Orleans Energy Ltd.
TSX : OEX

Orleans Energy Ltd.

November 15, 2010 08:30 ET

Orleans Energy Announces Third Quarter 2010 Results

CALGARY, ALBERTA--(Marketwire - Nov. 15, 2010) - Orleans Energy Ltd. ("Orleans" or the "Company") (TSX:OEX) today announced results for the third quarter ended September 30, 2010. For the quarter, Orleans reported cash flow from operations of $7.93 million ($0.12 per fully-diluted share) on revenue of approximately $12.66 million and average daily production of 3,940 barrels of oil equivalent. Corporate highlights are as follows:




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Financial Highlights Three Months Ended Sept. 30,
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(all amounts in Cdn $ except share data) %
(6:1 oil equivalent conversion) 2010 2009 Change
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Petroleum and natural gas revenue (1) 12,664,428 9,497,206 33
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Per share - basic and diluted 0.19 0.15 27
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Cash flow from operations (2) 7,929,678 3,194,954 148
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Per share - basic and diluted 0.12 0.05 140
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Operating netback (3) ($/boe) 24.40 12.66 93
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Corporate netback (3) ($/boe) 21.88 9.02 143
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Net loss (1,651,240) (5,940,671) (72)
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Per share - basic and diluted (0.03) (0.10) (70)
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Net debt (4) - period end 46,304,695 47,730,426 (3)
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Weighted average basic shares 65,279,181 62,050,706 5
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Weighted average diluted shares 65,279,181 62,050,706 5
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Issued and outstanding shares (5) 65,770,977 62,050,706 6
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Operating Highlights
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Average daily production:
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Natural gas (mcf/d) 18,733 19,254 (3)
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Liquids (Oil & NGLs) (bbls/d) 818 639 28
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Oil equivalent (boe/d) 3,940 3,848 2
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Average sales price (net hedging) (1):
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Natural gas ($/mcf) 4.54 3.45 32
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Liquids (Oil & NGLs) ($/bbl) 64.27 57.61 12
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Oil equivalent ($/boe) 34.94 26.83 30
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E&D capital expenditures ($) 10,788,700 3,001,606 259
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Total capital expenditures ($) 11,284,135 3,648,280 209
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Financial Highlights Nine Months Ended Sept. 30,
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(all amounts in Cdn $ except share data) %
(6:1 oil equivalent conversion) 2010 2009 Change
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Petroleum and natural gas revenue (1) 35,829,866 31,940,121 12
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Per share - basic and diluted 0.55 0.59 (7)
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Cash flow from operations (2) 20,197,956 9,446,577 114
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Per share - basic and diluted 0.31 0.17 82
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Operating netback (3) ($/boe) 22.26 12.34 80
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Corporate netback (3) ($/boe) 19.24 8.74 120
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Net loss (3,864,270) (16,615,491) (77)
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Per share - basic and diluted (0.06) (0.31) (81)
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Net debt (4) - period end 46,304,695 47,730,426 (3)
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Weighted average basic shares 65,210,577 54,399,717 20
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Weighted average diluted shares 65,210,577 54,399,717 20
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Issued and outstanding shares (5) 65,770,977 62,050,706 6
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Operating Highlights
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Average daily production:
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Natural gas (mcf/d) 19,347 19,394 -
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Liquids (Oil & NGLs) (bbls/d) 621 725 (14)
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Oil equivalent (boe/d) 3,846 3,958 (3)
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Average sales price (net hedging) (1):
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Natural gas ($/mcf) 4.76 4.18 14
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Liquids (Oil & NGLs) ($/bbl) 62.89 49.60 27
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Oil equivalent ($/boe) 34.13 29.56 15
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E&D capital expenditures ($) 41,420,419 32,352,936 28
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Total capital expenditures ($) 43,239,228 34,114,568 27
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Notes:
(1) Petroleum and natural gas revenue and pricing includes realized hedging
gains or losses from commodity contract settlements.
(2) 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.
(3) Operating netback represents average sales price (includes realized
hedging gains or losses) 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.
(4) Net debt refers to outstanding bank debt plus any working capital
deficit or minus any working capital surplus (excludes current
unrealized amounts pertaining to risk management contracts and current
future income taxes). Net debt is not a recognized measure under
Canadian GAAP.
(5) As of November 15, 2010, common shares outstanding are 65,770,977.


Third Quarter 2010 Highlights

- Generated cash flow of approximately $7.93 million, representing an increase of 148% from the comparable third quarter 2009 amount of $3.19 million.

- Increased light oil and natural gas liquids weighting to approximately 21% of average daily production from a 14% weighting in January 2010. Realized third quarter 2010 average production of 3,940 barrels of oil equivalent per day ("boe/d"), comprised of 18.73 million cubic feet per day of gas ("mmcf/d") and 818 barrels per day ("bbls/d") of light oil and of natural gas liquids ("NGLs").

- Reduced corporate operating costs to $7.58 per barrel of oil equivalent ("boe") in the third quarter, a 25% reduction from the $10.15 per boe realized in the first quarter of 2010.

- Waskahigan 5-25 horizontal oil well brought on-stream in September 2010. After 49 days of production, the current production rate is estimated at approximately 260 bbls/d of light gravity sweet crude oil (42 degree API), 0.35 mmcf/d of associated natural gas and 5 bbls/d of NGLs, for a combined rate of approximately 323 boe/d.

