Profound Energy Inc.

Profound Energy Inc.

December 23, 2008 16:05 ET

Profound Energy Inc. Provides an Operational Update, Information on Its 2009 Capital Program and the Restructuring of Its Long-Term Incentive Program

CALGARY, ALBERTA--(Marketwire - Dec. 23, 2008) - Profound Energy Inc. (TSX:PFX) ("Profound" or the "Company") is pleased to provide information regarding its operational activity in the fourth quarter of 2008, information regarding its approach to capital spending in 2009 and the restructuring of its long-term incentive plan for employees and consultants.

Operations Update

During the months of October and November, Profound experienced production that averaged 13.9 mmcf/d and 970 bbls/d of oil and natural gas liquids or 3,292 boe/d. Currently the Company is producing 3,417 boe/d and will average approximately 3,300 boe/d for the three months ending December 31, 2008. This compares with production that averaged 2,443 boe/d in the third quarter of 2008.

The company has not drilled any new wells in the fourth quarter of 2008 although one is expected to commence drilling operations just prior to year end.

In November, Profound purchased and upgraded a gas plant (0.81 net) at Clairmont, Alberta in the Company's Peace River Arch operating area. The commissioning of this facility allowed production from the recently drilled horizontal well at 13-12-72-7 W6M (0.83 net) to commence at unrestricted rates and also provided capacity for a well (1.0 net) drilled at Dimsdale, Alberta during the third quarter of 2008. This work resulted in a net production increase of approximately 630 boe/d.

At Profound's Carrot Creek, Alberta operating area, various pipeline and gas compression projects have debottlenecked the gas gathering and processing system. The expansion of a plant in which Profound will hold a working interest of approximately 10 mmcf/d is on schedule and anticipated to commence operating during the first quarter of 2009. Complementary pipeline interconnects and compression projects are also on schedule and synchronized with the completion of the gas plant expansion project. This project will eliminate the Company's gas production being curtailed by third parties.

Profound will be earning new lands in its Carrot Creek area by drilling two farmin wells, one where it will earn a 60 percent working interest by paying 100 percent of the costs and another where it will earn a 50 percent working interest subject to a gross overriding royalty. The Company is in a position to earn a total of 6.5 sections of land in this important operating area should it fully exercise all of the available options to drill.

Profound sold a non-core property at Atim, Alberta effective November 20, 2008. The property was sold for $500,000 and represents a reduction in the Company's production of approximately 4 boe/d and 70 mboe of proven plus probable reserves.

2009 Capital Program

Profound is approaching its 2009 capital program with caution and a defensive posture. Current prices for natural gas and oil are at unexpected and unusually low levels causing uncertainty in the estimates of cash flow for 2009. The Company is estimating capital expenditures of around $7 million for the first half of the year which would include the drilling and completing of one (0.6 net) horizontal well and three (1.7 net) vertical wells and their associated pipelines and facilities. Projects for the remainder of the year, including the drilling of 8 (5.3 net) wells, totalling an additional $20 million are being prepared to be drill ready but will be reviewed prior to their initiation based on commodity prices and other pertinent circumstances at the time.

During 2008 Profound invested approximately $45.7 million. The Company estimates that its total debt including negative working capital at December 31, 2008 will be approximately $57.5 million. The Company has a $70 million credit facility in place with the Alberta Treasury Branch.

Profound has an inventory of high quality drilling prospects totalling roughly 30 horizontal well locations targeting natural gas and more than 70 vertical well drilling opportunities. Expanding the capital program to address more favourable circumstances will be a welcome and easily addressed challenge.

Long Term Incentive

In an effort to alleviate concerns with respect to retention and performance issues, non-officer employees, consultants and directors elected to cancel their share options December 5, 2008. On December 17, 2008, new options representing approximately 25% of the number of options outstanding prior to December 5, 2008 were issued at $0.56 per share. On December 22, 2008, officers of the Company elected to cancel all their options having exercise prices of $3.15 and $3.72.

The net result of the incentive restructuring is that the Corporation now has 873,000 options outstanding at an average weighted exercise price of $0.56 rather than 3,678,000 stock options outstanding prior to December 5, 2008 having an average exercise price of $3.34 per share.

Accordingly, as compared to pre December 5, 2008, the Corporation has 76% fewer options outstanding. In addition, all of the new options are subject to a three year vesting period with such options vesting and being exercisable on a one-third, one-third, one-third basis on each of the first, second and third anniversaries from the date of grant.

The directors and management of the Company believe that the restructured incentive plan will serve as an effective incentive and retention tool when compared to the previously outstanding options, all of which were substantially out of the money. Additional benefits that may accrue from the restructuring include:

- effective long term compensation is created;

- eventual dilution to shareholders is reduced;

- 75% of the option pool remains unallocated. This will reduce dilution to shareholders while still providing long term incentive to employees;

- the restructuring provides for a pool of options to exist without the Corporation issuing additional shares; and

- any new options granted would be subject to new vesting provisions which would further assist in the retention of key employees and consultants.

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.


Certain information regarding Profound in this news release including management's assessment of future plans, asset dispositions, production, drilling program 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 the proposed royalty regime prior to implementation and thereafter, 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 ( 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 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 term "funds flow from operations" contained within this news release should not be considered as an alternative to, or more meaningful than, cash flow from operating activities as determined in accordance with Canadian generally accepted accounting principles ("GAAP"). This term does not have a standardized meaning under GAAP and may not be comparable to other companies. Profound believes that "funds flow from operations" is 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.

References in this news release to test production rates and test rates for recently drilled wells 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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