Raven Energy Ltd.
TSX VENTURE : RVL

Raven Energy Ltd.

November 15, 2005 15:18 ET

Raven Energy Ltd. Announces Results for the Nine Months Ended September 30, 2005

CALGARY, ALBERTA--(CCNMatthews - Nov. 15, 2005) - Raven (TSX VENTURE:RVL) presents financial and operating results for the nine months ended September 30, 2005. Unless otherwise stated, the volume conversion of natural gas to barrel of oil equivalent (BOE) is presented on the basis of 6 thousand cubic feet of natural gas being equal to 1 barrel of oil.



------------------------------------------------------------------------
Three Months Ended Nine Months Ended
($000's, September 30 September 30
except per share amounts) (unaudited) (unaudited)
------------------------------------------------------------------------
2005 2004 2005 2004
------------------------------------------------------------------------
Petroleum and natural gas
revenue $ 5,211 $ 3,695 $ 14,880 $ 9,502
Net income 838 266 2,483 815
Per share
- basic and diluted 0.03 0.01 0.07 0.03
Cash flow from operations 3,411 2,444 9,759 6,165
Per share
- basic and diluted 0.10 0.08 0.29 0.20
Net capital expenditures 4,172 2,943 13,475 15,333
Shareholders' equity 35,802 27,275 35,802 27,275
Working capital
(deficiency) (3,343) (1,451) (3,343) (1,451)
Natural gas production
(Mcf/d) 4,414 4,228 4,536 3,878
Oil and NGL production
(bbl/d) 276 258 309 178
Production (BOE/d) 1,012 963 1,065 824
Natural gas selling price
($/Mcf) 8.53 6.25 7.85 6.64
Oil and NGL selling price
($/bbl) 68.77 53.31 61.13 50.13
BOE selling price ($) 55.97 41.72 51.17 42.07
Operating expenses ($/BOE) 8.57 6.78 7.97 7.03
Cash flow ($/BOE) 36.63 27.60 33.56 27.29
Common shares
Weighted average (millions) 33.5 31.3 33.4 30.0
Outstanding (millions) 34.9 31.4 34.9 31.4


OPERATIONS REVIEW

Activities carried out during the third quarter of 2005 included the establishment of a farmout and joint venture covering a portion of Raven's undeveloped lands at Ante Creek, the commencement of a seven well drilling program at Ante Creek, a recompletion program covering several wells in the Viking area, and the initial evaluation of an existing cased well in the Narraway area.

A multi-well drilling program at Ante Creek, located in west central Alberta, commenced in late September with one gross (0.65 net) well drilled by September 30, 2005. During the third quarter Raven (100%) completed the initial phase of a re-entry in a 5,600 meter cased well at Narraway located in west central Alberta. The well was re-entered to a depth of 3,900 meters and a zone was completed for natural gas. An extended flow test is scheduled for the fourth quarter to determine whether the zone is economic. A deeper potential natural gas zone in the well below 5,000 meters also remains to be evaluated. In the Viking area, located in east central Alberta, three wells were recompleted for additional natural gas production.

During the nine months ended September 30, 2005, Raven participated in the drilling of seven gross (5.7 net) wells resulting in four oil wells and three natural gas wells. Three net oil wells at Ante Creek were drilled, completed, equipped and placed on production by March. The fourth oil well, drilled in September at Ante Creek, is the first of an initial seven well program planned for the fall of 2005 as part of a farmout and joint venture covering a portion of the Ante Creek property. The joint venture allows for the more rapid development and exploration of the Ante Creek property and improves Raven's economics. The agreement also provides for further drilling on specific option lands totaling approximately 3,200 of Raven's 31,000 net acres of undeveloped land holdings in the Ante Creek area. Three gross (2.1 net) natural gas wells were drilled in the Inland area of east central Alberta. The spring breakup combined with the extended wet weather conditions restricted some of Raven's field operations. These natural gas wells were completed during the summer. However, weather related construction delays for some facilities and associated pipelines resulted in production delays to the fourth quarter of 2005.