- Reaffirmed $60 million extendible revolving credit facility through to April 2011. As of November 11, 2010, the Company had approximately $45.6 million drawn on the credit facility. Net debt of $46.3 million as at September 30, 2010 represents only 1.5 times annualized third quarter 2010 cash flow.

Operations Update

Waskahigan

During the three month period ended September 30, 2010, the Company successfully drilled and completed its Waskahigan 5-25 Montney horizontal oil well (100% working interest). The 5-25 well is a follow-up drill to Orleans' 4-36 Montney oil discovery. The Company is at the early stage of establishing an oil resource play at Waskahigan to complement its Kaybob Montney and Pine Creek Wilrich natural gas development drilling inventory. Orleans' capital expenditures focus over the near-term will encompass the systematic delineation of its Waskahigan Montney acreage, specifically the light oil prospective lands on the eastern half of Orleans' 35 section, 100% working interest land block. Execution of this strategic, delineation drilling plan will imminently commence with the concurrent drilling of two 100% working interest locations at 9-2-64-23W5 and 3-23-63-23W5, approximately 2.5 kilometers northwest and 1.5 kilometers southwest, respectively, from the Waskahigan 4-36 and 5-25 oil wells. The Company anticipates providing drilling and completion results on these two operations by the end of December.

With regards to Orleans' Waskahigan 4-36 and 5-25 producing horizontal oil wells, the Company continues to be very pleased by the performance of both of these wells, as the initial production trend appears to be better than production profiles of other Alberta-based oil resource plays, specifically the Cardium and Viking. After nearly five months of production, the 4-36 well is continuing to flow unassisted by artificial lift. The 5-25 well, after 49 days of being on-stream, is producing light oil at a rate approximately 40% higher than the oil rate 4-36 produced at after the same number of days of being on-stream.

The following table outlines the production performance of Orleans' two Waskahigan oil wells:




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On-Stream 30 Day IP Rate (1)
Well Date Oil Gas BOE (2)
(bbls/d) (mmcf/d)(boe/d)
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4-36-63-23W5 Jun.19, 2010 473 1.45 736
5-25-63-23W5 Sep.20, 2010 671 0.79 815
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On-Stream Three Month IP Rate (1) Current Rate (1)
Well Date Oil Gas BOE (2) Oil Gas BOE (2)
(bbls/d) (mmcf/d)(boe/d) (bbls/d) (mmcf/d)(boe/d)
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4-36-63-23W5 Jun.19, 2010 262 0.97 438 85 0.45 167
5-25-63-23W5 Sep.20, 2010 N/A N/A N/A 260 0.35 323
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Note:
(1) IP Rate refers to initial average production rate during the stated
period. Both IP Rates and Current Rates based on field estimates.
(2) BOE rate includes natural gas liquids associated with the produced
natural gas at an estimated yield of 15 bbls per mmcf.


Duvernay Shale

Orleans' Kaybob, Waskahigan and Ante Creek land base, all located in West Central Alberta, is situated within the heart of the emerging Duvernay Shale gas play. Within this fairway, the Company holds 55 sections of Crown lands, all at 100% working interest. Orleans is encouraged by the following industry events and undertakings:

- Significant industry land investment, in excess of $700 million, since December 2009;

- Preliminary drilling and completion test results by industry appear positive and suggests commerciality of a liquids-rich, natural gas play; and,

- Recent increase of industry well licensing and drilling activity immediately offsetting Orleans' Kaybob and Waskahigan land base is testing the play.

Although this play is early-stage, Orleans believes that upon industry exploration and development success, the Duvernay Shale could represent significant, unrecognized value potential for the Company's shareholders.

Outlook

Orleans is working on a number of internal initiatives to provide incremental sources of capital in order to facilitate capital investment flexibility, specifically the ability to expand and accelerate the Company's drilling and delineation program of its Waskahigan oil play. These contemplated initiatives are not expected to reduce the borrowing base associated with Orleans' bank credit facility nor increase the number of outstanding shares. While the economics of Orleans' Kaybob Montney and Pine Creek Wilrich liquids-rich natural gas plays are still strong in the current low natural gas price environment, the Company believes the delineation and "de-risking" of its Waskahigan light oil play could prove to be a more significant intrinsic "value capture" initiative for Orleans and its shareholders. Consequently, the Company will focus its capital spending at Waskahigan over the next twelve months.

The Company's interim financial statements and associated Management's Discussion and Analysis ("MD&A") for the three and nine month periods ended September 30, 2010 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.

Orleans Energy Ltd. is a Calgary, Alberta-based crude oil and natural gas company, with common shares trading on the Toronto Stock Exchange under the symbol "OEX". Orleans commenced active oil and gas operations in January 2005 and is committed to maximizing value for its shareholders through successful drilling of internally-generated prospects supplemented with strategic and focused property and/or corporate acquisitions. Orleans has several operated, high working interest, light oil and liquids-rich natural gas "resource plays" in West Central Alberta, specifically the Montney and Duvernay in Kaybob, Waskahigan and Ante Creek, along with the Wilrich in Pine Creek.

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 "appear", "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 and/or final raw test or 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. Additionally, such rates may also include recovered "load oil" fluids used in well completion stimulation. While encouraging, readers are cautioned not to place reliance on such rates in calculating the aggregate production for the Company.

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