Profound Energy Inc.
TSX : PFX

Profound Energy Inc.

March 19, 2009 16:11 ET

Profound Energy Inc. Announces Its Financial and Operating Results for the Year Ended December 31, 2008

CALGARY, ALBERTA--(Marketwire - March 19, 2009) - Profound Energy Inc. (TSX:PFX) ("Profound" or the "Company") is pleased to report its operational and financial results for the year ended December 31, 2008.

Copies of the financial statements and management discussion and analysis in respect thereof for the year and quarter ended December 31, 2008 will be available at www.sedar.com or by visiting Profound's website at www.profoundenergy.ca.

HIGHLIGHTS

On March 31, 2008, Profound acquired all of the shares of Defiant Resources Corporation ("Defiant") by way of a Plan of Arrangement. Results for 2008 include a full nine months of operations of Defiant.

Profound's production averaged 2,696 boe/day for 2008 as compared to 344 boe/day in 2007, an increase of 684%. Production in 2008 included a full year of production from the acquisition of Cork Exploration Inc. ("Cork") and nine months of production from Defiant. Fourth quarter production increased to 3,288 boe/day from 2,442 boe/day in the third quarter. Production ramped up in the fourth quarter due to investments made in natural gas processing and compression facilities made in the Carrot Creek and Clairmont areas. Current production is approximately 3,050 boe/day, with approximately 450 boe/day shut in due to facility constraints and a new well to come on after April 1, 2009 to take advantage of the New Well Royalty Reduction announced by the Alberta Government on March 3, 2009.

Funds flow from operations increase to $29.1 million in 2008 from $3.2 million in 2007, an increase of 814%, with the corresponding per share amounts increasing to $0.85 per share in 2008 from $0.41 in 2007, an increase of 107%. Fourth quarter funds flow was $6.8 million compared to $5.9 million in the third quarter.

The field operating net back averaged $38.30 per boe in 2008 versus $28.94 in 2007, an increase of 32%.

Net income in 2008 was $3.3 million compared to a loss of $0.7 million in 2007.
Total net debt at December 31, 2008 was $57.4 million, within Profound's $70.0 million revolving operating credit facility agreement.

Capital expenditures in 2008 totalled $88.2 million of which $56.3 relates to the petroleum and natural gas assets acquired as part of the acquisition of Defiant. The remaining $31.9 million was spent on drilling, completions and equipment along with land, seismic purchases and capitalized general and administrative expenses, and was net of the disposition of the Company's interests in Brazeau and Majeau in May and Atim in November 2008.

Profound participated in the drilling of 20 wells (12.9 net) during 2008 with a success rate of 77%.

The Company's oil and natural gas reserves were evaluated by GLJ Petroleum Consultants Ltd. ("GLJ") as at December 31, 2008 (the "GLJ report"). The GLJ report concludes that the Company holds 8.3 million boe of proved reserves and 12.3 million boe of proved plus probable reserves. The report assigns a value before tax for the proved plus probable reserves applying a discount rate of 10 percent of $214.8 million.

A reserve life index of 6.9 years for total proved reserves and 10.1 years for proved plus probable reserves is based on annualized fourth quarter 2008 production of 3,288 boe/day.

Finding, development and acquisition costs in 2008 averaged $26.54 per boe proved and $24.20 per boe proved plus probable. Including future capital, finding, development and acquisition costs were $27.90 proved and $24.75 proved plus probable per boe.

Profound holds 103,616 net undeveloped acres of land independently evaluated by Seaton-Jordan & Associates as having a value of $23.1 million. The Company has identified over 80 drilling locations; 30 of which are multi-stage completion horizontal wells and 50 of which are vertical wells. Profound holds an approximate average working interest of 65 percent in the identified drilling inventory.

Subsequent to year-end, the Company has entered into the following two hedges:



Cost of
Natural Volume Pricing Collar Price Collar
Gas (GJ/day) Point ($Cdn/GJ) ($Cdn/GJ) Term
----------------------------------------------------------------------------
Collar 2,500 AECO-C $4.75 - $6.25 - Feb. 1, 2009 - Dec. 31, 2009
Collar 1,000 AECO-C $5.00 - $7.55 $0.25 Mar. 1, 2009 - Mar. 31, 2010


Financial and operating highlights for the years ended December 31, 2008 and December 31, 2007 are presented as follows:



----------------------------------------------------------------------------
FINANCIAL AND OPERATING HIGHLIGHTS
----------------------------------------------------------------------------
For the Years Ended
--------------------------------------------
December 31, December 31, % Change
2008 2007
----------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
($000 unless otherwise indicated)

