Orleans Energy Ltd.

Orleans Energy Ltd.

March 19, 2009 08:15 ET

Orleans Energy Announces 2008 Financial Results and Revised 2009 Capital Budget

CALGARY, ALBERTA--(Marketwire - March 19, 2009) - Orleans Energy Ltd. (TSX VENTURE:OEX) ("Orleans" or the "Company") (TSX:OEX) is pleased to announce financial and operating results for the year ended December 31, 2008. Corporate highlights resulting from another record year of production performance, revenue recognition and cash flow generation is as follows:

Quarterly Summary
Financial Highlights Three Month Period Ended,
(6:1 oil equivalent Dec. 31, Sep. 30, Jun. 30, Mar. 31,
conversion) 2008 2008 2008 2008
Petroleum & natural gas
revenue (4) 19,975,653 21,441,725 24,673,526 19,036,171
Per share - basic 0.44 0.47 0.54 0.49
- diluted 0.43 0.46 0.53 0.48
Cash flow from
operations (1) 8,050,817 11,000,286 13,565,038 9,382,715
Per share - basic 0.18 0.24 0.30 0.24
- diluted 0.17 0.24 0.29 0.24
Operating netback (2)
($/boe) 20.07 30.80 39.97 31.02
Corporate netback (2)
($/boe) 18.52 28.40 37.08 27.24
Net earnings (loss) (3,077,681) 2,469,892 850,295 (3,582,219)
Per share - basic (0.07) 0.05 0.02 (0.09)
- diluted (0.07) 0.05 0.02 (0.09)
Net debt (3)- period end 53,433,282 39,385,806 20,326,679 31,158,355
Weighted average basic
shares 45,779,706 45,779,706 45,604,668 39,035,932
Weighted average diluted
shares 46,145,045 46,560,126 46,575,328 39,577,174
Issued and outstanding
shares (5) 45,779,706 45,779,706 45,779,706 44,596,372
Operating Highlights
Average daily production:
Natural gas (mcf/d) 23,081 20,328 19,377 18,077
Liquids (oil & NGLs)
(bbls/d) 879 837 791 773
Oil equivalent (boe/d) 4,726 4,210 4,020 3,784
Average sales price (net
hedging) (4):
Natural gas ($/mcf) 7.31 7.59 9.81 8.09
Liquids (oil & NGLs) ($/bbl) 54.99 94.94 102.59 81.57
Oil equivalent ($/boe) 45.94 55.36 67.44 55.28
E&D capital expenditures ($) 20,185,533 25,559,271 6,804,641 15,516,814
Total capital
expenditures ($) 20,710,564 25,874,293 6,830,371 16,206,666

Annual Summary
Financial Highlights Year Year
(6:1 oil equivalent 2008 2007
conversion) ------------------------------
Petroleum & natural gas revenue (4) 85,127,075 49,140,953
Per share - basic 1.93 1.39
- diluted 1.90 1.37
Cash flow from operations (1) 41,998,855 21,325,779
Per share - basic 0.95 0.60
- diluted 0.94 0.60
Operating netback (2) ($/boe) 30.36 25.68
Corporate netback (2) ($/boe) 27.41 20.90
Net earnings (loss) (3,339,712) (6,210,123)
Per share - basic (0.08) (0.18)
- diluted (0.08) (0.18)
Net debt (3)- period end 53,433,282 48,188,497
Weighted average basic shares 44,059,455 35,252,993
Weighted average diluted shares 44,783,497 35,772,226
Issued and outstanding shares (5) 45,779,706 37,571,372
Operating Highlights
Average daily production:
Natural gas (mcf/d) 20,199 12,514
Liquids (oil & NGLs) (bbls/d) 820 710
Oil equivalent (boe/d) 4,187 2,796
Average sales price (net hedging) (4):
Natural gas ($/mcf) 8.15 7.06
Liquids (oil & NGLs) ($/bbl) 82.88 65.10
Oil equivalent ($/boe) 55.55 48.15
E&D capital expenditures ($) 68,066,259 45,481,185
Total capital expenditures ($) 69,621,894 46,256,808

Table Notes:

(1) Cash flow from operations does not have any standardized meaning
prescribed by Canadian generally accepted accounting principles
("GAAP"). Please refer to the Company's MD&A for definition of cash
flow from operations.
(2) Operating netback represents average sales price less royalties,
operating costs and transportation expenses. Corporate netback
represents Operating netback less interest expense and general and
administrative costs (excluding non-cash stock-based compensation
expense). These netback measures are not recognized measures under
Canadian GAAP.
(3) Net debt refers to outstanding bank debt plus working capital deficit
(excludes current unrealized amounts pertaining to risk management
commodity contracts) plus long-term accounts receivable. Net debt is
not a recognized measure under Canadian GAAP. Net Debt reported as at
December 31, 2008 includes a $5.99 million write-off of the previously
disclosed SemCAMS financial exposure total of $8.57 million. As of March
17, 2009, the Company had $41.0 million drawn against its bank credit
(4) Petroleum and natural gas revenue and pricing includes realized hedging
gains or losses from commodity contract settlements.
(5) As of March 17, 2009, common shares outstanding are 52,959,706.

