Point North Energy Ltd.
TSX : PNY

Point North Energy Ltd.

November 14, 2005 20:42 ET

Point North Energy Releases Purcell Energy's Third Quarter 2005 Results

CALGARY, ALBERTA--(CCNMatthews - Nov. 14, 2005) - Point North Energy Ltd. (TSX:PNY) is pleased to report on third quarter 2005 results for its predecessor company, Purcell Energy Ltd.

On October 27, 2005, Purcell shareholders approved the sale of all of its Saskatchewan assets and substantially all of its Alberta assets for total consideration of $151 million and approved a reorganization of Purcell. The company retained its Fort Liard, N.W.T. gas property and minor Alberta and B.C. producing properties. Pursuant to closing of the plan of arrangement on November 2, 2005, Purcell's common shares were consolidated on a one-for-five basis and the company's name was changed to Point North Energy Ltd. The Purcell shareholders also received, for each pre-consolidation Purcell common share held, 0.20 of a Tenergy Ltd. common share, $0.40 in cash and 0.0556 of a Prairie Schooner Petroleum Ltd. common share.

The following results, including per share information, pertain to Purcell prior to the reorganization and share consolidation.



($ thousands, Three Months to Sept. 30 Nine Months to Sept. 30
except whe 2005 2004 % change 2005 2004 % change
indicated, Restated Restated
6 mcf equals 1 bbl) (4) (4)
------------------------------------------------------------------------

FINANCIAL
Petroleum and
natural gas
sales 23,860 15,676 52 60,252 49,597 21
Production
expenses 5,363 3,768 42 13,832 10,965 26
Per unit ($/BOE) 12.18 8.97 36 11.20 8.50 32
Transportation
expenses 1,285 1,413 (9) 4,144 4,416 (6)
Per unit ($/BOE) 2.92 3.36 (13) 3.36 3.42 (2)
G&A expenses 970 909 7 2,900 2,671 9
Per unit ($/BOE) 2.20 2.16 2 2.35 2.07 13
Funds flow from
operations 10,424 5,879 77 25,217 20,565 23
Per share
- basic ($) 0.209 0.118 77 0.506 0.413 23
Per share
- diluted ($) 0.208 0.118 76 0.506 0.413 23
Depletion,
depreciation and
amortization 7,915 5,993 32 23,253 16,474 41
Per unit ($/BOE) 17.98 14.26 26 18.83 12.78 47
Net income (loss) (1,169) (1,329) (12) (1,659) 487 (441)
Per share
- basic ($) (0.023) (0.027) (15) (0.033) 0.010 (430)
Per share
- diluted ($) (0.023) (0.027) (15) (0.033) 0.010 (430)
Capital
expenditures,
net (2) 12,281 12,870 (5) 18,404 36,648 (50)
Total long term
financial
liabilities 3,863 4,533 (15) 3,863 4,533 (15)
Net debt (3) 74,052 74,081 - 74,052 74,081 -
Shareholders'
equity 98,852 101,048 (2) 98,852 101,048 (2)
Common shares
outstanding
Weighted average
- basic 49,862 49,739 - 49,816 49,794 -
Weighted average
- diluted 50,047 49,839 1 49,856 49,832 -


OPERATING
Production
Gas (mmcf/d) 20.83 20.67 1 19.87 21.89 (9)
Crude oil and
liquids (bbls/d) 1,314 1,123 17 1,211 1,058 14
Equivalent
(BOE/d) 4,785 4,568 5 4,523 4,706 (4)
Product prices (1)
Natural gas
($/mcf) 8.60 5.32 62 7.74 6.24 24
Oil and liquids
($/bbl) 61.10 39.17 56 55.31 42.02 32
Equivalent
($/BOE) 54.20 33.25 63 48.80 38.46 27
Operating net
back ($/BOE) 27.71 18.37 51 25.21 20.05 26
Cash flow net
back ($/BOE) 23.68 13.99 69 20.42 15.95 28

(1) Product prices include realized gains and losses on hedges.

(2) Includes additions to asset retirement obligations and
property dispositions.

(3) Excluding the unrealized risk management liability.

(4) Restated for change to mark-to-market accounting of non-hedge
designated risk management contracts.

See note 2 to the consolidated financial statements.


On November 2, 2005, Purcell Energy closed the plan of arrangement (the "Arrangement"), completing an extensive corporate restructuring and significant sale of assets designed to maximize shareholder value and better reflect Purcell's underlying value. The shareholders overwhelmingly approved the reorganization at a special meeting held on October 27, 2005. As a result of the closing of the Arrangement, Purcell's common shares were consolidated on a one-for-five basis and the company's name has been changed to Point North Energy Ltd. The Point North shares trade on the TSX under the symbol "PNY". The sale of assets and reorganization eliminated Point North's debt.

