Point North Energy Ltd.

Point North Energy Ltd.

March 31, 2006 18:39 ET

Point North Energy Reports 2005 Financial and Operating Results

CALGARY, ALBERTA--(CCNMatthews - March 31, 2006) - Point North Energy Ltd. (TSX:PNY) ("Point North" or the "Company") reports its 2005 financial and operating results. Point North is the successor company to Purcell Energy Ltd. after a corporate reorganization completed in the fourth quarter of 2005. On November 2, 2005, Purcell 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 worth. 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 was changed to Point North Energy Ltd.

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., 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).

Point North's 2005 results include operations of the properties that were sold, as well as the assets that were transferred to Tenergy, under the reorganization up to November 2, 2005. As a result, the 2005 results are not relevant to the continuing operations of Point North, except where such results pertain specifically to assets retained by Point North after the reorganization was completed.

Point North is in the favourable position of being a start up company with excellent growth prospects that provide leverage to shareholders. In its early days, Point North has focused resources on outstanding business consequences from the Purcell reorganization. The team has also taken an inventory of its land position and drilling opportunities. This has resulted in the realization that although the company needs to deal with issues from the reorganization of Purcell, it is in an enviable position compared to start up oil and gas companies of a similar size.


($ thousands, except Three Months Ended Twelve Months Ended
where indicated) Dec. 31 Dec. 31
% %
6 mcf = 1 bbl 2005 2004(4) Change 2005 2004(4) Change


Petroleum and natural
gas sales 11,624 16,963 (31) 71,876 66,560 8

Production expenses 3,086 4,868 (37) 16,918 15,833 7
Per unit ($/BOE) 18.22 11.51 58 12.05 9.25 30

expenses 1,018 1,350 (25) 5,162 5,766 (10)
Per unit ($/BOE) 6.01 3.19 88 3.68 3.37 9

G&A expenses 6,307 2,022 212 9,208 4,693 96
Per unit ($/BOE) 37.24 4.78 679 6.56 2.74 139

Funds flow from
operations (212) 3,585 (106) 25,131 24,275 4
Per share
- basic ($) (0.021) 0.360 (106) 2.515 2.438 3
Per share
- diluted ($) (0.021) 0.358 (106) 2.515 2.434 3

depreciation and
amortization 7,069 8,224 (14) 30,321 24,697 23
Per unit ($/BOE) 41.74 19.45 115 21.59 14.42 50
Net income 3,402 (457) (845) 1,743 30 5,666
Per share
- basic ($) 0.338 (0.046) (835) 0.174 0.005 3,380
Per share
- diluted ($) 0.338 (0.046) (835) 0.174 0.005 3,380

net(2) (182,284) 11,500 (1,685) (163,880) 48,149 (440)
Net debt(3) 3,978 81,781 (95) 3,978 81,781 (95)
equity 13,516 98,908 (86) 13,516 98,908 (86)
Common shares
Weighted average
- basic 10,069 9,951 1 9,990 9,954 -
Weighted average
- diluted 10,069 10,002 1 9,990 9,970 -


Gas (mmcf/d) 7.84 19.84 (60) 16.84 21.37 (21)
Crude oil and
liquids (bbls/d) 534 1,291 (59) 1,041 1,116 (7)
Equivalent (BOE/d) 1,841 4,597 (60) 3,847 4,679 (18)

Product prices(1)
Natural gas
($/mcf) 11.79 6.49 82 8.21 6.30 30
Oil and liquids
($/bbl) 63.45 43.16 47 56.37 42.35 33
($/BOE) 68.63 40.11 71 51.19 38.87 32

Net back
Operating ($/BOE) 29.13 17.76 64 25.69 19.48 32
Funds flow net
back ($/BOE) (1.25) 8.48 (115) 17.90 14.08 27

(1) Product prices include hedges.
(2) Includes additions to asset retirement obligations and
disposition proceeds but excludes the cost of corporate
(3) Excluding the unrealized risk management liability.
(4) The number of shares and per-share amounts were adjusted to
reflect the one-for-five consolidation of common shares that
was completed in November 2005.

Fourth quarter income totalling $3,402,000 after taxes was due in part to the operations of Purcell prior to the closing under the Arrangement.

The Company had no bank debt at the end of 2005. The Company's working capital deficiency at December 31, 2005 was $4.0 MM not including the unrealized risk management liability.

