contained in this press release. The material risk factors include, but are not limited to: the risks of the oil and gas industry, such as operational risks in exploring for, developing and producing oil and natural gas, market demand and unpredictable facilities outages; risks and uncertainties involving geology of oil and gas deposits; the uncertainty of estimates and projections relating to production, costs and expenses; potential delays or changes in plans with respect to exploration or development projects or capital expenditures; risk that adequate pipeline capacity to transport the gas to market may not be available; fluctuations in oil and gas prices, foreign currency exchange rates and interest rates; the outcome and effects of any future acquisitions and dispositions; safety and environmental risks; uncertainties as to the availability and cost of financing and changes in capital markets; competitive actions of other industry participants; changes in general economic and business conditions; the possibility that government policies or laws may change or governmental approvals may be delayed or withheld; results of NAL's risk mitigation strategies, including insurance; and NAL's ability to implement its business strategy. Readers are cautioned that the foregoing list of risk factors is not exhaustive. Additional information on these and other factors which could affect NAL's operations or financial results are included in NAL's most recent Annual Information Form and Annual Financial Report. In addition, information is available in NAL's other reports on file with Canadian securities regulatory authorities.

Forward-looking information is based on the estimates and opinions of NAL's management at the time the information is released.

Boe Conversion

Throughout this press release, the calculation of barrels of oil equivalent (boe) is calculated at a conversion rate of six thousand cubic feet (mcf) of natural gas for one barrel of oil and is based on an energy equivalence conversion method. Boes may be misleading, particularly if used in isolation. A boe conversion ratio of 6 mcf:1 bbl is based on an energy equivalence conversion method primarily applicable at the burner tip and does not represent a value equivalence at the wellhead.

NAL Oil & Gas Trust is an open-end investment trust that generates distributions through the acquisition, development, production and marketing of crude oil, natural gas and natural gas liquids. The Trust owns high quality assets in Alberta, Saskatchewan, British Columbia and Ontario. Trust units trade on the Toronto Stock Exchange under the symbol "NAE.UN".

Contact Information

  • NAL Oil & Gas Trust
    Gordon Currie
    Manager, Investor Relations
    (403) 294-3620 or Toll Free: 1-888-223-8792
    (403) 515-3407 (FAX)
    Email: investor.relations@nal.ca
    Website: www.nal.ca