In connection with the Arrangement, Purcell distributed $0.40 cash per share to its shareholders. Also, for each pre-consolidated Purcell common share held, shareholders received either 0.20 of a share in Tenergy Ltd., a British Columbia deep-gas focused exploration and production company listed on the TSX (symbol "TGY"), or a cash payment equal to $0.61834, depending on the election made by each shareholder. At the same time, for each Purcell share, shareholders received 0.0556 of a Prairie Schooner Petroleum Ltd. ("Prairie Schooner") common share (equivalent to approximately one Prairie Schooner share for every 18 Purcell common shares). Prairies Schooner's shares are listed on the TSX under the symbol "PSL".

As a result of the closing of the Arrangement, Purcell shareholders benefit as follows:

- Ownership of Point North, a debt-free company with new management that will focus on maximizing the value of the Fort Liard natural gas property;

- Continued exposure to the upside potential of Purcell's Alberta assets through ownership of Prairie Schooner shares;

- Continued exposure to the upside potential of the Tenaka natural gas play through ownership of Tenergy; and

- Proceeds from the disposition of assets enabled payment of all debt and costs of the reorganization, as well as provided for payment of the above-noted cash distribution to shareholders.

All of the financial results and management's discussion and analysis respecting Purcell's third quarter reflect the complete corporate entity, prior to the reorganization.

ASSET SALES

As part of the corporate restructuring plan, Purcell sold substantially all of its Alberta oil and gas reserves, production and undeveloped lands, several producing properties in B.C., and all of its Saskatchewan properties. These transactions were completed after the end of the reporting period and consequently, the divested properties' production and financial impact are reflected in the third quarter numbers. Although October 2005 production will be included in Point North's 2005 fourth quarter, reporting periods after December 31, 2005 will reflect only Point North's properties.

CREATION OF TENERGY

Tenergy is a debt-free, natural gas-focused junior exploration and production company, with assets and production specifically in northeast British Columbia. With initial base production exceeding 650 boe/d and a land base in excess of 137,000 net acres, Tenergy offers former Purcell shareholders significant growth potential as it develops the Tenaka Slave Point gas project, and pursues opportunities throughout its land base. The company began trading on the TSX on November 7, 2005. Tenergy will file its first report for the 2005 year-end, reflecting fourth quarter activity.

POINT NORTH ENERGY

Point North is a company with no debt, substantial cash flow and more than 22,000 net acres of undeveloped land. Point North's key asset is at Fort Liard, N.W.T., where the company has a minimum 24 percent working interest in a world-class natural gas reserve with a resource potential of 700 billion cubic feet gross raw gas in place. Recently, Fort Liard's challenging geology has hampered efforts to maximize gas recovery. Patience and perseverance are the keys to managing the Fort Liard asset during the foreseeable future, and with its new debt-free status, Point North has the expertise, the time and the financial resources required for unlocking these reserves.

Potentially, the next six months may be the most rewarding Purcell shareholders will have faced since the extremely successful drilling of the K29 well in 1999 in the Fort Liard gas field. Point North believes that the recently drilled, and currently being completed and tested, K-29A well has the potential to capture significant reserves and production. This well was drilled in a manner to avoid the geological faults that may have interfered with gas production in the area to date. If successful, this well will support future drilling on the property based on a new understanding of the play.

While the Fort Liard development plays out, Point North will also expand its activities on new plays to secure growth for the company and its shareholders. The company has 22,000 net acres of undeveloped land that provides an excellent starting point for growth. More immediately, Point North looks forward to participation in a 25 percent working interest well with multi-zone potential at Umbach in northeast British Columbia. These factors position Point North for a period of significant positive growth and development.

OUTLOOK

Closing of the Arrangement and the restructuring completed Purcell's history. Moving forward, shareholders of Point North will begin to see results in 2006 from a substantially different and focused junior oil and gas producer.

With continued expectations of strong commodity prices, the tremendous potential of Fort Liard offers compelling economics, and the new management team at Point North is excited to embrace this opportunity on behalf of all shareholders, old and new.