Point North's complete 2005 annual report is expected to be made available on Point North's website at www.pointnorthenergy.com and on SEDAR by May 10, 2006.

Reserves and Asset Value

Point North's reserves at December 31, 2005 were evaluated by GLJ Petroleum Consultants Ltd. ("GLJ"). GLJ evaluated substantially all of Point North's reserves. The reserves were evaluated in accordance with the reserves evaluation standards in National Instrument 51-101 using GLJ's January 1, 2006 price forecast. At December 31, 2005, the value of Point North's proved and probable reserves, discounted at 10 percent per annum, was $15.8 million. Using an eight percent discount factor, the value of the proved and probable reserves was $16.7 million. This year, Fort Liard reserves accounted for 59 percent of the total value of the Company's proved and probable reserves.

At December 31, 2005, Point North's proved reserves were 300 mboe and proved and probable reserves were 1,194 mboe. A substantial portion of the Company's reserves were sold or transferred to Tenergy under the reorganization.

Reconciliation of Company Interest Reserves (1)
Forecast Prices and Costs

Crude Oil Natural Gas Liquids
Proved Proved
Plus Plus
Proved Probable Proved Probable
(Mbbl) (Mbbl) (Mbbl) (Mbbl)

December 31, 2004 1,966 2,503 631 854

Exploration discoveries
Drilling extensions 6 7
Infill drilling
Improved recovery
Technical revisions (91) (161) (54) (105)
Dispositions (1,510) (1,955) (493) (660)
Production (299) (299) (73) (73)

December 31, 2005 66 88 17 23

Natural Gas Equivalent
Proved Proved
Plus Plus
Proved Probable Proved Probable
(Mmcf) (Mmcf) (Mboe) (Mboe)

December 31, 2004 34,126 61,436 8,285 13,596

Exploration discoveries 947 158
Drilling extensions 167 211 33 42
Infill drilling 3 98 1 17
Improved recovery 35 50 6 8
Technical revisions (5,675) (20,251) (1,091) (3,640)
Dispositions (21,211) (29,853) (5,538) (7,591)
Production (6,142) (6,142) (1,396) (1,396)

December 31, 2005 1,303 6,496 300 1,194

(1) Company Interest Reserves include royalty interests. Please refer
to the Company's Annual Information Form (AIF) for additional
reconciliations and information related to the Company's
reserves. The Company's AIF is filed on SEDAR at www.sedar.com.
(2) This table may not add and/or cross-add due to rounding

Ceiling Test

A $3.5 million ceiling write-down occurred at the end of 2005 as a result of the negative reserve revisions in Fort Liard.

Net Asset Value at December 31, 2005, before tax

Diluted net asset value, before tax, is calculated at $1.92 per share at December 31, 2005. Substantially all of the reserves value was evaluated by GLJ with forecast prices and costs discounted at 10 percent per annum.

Net Asset Value at December 31, 2005, before tax
($ millions, except as indicated) 2005
Reserves value, discounted at 10% (1) 15.8
Undeveloped acreage (2) 3.0
Seismic data (3) 4.5
Working capital (deficiency) (4) (4.0)
Net asset value 19.3
Net asset value per share
Basic and Diluted ($) 1.92

Common shares outstanding (thousands)
Basic and Diluted (5) 10,081

(1) Reserves values at December 31, 2005 are the proved and probable
reserves values prepared using NI 51-101 reserves definitions.
(2) The undeveloped land value at December 31, 2005 was estimated by
management. The average value for undeveloped land is $125 per
(3) The seismic data value was estimated by management based on a
third-party assessment of the extensive database in the North
West Territories and offshore East Coast, Canada.
(4) Excludes unrealized risk management liability of $424,000.
(5) The number of diluted outstanding shares is the total of the
basic outstanding shares plus the number of additional shares
calculated using the treasury method whereby the number of
additional shares is the number of shares associated with
in-the-money options and warrants at the end of the year reduced
by the number of shares that could be repurchased with proceeds
received on the exercise of in-the money options and warrants
using the year-end closing price of the shares.

Management's Discussion and Analysis ("MD&A")

The following MD&A deals primarily with Point North's oil and gas assets retained after the Purcell reorganization and the Company's continuing operations that form the basis for Point North to create shareholder value in the future. The complete MD&A can be found at www.sedar.com or on the Company's website at www.pointnorthenergy.com.