Petroleum and natural gas sales 61,016 6,367 858%
Funds flow from operations (1) 29,122 3,185 814%
Per share - basic and diluted ($) 0.85 0.41 107%
Net earnings (loss) 3,322 (706) -
Per share - basic and diluted ($) 0.10 (0.09) -
Net debt (2) 57,423 33,055 74%
Capital expenditures (3) 31,913 23,279 37%
Acquisition of Cork Exploration - 101,158 -
Acquisition of Defiant Resources 56,278 - -
Common shares outstanding (000's) 37,263 24,903 50%
Weighted average shares outstanding
- basic and diluted (000's) 34,269 7,722 344%
----------------------------------------------------------------------------
OPERATING HIGHLIGHTS

Average daily production
Crude oil & NGL's (bbls/d) 759 99 667%
Natural gas (mcf/d) 11,624 1,471 690%
----------------------------------------------------------------------------
Total (boe/d) 2,696 344 684%
----------------------------------------------------------------------------

Average selling prices (4)
Crude oil & NGL's ($/bbl) 86.46 74.38 16%
Natural gas ($/mcf) 8.69 6.84 27%
----------------------------------------------------------------------------
Total ($/boe) 61.84 50.65 22%
----------------------------------------------------------------------------

Operating netback ($/boe)
Oil and natural gas sales 61.84 50.65 22%
Royalties 12.43 12.15 2%
Operating costs 10.44 9.34 12%
Transportation costs 0.67 0.22 205%
----------------------------------------------------------------------------
Operating netback 38.30 28.94 32%
----------------------------------------------------------------------------

Wells drilled - gross (net)
Oil 2 (1.1) 1 (0.6) -
Natural Gas 14 (8.9) 12 (6.4) -
Abandoned/Other 4 (2.9) 4 (2.5) -
----------------------------------------------------------------------------
Total 20 (12.9) 17 (9.5) -
Drilling success rate (%) 77 74 -
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Funds flow from operations is calculated as cash flow from operating
activities before the change in non-cash operating activities working
capital.
(2) Net debt includes working capital and excludes unrealized financial
instruments.
(3) Capital expenditures include property acquisitions and are presented
net of proceeds of dispositions (Dec. 31, 2008 proceeds from
dispositions - $13,826).
(4) The average selling prices reported are before hedging activities.
(5) 2007 includes production from then Profound Energy Ltd. (a private
oil and gas exploration company) for the year and production from Cork
for the period subsequent to November 19, 2007.


FINANCIAL AND OPERATING HIGHLIGHTS

Three Month Periods Ended
--------------------------------------------
December 31, September 30, % Change
2008 2008
----------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
($000 unless otherwise indicated)

Petroleum and natural gas sales 14,305 14,344 0%
Funds flow from operations (1) 6,779 5,853 16%
Per share - basic and diluted ($) 0.18 0.16 13%
Net earnings (loss) (2,397) 2,752 -
Per share - basic and diluted ($) (0.06) 0.07 -
Net debt (2) 57,423 54,726 5%
Capital expenditures (3) 9,438 18,122 -48%
Acquisition of Defiant Resources - 165 -
Common shares outstanding (000's) 37,263 37,315 0%
Weighted average shares outstanding
- basic and diluted (000's) 37,296 37,336 0%
----------------------------------------------------------------------------
OPERATING HIGHLIGHTS

Average daily production
Crude oil & NGL's (bbls/d) 921 669 38%
Natural gas (mcf/d) 14,204 10,641 33%
----------------------------------------------------------------------------
Total (boe/d) 3,288 2,442 35%
----------------------------------------------------------------------------

Average selling prices (4)
Crude oil & NGL's ($/bbl) 56.87 99.37 -43%
Natural gas ($/mcf) 7.23 8.41 -14%
----------------------------------------------------------------------------
Total ($/boe) 47.28 63.85 -26%
----------------------------------------------------------------------------

Operating netback ($/boe)
Oil and natural gas sales 47.28 63.85 -26%
Royalties 8.89 12.06 -26%
Operating costs 11.98 10.73 12%
Transportation costs 0.73 0.44 66%
----------------------------------------------------------------------------
Operating netback 25.68 40.62 -37%
----------------------------------------------------------------------------

Wells drilled - gross (net)
Oil - 1 (0.4) -
Natural Gas 1 (0.5) 6 (4.6) -
Abandoned/Other - 1 (0.5) -
----------------------------------------------------------------------------
Total 1 (0.5) 8 (5.5) -
Drilling success rate (%) 100 91 -
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) Funds flow from operations is calculated as cash flow from operating
activities before the change in non-cash operating activities working
capital.
(2) Net debt includes working capital and excludes unrealized financial
instruments.
(3) Capital expenditures include property acquisitions and are presented
net of proceeds of dispositions (Dec. 31, 2008 proceeds from
dispositions - $636,036).
(4) The average selling prices reported are before hedging activities.