MANAGEMENT'S DISCUSSION AND ANALYSIS

The following discussion is management's analysis of Point North Energy Ltd. ("Point North") prior to closing of the plan of arrangement on November 2, 2005, and references herein to Purcell Energy Ltd. ("Purcell" or the "Company") mean Point North's predecessor entity that existed prior to the asset sale and reorganization described below. As a result, this analysis relates to Purcell's operating and financial data for the third quarter of 2005 and prior periods, and includes estimates of Point North's future operating and financial performance, based on information currently available. It should be read in conjunction with the audited consolidated financial statements and notes for Purcell's year ended December 31, 2004. The Management's Discussion and Analysis ("MD&A") was prepared as of November 4, 2005. Additional information relating to Purcell can be found at www.sedar.com and on Purcell's website at www.purcellenergy.com.

Comparisons made of the current period to the previous year are to the corresponding period in the previous year unless otherwise indicated. Readers are advised that certain cautionary statements in the MD&A in the annual report for the year ended December 31, 2004 are not repeated herein but apply to this MD&A.The relevant discussions are entitled "Basis of Presentation","Non-GAAP Measurements","boe Presentation" and "Forward-Looking Statements."

ASSET SALE AND REORGANIZATION

On October 27, 2005, Purcell shareholders approved the sale of all of its Saskatchewan assets and substantially all of its Alberta assets for total consideration of $151 million and approved a reorganization of Purcell to create Tenergy Ltd. ("Tenergy"), a public exploration-focused junior producer. The asset sales were closed on October 27, 2005 and the plan of arrangement to reorganize Purcell was closed on November 2, 2005. Pursuant to the reorganization, the Tenaka production, reserves and undeveloped acreage near Adsett, B.C. were transferred to Tenergy, along with all of Purcell's other undeveloped exploration lands in northeast B.C.

Purcell retains its Fort Liard, N.W.T. gas property and minor Alberta properties and B.C. producing properties. Pursuant to the plan of arrangement Purcell's common shares were consolidated on a one-for-five basis and the Company's name was changed to Point North Energy Ltd. The Purcell shareholders will also receive, for each pre-consolidation Purcell common share held, 0.20 of a Tenergy common share, $0.40 in cash and 0.0556 of a Prairie Schooner common share.

The following discussion pertains to Purcell prior to the reorganization.

THIRD QUARTER 2005 OVERVIEW

Operating and financial results improved during the third quarter as a result of increased production as well as commodity prices that continued to strengthen. Oil prices were up by 15.2 percent and natural gas prices were up by 13.8 percent from the second quarter of 2005. Average production was up only slightly in the third quarter because of a slow-down in Purcell's activity directly related to the shareholder value-maximization process culminating in the reorganization and asset sale announced on August 2, 2005.

RESULTS OF OPERATIONS

Production

Average production increased by two percent in the third quarter of 2005 compared to the second quarter of 2005 reflecting increased production from the three wells at Tenaka, British Columbia and production from new wells at Pembina, Penhold and Pigeon Lake, Alberta; and Tatagwa, Saskatchewan.

Average production increased by five percent in the third quarter of 2005 compared to the same period in 2004 reflecting production from new wells drilled and tied in over the past year in Alberta, British Columbia and Saskatchewan offset by the sale of producing assets early in 2005 and production declines of 850 boe/d at Fort Liard.

Purcell's production in the third quarter was weighted 72 percent to natural gas, compared to 75 percent in the same period of 2004.

Revenue

Petroleum and natural gas sales of $23.4 million for the third quarter of 2005 were 52 percent higher than 2004, reflecting a 63 percent increase in commodity prices received. For the first nine months of 2005, sales revenue increased by 21 percent over 2004 as a result of 27 percent higher average commodity prices received, offset by four percent lower average production.

During the third quarter of 2005, approximately 4.76 mmcf/d of natural gas and 300 bbls/d of crude oil, representing about 23 percent of the Company's total production, were delivered into forward contracts. During the first nine months of 2005, approximately 5.6 mmcf/d of natural gas and 201 bbls/d of crude oil, representing about 25 percent of the Company's total production, were delivered into forward contracts. The prices received pursuant to the forward contracts reduced average prices received for natural gas by $0.12 per mcf and $0.09 per mcf for the third quarter and first nine months of 2005, respectively, and reduced prices received for crude oil by $17.45 per barrel and $11.63 per barrel for the third quarter and first nine months of 2005, respectively. As a result, the Company's hedging program resulted in sales being less than market by $2.4 million and $4.3 million in the third quarter and the nine months ended September 30, 2005, respectively.

Expenses

In the third quarter of 2005, costs continued to increase due to the strong demand for services and materials in the oil and gas industry. This is due to a robust economy and high oil and natural gas prices.