2008 Highlights

- Solid Internally-Generated "Drill Bit" Performance

Drilled 16 wells (13.8 net) with a 94% success rate, including 11 horizontal gas wells (9.3 net) at Kaybob in West Central Alberta targeting Orleans' Triassic Montney gas play.

- Substantial Year-over-Year Production Growth

Increased the Company's annual average daily production to 4,187 barrels of oil equivalent ("boe") per day, a 50% increase from 2,796 boe per day in 2007. Fourth quarter 2008 production was 4,726 boe per day, a 12% increase over the third quarter 2008 level of 4,210 boe per day and marks the sixth consecutive quarter of "organic" production growth. Orleans' Kaybob Montney production base contributed 2,921 boe per day or 62% to the Company's record fourth quarter 2008 output.

- Record Revenue and Cash Flow Generation

Recorded petroleum and natural gas sales of $85.1 million in 2008, an increase of 73% over 2007. Cash flow from operations increased by 97% to approximately $42 million ($0.94 per fully diluted share).

The Company's audited financial statements and associated Management's Discussion and Analysis ("MD&A") for the year ended December 31, 2008 will be available on Orleans' website at www.orleansenergy.com located within "Investor Relations" under "Financial Reports". Additional, these documents will be filed, in due course, on the System for Electronic Document Analysis and Retrieval ("SEDAR"). These documents can be retrieved electronically from the SEDAR system by accessing Orleans' public filings under "Search for Public Company Documents" within the "Search Database" module at www.sedar.com.

2009 Revised Capital Budget and Market Guidance

The current global economic and financial crisis has reduced the liquidity in financial and capital markets, restricted access to financing, increased borrowing costs and has been the impetus to significant decreased commodity prices. These aforementioned conditions have negatively impacted the performance of both North American and global economies since the latter part of 2008. In view of this present economic malaise, with ongoing uncertainty and volatility surrounding commodity prices and capital markets, Orleans is committed to facilitate flexibility with its 2009 capital expenditures program in order for exploration and development capital expenditures to be funded from available cash flow from operations and the net proceeds from the recently closed $14 million equity financing.

In keeping with this prudent corporate objective, and to account for the previously disclosed Kaybob pipeline project investment, the Company currently intends to incur approximately $30 million in total capital expenditures in 2009. The revised 2009 capital program primarily encompasses drilling three (3.0 net) horizontal wells at Kaybob, targeting the Triassic Montney gas formation, in addition to the strategic installation of a natural gas pipeline project in the Kaybob area (the "Kaybob K3 Project") for approximately $11.5 million.

The Kaybob K3 Project, 18.2 kilometers in length, is designed to transport up to 75 million cubic feet ("mmcf") of natural gas per day directly from Orleans' 10-22-60-19W5 Compression Facility to the midstream-operated Kaybob South #3 Gas Plant Facility ("K3 Plant") located at 3-15-59-18W5. The K3 Plant is significantly under-utilized with current operational plant capacity of approximately 600 mmcf per day, nameplate design of 706 mmcf per day, and throughput of approximately 250 mmcf per day. Barring any unforeseen delays, the Kaybob K3 Project is anticipated to be commissioned and operational by July 1, 2009.

Financially, the Kaybob K3 Project provides Orleans with operating cost savings upon commissioning of $0.34 per thousand cubic feet ("mcf") or $2.04 per boe, as the processing fee structure at the K3 Plant is presently lower than the current processing fees charged at the Kaybob Amalgamated Gas Plant ("KA Plant"). Additionally, an Orleans-owned pipeline would eliminate the current pipeline fee of $0.12 per mcf or $0.72 per boe charged to the Company by an area operator, further reducing operating costs. Moreover, Orleans expects to generate pipeline transportation revenue from partner working-interest owners and potential third-party utilization.

Operationally, the Kaybob K3 Project provides access to a new pipeline system with lower operating pressures and an under-utilized gas plant functioning at lower inlet pressures, therefore providing for stabilized and improved operating conditions for Orleans' Kaybob well production profiles and compression infrastructure. Ancillary benefits involve enhanced operational flexibility, as the Company will possess the ability to transport and process gas volumes to either the KA Plant or the K3 Plant, thereby minimizing downtime during plant turnarounds and unscheduled plant shutdowns. Strategically, the Kaybob K3 Project facilitates unimpeded, long-term development of Orleans' extensive Montney asset base through direct control of a strategic pipeline.

The Company currently holds 28 sections (25.5 net) of Montney rights within the heart of the Kaybob Montney fairway. On March 16, 2009, the Company received regulatory approval to drill five wells per section on 25 sections (22.5 net) with no interwell distance restrictions. As a result, Orleans' Kaybob drilling inventory is expected to expand to over 100 operated horizontal drilling locations, providing for multi-year drilling opportunities.