Daily production, for the first nine months of 2005, averaged 1,065 BOE compared to 824 BOE per day for the comparable period of 2004. Production of 1,012 BOE per day in the third quarter declined modestly from the second quarter of 2005 (1,072 BOE per day) as only one new well was placed on production during the third quarter. Natural gas production increased to 4.5 million cubic feet per day in the nine months ended September 30, 2005 compared to 3.8 million cubic feet per day for the 2004 period. Oil and NGL production increased to 276 barrels per day during the third quarter of 2005 compared to 258 barrels per day in the 2004 period. Production from the Ante Creek property averaged 560 BOE per day in the first nine months of 2005 compared to 319 BOE per day in the comparable period of 2004.

MANAGEMENT'S DISCUSSION AND ANALYSIS

This management's discussion and analysis (M D & A) dated November 15, 2005 should be read in conjunction with the unaudited interim financial statements for the nine months ended September 30, 2005 and 2004 and the audited financial statements for the years ended December 31, 2004 and 2003.

The M D & A contains terms commonly used in the oil and gas industry that are not defined by generally accepted accounting principles (GAAP) and therefore are referred to as non-GAAP measures. These non-GAAP measures may not be comparable to the calculation of similar measures for other entities. The term cash flow from operations, as used by the Company, equals funds from operations as reconciled to net income in the statements of cash flows in the unaudited interim financial statements. The Company considers cash flow from operations to be a key measure as it demonstrates the Company's ability to generate funding for future capital investment. The term field netback equals revenue less royalties and operating costs and is presented in total and on a BOE basis. Field netback is considered a key measure in comparing the Company's activities with those of its peers.

Where amounts are expressed on a barrel of oil equivalent basis (BOE), natural gas volumes have been converted to barrels of oil at six thousand cubic feet per barrel. BOE's may be misleading, particularly if used in isolation. A BOE conversion ratio of 6 Mcf: 1 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.

Revenue and Production

Petroleum and natural gas revenue increased 41 percent to $5.2 million in the third quarter of 2005 compared to the third quarter of 2004 due to increased production and commodity pricing. Commodity pricing increases contributed 86 percent of the revenue growth. Average daily production volumes increased five percent to average 1,012 BOE per day (73 percent natural gas) in the third quarter of 2005 compared to the 2004 period.

Natural gas production increased four percent over the comparable period due to new production from the Inland area. Production of oil and natural gas liquids increased seven percent to 276 barrels per day, from 258 barrels per day in the third quarter of 2004, as the result of new oil production from the Ante Creek area. Production from the Ante Creek area currently represents approximately 50 percent of total production. Production at Ante Creek was disrupted during the month of August due to construction activities and plant turnaround. Production in the third quarter of 2005 of 1,012 BOE per day decreased slightly from second quarter production of 1,072 BOE per day.

The average sales price received increased 34 percent to $55.97 per BOE in the third quarter of 2005 from $41.72 per BOE in the comparable period of 2004. Natural gas prices increased 36 percent to average $8.53 per Mcf in the third quarter of 2005 compared to $6.25 per Mcf in the same period of 2004 while prices received for oil and natural gas liquids increased 29 percent to average $68.77 per barrel.

The Company enters into physical contracts for the sale of natural gas at fixed prices and terms to protect cash flow against price volatility. The price realized on the sale of natural gas decreased by $1.27 per Mcf in the third quarter of 2005 (increased by $0.01 per Mcf in the 2004 period) as a result of these contracts compared to daily spot prices. Currently, the Company has contracted an average of 2.2 MMcf of natural gas per day for the period from October 1, 2005 to March 31, 2006 at an average price of approximately $10.41 per Mcf. The Company has not contracted any natural gas liquids or oil.