Transportation costs were lower in the third quarter of 2005 compared to 2004 as a result of the sale of properties earlier in 2005 that carried high cost per-unit firm service contracts and the mitigation of firm service related to natural gas production from the Fort Liard area. Per unit transportation costs were higher at Fort Liard due to lower production volumes. Additional Fort Liard transportation obligations were released on November 1, 2005. Transportation costs were higher in British Columbia reflecting new firm contracts to transport the production at Tenaka.

Royalty expenses increased in 2005 compared to 2004 as a result of higher effective crown royalty rates charged when commodity prices are higher.

Production expenses increased in 2005 mainly as a result of workovers and lower recoveries of facility costs from partners at Fort Laird because of less production from the F-25 well. Operating costs in Saskatchewan were lower in the third quarter as a result of new production at Tatagwa.

General and administrative ("G&A") costs, per unit of production, increased by 13 percent in the first nine months compared with 2004 mainly due to lower production in 2005.

Depletion, depreciation and amortization ("DD&A") increased in the third quarter by 32 percent (26 percent on a unit of production basis) and increased in the first nine months by 41 percent (47 percent on a unit of production basis) compared with 2004 mainly due to the significant reduction of reserves at Fort Liard.

Net Income (Loss) and Funds Flow from Operations

Purcell reported net losses of $1.2 million and $1.7 million for the three months and for the nine months ended September 30, 2005, respectively. The reported losses were a result of higher depletion expenses and a $3.7 million unrealized risk management loss reported in third quarter of 2005 related to mark-to-market accounting of forward commodity contracts. The risk management loss was due to a significant spike-up in natural gas prices in the third quarter.

Funds flow from operations of $10.5 million in the third quarter of 2005 was 77 percent higher compared with 2004 due to higher commodity prices received and higher production. Funds flow from operations for the first nine months of 2005 was 23 percent higher compared with 2004 due to higher commodity prices received being offset by slightly lower average production.

Capital Program

Purcell invested $32.2 million in capital projects during the first nine months of 2005 and sold properties for net proceeds of $13.8 million. The capital program was funded by cash flow from operations and working capital. Purcell's capital program in the first nine months of 2005 targeted six exploratory and 24 development drilling opportunities and resulted in three significant natural gas discoveries in the first quarter at Tenaka, B.C. and a significant oil discovery in Saskatchewan at Tatagwa in the second quarter.

Purcell enjoyed a 100 percent drilling success rate in the third quarter of 2005.

LIQUIDITY AND CAPITAL RESOURCES

At September 30, 2005, net debt decreased to $74.0 million from the $81.8 million at December 31, 2004. This decrease was due primarily to the sale of minor properties for net proceeds of $13.1 million in the first quarter while reinvesting cash flow in capital projects. Purcell's net debt at September 30, 2005 represents a debt-to-funds flow ratio of 1.77 to 1 based on annualized third quarter 2005 funds flow from operations. In October 2005 the Company repaid all of its bank debt from the proceeds of the Alberta and Saskatchewan asset sales. Point North is currently negotiating the terms of a new credit facility. The debenture payable at September 30, 2005 of $4.5 million is subordinate to the Company's bank facility. In October 2005 the Company repaid the debenture from the proceeds of the Alberta and Saskatchewan asset sales.

Complete Quarterly Report

Purcell Energy's complete third quarter report will be made available at www.sedar.com and on Point North's website at www.pointnorthenergy.com. A conference call will not be held for the third quarter results.

This news release contains forward-looking financial and operational information with respect to Purcell and Point North, including earnings, cash flow, production, and capital expenditures projections. These projections are based on expectations and are subject to a number of risks and uncertainties that could cause actual results to differ materially from forecasts. These risks and uncertainties include general economic, market and business conditions, commodity prices, well production rates, drilling success, timing, the imprecise nature of reserves estimates, service industry conditions, and the successful implementation of the company's business strategy. There is no representation by Purcell or Point North that actual results achieved during the forecast period will be the same, in whole or in part, as those forecast.

Note

In this news release the term barrel of oil equivalent ("boe") may be misleading, particularly if used in isolation. A boe conversion ratio of one boe for 6,000 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. All boe conversions in this news release are derived by converting gas to oil in the ratio of six thousand cubic feet of gas to one barrel of oil.

Contact Information

  • Point North Energy Ltd.
    John Emery
    President & C.E.O.
    (403) 269-5803
    or
    Iradesso Communications Corp.
    Peter D. Knapp
    (403) 503-0144 ext. 202