FINANCIAL REVIEW

Production, revenues and net income were all dramatically higher in 2008 versus 2007 due to inclusion of a full year of production from the Cork assets and nine months from the Defiant assets. The year was characterized by price volatility from oil and gas prices which reached $120.89 per bbl of oil and $11.11 per mcf of gas in the second quarter, dropping to $64.62 per bbl of oil and $7.23 per mcf of gas in the fourth quarter and continue to deteriorate in 2009. Overall, petroleum and natural gas sales increased to $61.0 million in 2008 from $6.4 million in 2007.

Revenues in the fourth quarter of 2008 were $14.3 million, flat from the third quarter. While production volumes increased dramatically to 3,288 boe/day in the fourth quarter from 2,442 boe/day in the third quarter, falling prices impacted the effect of the increased volumes. Capacity restrictions were resolved in the fourth quarter at Carrot Creek and Clairmont due to acquisition of working interests in two gas plants and the debottlenecking project completed at the Company's main producing property, Carrot Creek.

Funds flow from operations increase to $29.1 million in 2008 from $3.2 million in 2007. Fourth quarter funds flow was $6.8 million compared to $5.9 million in the third quarter.

The average 2008 royalty rate was 20.1%, with the fourth quarter being 18.8%. The average royalty rate has fallen throughout the year as the ongoing monthly gas cost allowance credit is significantly higher than in previous years. On January 1, 2009, the Alberta Government's "New Royalty Framework" ("NRF") came into effect. The NRF is sensitive to both production rates and gas pricing; therefore, the effective royalty rate will vary depending on the price of natural gas. Under 2008 pricing, Profound would expect its effective royalty rates to rise in 2009; however, the effects of these rates will be partially mitigated in early 2009 due to the low market prices in effect.

Profound's average operating and transportation expense was $11.11 per boe in 2008 as compared to $9.56 per boe in 2007. The Cork and Defiant properties carry significantly higher operating costs than the original Profound properties due to higher processing and compression fees. The Company anticipates its operating costs will decrease in 2009 due to its acquisition of an interest in 10mmcf per day of plant capacity at Carrot Creek. Operating and transportation expense increased to $12.71 per boe in the fourth quarter from $11.17 per boe in the third quarter due to $0.6 million of major servicing costs incurred in the fourth quarter.

Profound marketed a portion of its gas and oil to SemCams ULC and SemCanada Crude Company both of which filed for protection under The Companies' Creditors Arrangement Act in July 2008. Potential exposure is estimated to be $2.9 million for the period June 1 through July 23, 2008. Claims have been filed under CCAA in Canada for $2.9 million and the Company was also able to file for Cdn $2.3 million under Chapter 11 in the United States. It is not known what amount, if any, will be ultimately recoverable.

General and administrative expenses decreased to $2.97 per boe in 2008 compared to $7.09 per boe in 2007 when it was in a start up phase. Fourth quarter general and administrative expenses were $2.98 per boe as compared to $2.53 per boe in the third quarter. This was primarily due to reduced drilling in the fourth quarter, resulting in decreased G&A recoveries.

Profound had an active year, drilling 20 wells (12.9 net), 16 (10.0 net) of which were successful. One successful gas well (0.5 net) was drilled in the fourth quarter.

Capital expenditures in 2008 totalled $88.2 million of which $56.3 million relate to the petroleum and natural gas assets acquired as part of the acquisition of Defiant. Of the remaining $31.9 million, $27.0 million was spent on drilling and completions, $14.4 million on equipping and facilities, $3.1 million on land and seismic, $1.3 million on capitalized G&A, and $13.9 million was received from disposition of properties at its non-core areas of Brazeau, Majeau and Atim.

Profound spent $9.4 million on capital expenditures in the fourth quarter compared to $18.1 million in the third quarter of 2008. The majority of expenditures in the fourth quarter related to the debottlenecking problem at Carrot Creek where the Company purchased an interest in a gas plant, expanded a compressor facility and built associated pipelines. In addition, another gas plant was purchased at Clairmont to handle the gas from a horizontal well drilled during the third quarter. Drilling and completion costs incurred during the fourth quarter included expenditures for one horizontal completion, one drilled well and one recompletion.

Profound has $200.8 million in tax pools at December 31, 2008.

OPERATIONS OVERVIEW

Production

During the three months ended December 31, 2008, Profound produced an average of 14.2 mmcf/day of gas and 921 bbls/day of oil and natural gas liquids for an average daily production of 3,288 boe/day. Previous production disruptions have been remedied by the successful construction and startup of working interest facilities at the Carrot Creek and Clairmont properties.

Currently Profound is producing 13.8 mmcf/day and 750 bbls/day of oil and natural gas liquids or a total of 3,050 boe/day. An application for Good Production Practice (GPP) for the Carrot Creek Ostracod 'AAA' oil pool has been submitted to the Alberta Energy Resources Conservation Board, which, when approved, is expected to add 300 bbls/day of oil production net to the Company.