Results of Operations

Finding, Development and Acquisition (FD&A) Costs

The reserve write-down and the sale of substantially all of the assets of Purcell resulted in incalculable F&D costs for 2005.

Debt Financing

As a result of the Purcell plan of arrangement, the corporation retired $60,472,000 in debt. Point North has no bank debt at this time.

Production Expenses

Production expenses per boe increased 30 percent to $12.05/boe in 2005 and 58 percent in the fourth quarter compared to 2004, as a result of production declines at Fort Liard. This situation is amplified with the increase in Fort Liard concentration following the asset sale. Service contracts have been mitigated to the extent possible, but the majority of the cost reduction will not be felt until the expiry of the current contracts later in the fall. Unless production from Fort Liard is increased, we expect operating costs to remain high for the balance of 2006.

General and Administrative Costs

G&A costs for 2005 were high ($6.56/boe) for Purcell as a result of severance and other costs related to the Plan of Arrangement. G&A costs going forward will be substantially reduced reflecting the reduction in operations and employees. As of December 31, 2005, Point North had two full-time employees.

Capital Program

Capital expenditures of $35.5 MM were offset by the dispositions of $187.9 MM in 2005. The property disposition and the write-down in the reserves of Fort Liard make the Finding and Development costs for 2005 incalculable.

Corporate Tax

In connection with completion of Point North's 2005 year-end audited financial statements, the company has provided for a 2005 potential tax liability of $6.4 million arising primarily from a taxable gain on the sale of various assets as part of the reorganization of Purcell Energy Ltd. completed in November 2005. The amount of the tax liability, which was unanticipated, is subject to confirmation by the tax authorities. The Company will be pursuing several options to reduce the amount of corporate income tax that it will have to pay and to meet the payment obligations.

Outlook for 2006

Fort Liard, N.T. was a key asset for Purcell Energy and is also the most significant current asset of Point North. Fort Liard has tremendous natural gas production potential, but the challenging operational and geological environment in the area has provided for mixed production and development results over the years, and 2005 was a year with limited production results for Purcell and Point North in the area. In 2006, Point North expects to uncover additional information about the Nahanni pool in Fort Liard, and the operator will be utilizing new drilling and completion techniques, facility upgrades, and continued reservoir and geologic research as they are motivated to capture as much of the potential of the area as possible. Point North will be an active partner in this process, and intends to conduct additional reviews of the geological and reservoir models with a fresh perspective for the project provided by the new technical team at Point North. Point North will not rely on success in Fort Liard as the only catalyst for growth in the company.

Although the development program for Fort Liard will demand financial and technical resources from Point North, the company is already seeing success elsewhere in the land base. Several of Point North's assets are in underdeveloped areas of both BC and Alberta, but in all cases, Point North believes that the oil and gas exploration potential is appealing. Point North has already completed some initial exploration work in various areas, and the company is in a position to target development based on earlier research.

Point North also has some international opportunity, with land holdings in the UK that include three suspended oil wells. Since the start of 2006, the management team has reviewed the properties, and believes potential exists to bring the wells back on production. In 2006, Point North will be seeking regulatory approval to restart some of the wells, and further potential in the area will be determined based on production results from those wells.

Point North's management team is committed to adding shareholder value and is convinced that the corporate structure and assets of Point North at this time equate to significant growth potential within the company.

Forward Looking Statements

Information in this press release contains forward-looking statements including expectations of future production and components of cash flow and earnings. Investors are cautioned that assumptions used in the preparation of such information may prove to be incorrect. Events or circumstances may cause actual results to differ materially from those predicted, as a result of numerous known and unknown risks, uncertainties, and other factors, many of which are beyond the control of Point North. These risks include, but are not limited to; the risks associated with the oil and gas industry, commodity prices and exchange rate changes. Industry related risks could include, but are not limited to; operational risks in exploration, development and production, delays or changes in plans, risks associated with the uncertainty of reserves estimates, health and safety risks and the uncertainty of estimates and projections of production, costs and expenses. The risks outlined above should not be construed as exhaustive. Investors are cautioned not to place undue reliance on any forward-looking information. Point North undertakes no obligation to update or revise any forward-looking statements.


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.

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