Operations Summary

Three months ended September 30 (1) (unaudited)
--------------------------------------------------
2005 2004
------------------------ ------------------------
$000's $/BOE % $000's $/BOE %
---------------------------------------------- ------------------------
Petroleum & natural
gas revenue $ 5,211 $ 55.97 100.0 $ 3,695 $ 41.72 100.0
Royalties, net of ARTC 827 8.88 15.9 579 6.54 15.7
Operating costs 798 8.57 15.3 601 6.78 16.3
---------------------------------------------- ------------------------
Field netback $ 3,586 $ 38.52 68.8 $ 2,515 $ 28.40 68.1
General &
administrative (2) 117 1.25 2.2 75 0.85 2.0
Cash interest 58 0.63 1.1 (4) (0.05) (0.1)
---------------------------------------------- ------------------------
Cash flow from
operations $ 3,411 $ 36.63 65.5 $ 2,444 $ 27.60 66.1
Stock based compensation - - - 15 0.17 0.4
Depletion, depreciation
& accretion 2,151 23.10 41.3 1,994 22.51 54.0
Future income taxes 421 4.53 8.1 169 1.91 4.6
---------------------------------------------- ------------------------
Net income $ 838 $ 9.00 16.1 $ 266 $ 3.01 7.2
---------------------------------------------- ------------------------
---------------------------------------------- ------------------------

(1) Columns may not add in the above table due to rounding
(2) Net of non-cash stock based compensation expense


Royalties, net of ARTC, on a barrel of oil equivalent basis, increased 36 percent from $6.54 in the third quarter of 2004 to $8.88 in the third quarter of 2005. This increase resulted mainly from higher commodity pricing received in the 2005 period and the higher crown royalty rates at Ante Creek. Operating costs increased to $8.57 per BOE for the third quarter of 2005 versus $6.78 per BOE in the comparable period ($7.20 per BOE in the second quarter of 2005). Operating costs increased in the third quarter of 2005, from the second quarter of 2005, due to higher costs incurred in the Ante Creek area associated with the plant turnaround and additional trucking due to pipeline constraints.

Gross general and administrative expenses, before overhead recovered and stock based compensation expense, increased in 2005 compared to 2004 as a result of increased staffing, higher office rent and the increasing costs of the annual independent evaluations. Gross general and administrative expenses on a per unit basis increased to $2.04 per BOE in the third quarter of 2005 compared to $1.35 in the comparable period. General and administrative expenses, net of overhead recovered and stock based compensation expense, increased to $1.25 per BOE in the third quarter of 2005 versus $1.02 per BOE in the comparable period.

Interest expense exceeded interest income by approximately $58,000 in the third quarter of 2005. Interest income, net of interest expense, of approximately $4,000 was earned in the comparable period of 2004. The Company is not currently taxable on income and does not have any operations outside of Alberta.

Cash flow from operations increased 40 percent to $3.4 million in the third quarter of 2005 ($2.4 million in the 2004 period) mainly as a result of increased commodity pricing, partially offset by increased operating costs. On a barrel of oil equivalent basis, cash flow from operations increased 33 percent to $36.63 per BOE in the 2005 period ($27.60 per BOE in 2004). Cash flow per share for the third quarter of 2005 increased 25 percent to $0.10 per share compared to $0.08 per share in the 2004 period.

The weighted average number of shares outstanding increased seven percent to 33,460,074 for the third quarter of 2005 (31,261,161 for the third quarter of 2004) due mainly to the private placement of 2,000,000 shares in December 2004. On September 26, 2005 the Company completed a private placement of 1,500,000 flow-through common shares for gross proceeds of $3.3 million. The Company will expend the flow-through proceeds on qualifying expenditures during the remainder of 2005 and 2006. When the flow-through expenditures are renounced to investors the resulting future income tax liability will be recorded. As at November 15, 2005 total common shares outstanding are 34,878,552 and 1,325,000 options are outstanding.

Depletion, depreciation and accretion increased to $23.10 per BOE in the third quarter of 2005 versus $22.51 per BOE in the comparable period of 2004. Depletion, depreciation and accretion increased on a per unit basis due to a higher depletable base resulting from the third quarter expenditures. No additional reserves were recorded in the third quarter due to limited drilling activities. The provision for future income taxes increased in the third quarter of 2005 versus the 2004 period due to the increase in pre-tax income and the impact of income tax rate reductions in the comparable period.