Activity Update

During the three months ended December 31, 2008, Profound participated in 1.0 gross (0.5 net) well resulting in 1.0 gross (0.5 net) gas well at Pembina.

The majority of the capital investment was made at Carrot Creek, the principal producing property of the Company, where 12 gross (6.5 net) were drilled. Of the 12 wells, 2 were horizontal wells successfully completed with multi-stage fracture stimulation technology in the Rock Creek Member of the Fernie Formation.

In addition to the successful drilling at Carrot Creek, Profound participated in the expansion of a gas processing plant. Gross plant capacity was increased from 20 mmcf/day to 35 mmcf/day, and Profound has an owned interest in 10.5 mmcf/day. Gas from the Carrot Creek areas is now flowing to this newly expanded facility, reducing the Company's dependence on third party facilities which have suffered from continual downtime in 2008.

On the Peace River Arch, the Company purchased and refurbished a 9 mmcf/day gas processing facility from a third party. The purchase of this facility was the result of successful drilling at Clairmont and Dimsdale, where one underbalanced horizontal (0.825 net) and one vertical (1.0 net) gas wells were drilled. Negotiations are underway to consolidate gas processing in the area into the Company's facility, to fully debottleneck and optimize production. Once this consolidation has been completed, 350 boe/day net to the Company will be placed on production which is currently shut-in.

Subsequent to the end of the 2008, Profound drilled and operated 1.0 gross (0.6 net) vertical at Carrot Creek and 1.0 gross (0.6 net) horizontal well at Pembina, resulting in a total of 2.0 gross (1.2 net) gas wells. These wells will be eligible for the New Well Royalty Reduction announced by the Alberta Government on March 3, 2009.

2009 Capital Program

Capital expenditures continue to be significantly curtailed in response the precipitous drop in commodity prices received. Profound will approach investment with a defensive posture for the remainder of the year and will keep capital spending for 2009 within expected cash flow.

ABOUT PROFOUND

Profound explores for and produces oil and natural gas in Alberta, Canada. It was formed on November 19, 2007 through the amalgamation of Profound Energy Ltd., a private oil and gas exploration and production company, and Cork Exploration Inc. a public oil and gas exploration and production company. On March 31, 2008 Profound acquired Defiant Resources Ltd., a public oil and gas company operating in Alberta.

The Company operates in central Alberta west of the fifth meridian and in the Peace River Arch area of Alberta.

DISCLAIMER

Certain information regarding Profound in this news release including, without limitation, management's assessment of future plans, production, drilling program, 2009 capital program, anticipated timing of additional production to be brought on stream and obtaining certain regulatory approvals in connection therewith and operations and the effect on Profound may constitute forward-looking statements under applicable securities laws and necessarily involve risks including, without limitation, risks associated with oil and gas exploration, development, exploitation, production, marketing and transportation, risks associated with sour hydrocarbons, changes to royalty rates, loss of markets, volatility of commodity prices, currency fluctuations, imprecision of reserve estimates, environmental risks, competition from other producers, inability to retain drilling rigs and other services, capital expenditure costs, including drilling, completion and facilities costs, unexpected decline rates in wells, delays in projects and/or operations resulting from surface conditions, wells not performing as expected, delays resulting from or inability to obtain required regulatory approvals and ability to access sufficient capital from internal and external sources. As a consequence, actual results may differ materially from those anticipated in the forward-looking statements. Readers are cautioned that the forgoing list of factors is not exhaustive. Additional information on these and other factors that could effect Profound's operations and financial results are included in Profound's Annual Information Form on file with Canadian securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com). Furthermore, the forward-looking statements contained in this news release are made as at the date of this news release and Profound does not undertake any obligation to update publicly or to revise any of the forward-looking statements, whether as a result of new information, future events or otherwise, except as may be expressly required by applicable securities laws.

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 six Mcf to one bbl is based on an 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 terms "funds flow from operations", "operating netback" and "reserve life index" contained within this news release should not be considered as an alternative to, or more meaningful than terms as determined in accordance with Canadian generally accepted accounting principles ("GAAP"). These terms do not have a standardized meaning under GAAP and may not be comparable to other companies. Profound believes that the terms are a useful supplementary measure as shareholders and/or investors may use this information to analyze operating performance, leverage and liquidity.

Funds flow from operations, as disclosed within this news release, represents funds flow from operating activities before changes in non-cash operating activities working capital. The Company presents funds flow from operations per share whereby per share amounts are calculated consistent with the calculation of earnings per share.

"Total net debt" refers to projected bank debt plus estimated working capital deficit (excludes any current unrealized amounts pertaining to risk management commodity contracts). Total net debt is not a recognized measure under Canadian GAAP.

Contact Information