Based on the capital investments anticipated within Orleans' revised 2009 capital budget, despite a reduction in budgeted wells by three (2.5 net), the Company's year-end 2009 exit production rate target remains unchanged at between 4,600 to 4,700 boe per day, weighted 80% natural gas and 20% light crude oil and natural gas liquids. Projected average daily production for 2009 is forecasted slightly lower to 4,200 boe per day from the original target of 4,300 boe per day. In its production forecast, the Company has accounted for the planned maintenance turnaround at the third party-operated KA Plant during the entire month of May, resulting in estimated off-lined production of 3,400 to 3,500 boe per day (net to Orleans) during this one month period (or approximately 300 boe per day on an average daily production basis for fiscal 2009).

With regards to cash flow from operations for 2009, utilizing balance-of-year forward 2009 strip commodity price assumptions of US$52.70 per bbl for West Texas Intermediate ("WTI") oil, an AECO gas price of C$4.40 per gigajoule and an exchange rate of 1C$ = 0.79US$, cash flow from operations for 2009 is estimated at approximately $17 million or $0.33 per share (basic outstanding).

Orleans Energy Ltd. is a Calgary, Alberta-based emerging crude oil and natural gas company, with common shares trading on the Toronto Stock Exchange under the symbol "OEX". Orleans is a team of dedicated, experienced professionals focused on the creation of shareholder value via acquisition, exploration and development of crude oil and natural gas assets in Alberta, Canada.

The information in this news release contains certain forward-looking statements. These statements relate to future events or our future performance. All statements other than statements of historical fact may be forward-looking statements. Forward-looking statements are often, but not always, identified by the use of words such as "seek", "anticipate", "plan", "continue", "estimate", "approximate", "expect", "may", "will", "project", "predict", "potential", "targeting", "intend", "could", "might", "should", "believe", "would" and similar expressions. These statements involve substantial known and unknown risks and uncertainties, certain of which are beyond the Company's control, including: the impact of general economic conditions; industry conditions; changes in laws and regulations including the adoption of new environmental laws and regulations and changes in how they are interpreted and enforced; fluctuations in commodity prices and foreign exchange and interest rates; stock market volatility and market valuations; volatility in market prices for oil and natural gas; liabilities inherent in oil and natural gas operations; uncertainties associated with estimating oil and natural gas reserves; competition for, among other things, capital, acquisitions, of reserves, undeveloped lands and skilled personnel; incorrect assessments of the value of acquisitions; changes in income tax laws or changes in tax laws and incentive programs relating to the oil and gas industry ; geological, technical, drilling and processing problems and other difficulties in producing petroleum reserves; and obtaining required approvals of regulatory authorities. The Company's actual results, performance or achievement could differ materially from those expressed in, or implied by, such forward-looking statements and, accordingly, no assurances can be given that any of the events anticipated by the forward-looking statements will transpire or occur or, if any of them do, what benefits that the Company will derive from them. These statements are subject to certain risks and uncertainties and may be based on assumptions that could cause actual results to differ materially from those anticipated or implied in the forward-looking statements. The Company's forward-looking statements are expressly qualified in their entirety by this cautionary statement. Except as required by law, the Company undertakes no obligation to publicly update or revise any forward-looking statements.

In this news release, reserves and production data are commonly stated in barrels of oil equivalent ("boe") using a six to one conversion ratio when converting thousands of cubic feet of natural gas ("mcf") to barrels of oil ("bbl") and a one to one conversion ratio for natural gas liquids ("NGLs" or "ngls"). Such conversion may be misleading, particularly if used in isolation. A boe conversion ratio of 6 mcf: 1 bbl is based on energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

As an indicator of the Company's performance, the term cash flow from operations or operating cash flow contained within this news release should not be considered as an alternative to, or more meaningful than, cash flow from operating, financing or investing activities, as determined in accordance with Canadian generally accepted accounting principles ("GAAP"). This term does not have a standardized meaning, nor is it a financial measure, under GAAP. Cash flow from operations is widely accepted as a financial indicator of an exploration and production company's ability to generate cash which is used to internally fund exploration and development activities and to service debt. This measure is widely used by shareholders and investors in the valuation, comparison and investment recommendations of companies within the natural gas and crude oil exploration and production industry. Cash flow from operations, as disclosed within this news release, represents cash flow from operating activities before any asset retirement obligation cash expenditures and before changes in non-cash operating activities working capital. The Company presents cash flow from operations per share whereby per share amounts are calculated consistent with the calculation of earnings per share. Additionally, net debt refers to outstanding bank debt plus working capital deficit (excludes current unrealized amounts pertaining to risk management commodity contracts) plus long-term accounts receivables. Net debt is not a recognized measure under Canadian GAAP.

Any references in this news release to initial test production rates and/or "flush" production rates are useful in confirming the presence of hydrocarbons, however, such rates are not determinative of the rates at which such wells will commence production and decline thereafter. While encouraging, readers are cautioned not to place reliance on such rates in calculating the aggregate production for the Company.

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