Net income for the third quarter of 2005 was $838,394 compared to $266,305 in the 2004 period mainly as a result of increased commodity pricing offset by increased operating costs and increases in the non-cash provisions for depletion and future income taxes. Net income per share for the period was $0.03 per share ($0.01 in 2004).

Capital expenditures of $4.2 million in the third quarter were funded mainly from cash flow and the utilization of banking facilities. At September 30, 2005 the Company had a working capital deficiency of $3.3 million. Bank facilities of $10 million were available at September 30, 2005. Additional capital expenditures in 2005 will be financed through cash flow and the utilization of credit facilities.



Summary of quarterly results (unaudited)

Quarter Ended December 31, March 31, June 30, September
2004 2005 2005 30, 2005
--------- --------- --------- ---------
Revenue before royalties $ 4,032 $ 4,791 $ 4,878 $ 5,211
Cash flow from operations 2,479 2,983 3,366 3,411
Per share - basic and diluted 0.08 0.09 0.10 0.10
Net income 559 662 983 838
Per share - basic and diluted 0.02 0.02 0.03 0.03
Production (BOE/d) 984 1,113 1,072 1,012

Quarter Ended December 31, March 31, June 30, September
2003 2004 2004 30, 2004
--------- --------- --------- ---------
Revenue before royalties $ 2,196 $ 2,680 $ 3,127 $ 3,695
Cash flow from operations 1,391 1,614 2,107 2,444
Per share - basic and diluted 0.06 0.06 0.07 0.08
Net income (151) 236 312 266
Per share - basic and diluted (0.01) 0.01 0.01 0.01
Production (BOE/d) 660 712 796 963


Quarterly revenues and cash flows have increased quarterly to reflect higher production volumes and commodity pricing. Net income declined in the final quarter of 2003 due to increases in non-cash provisions for depletion and future income taxes as a result of reserve revisions. Thereafter, net income increased quarterly reflecting increased production and commodity pricing until the third quarter of 2005 when net income was reduced by the non-cash provisions for depletion and future income taxes.

OUTLOOK

In September, Raven resumed drilling at Ante Creek, where the Company has 15 oil wells. Seven additional wells are scheduled for the Ante Creek property by year end. To date, four of these wells have been drilled, resulting in four gross (2.6 net) oil wells. The fifth well is currently been drilled. These new wells are currently being completed and will be placed on production once pipelines and wellsite facilities are completed. Continued exploration and development drilling is planned in 2006 on Raven's large undeveloped land position (in excess of 31,000 net acres of land) in the Ante Creek area.

In October, Raven participated in the drilling of three gross (2.1 net) additional wells in the Inland area. This drilling resulted in two gross (1.4 net) natural gas wells and one dry and abandoned well. The Company recently completed the construction of eight kilometres of pipelines and the associated production facilities which were delayed by weather earlier in the year. This infrastructure will allow for natural gas production from four additional wells in mid November, 2005. Further seismic is being shot in the fourth quarter and follow up drilling activities are planned for the Inland area.

Raven also has an inventory of other prospects on existing land holdings in west central Alberta. One well is planned by year end for each of the Bigstone and Goose River areas. Raven also farmed out three sections of 100% lands at Kakwa where an industry partner will drill a 3,400 meter test well this winter. Undeveloped land holdings within Alberta totaled 78,300 gross (71,700 net) acres at an average 92 percent working interest. At September 30, 2005 the Company had a working capital deficiency of $3.3 million and a current banking facility of $10 million.

Certain statements throughout this interim report, including management's assessment of the Company's future plans and operations are forward-looking statements that involve substantial known and unknown risks and uncertainties. These risks and uncertainties include, among others: risks associated with oil and gas exploration, production, marketing, and transportation such as loss of market, volatility of commodity prices, currency fluctuations, uncertainty of reserve estimates, environmental risks, competition from other producers and ability to access sufficient capital from internal and external sources. Accordingly, events or circumstances could cause actual results to differ materially from those predicted.



RAVEN ENERGY LTD.
Balance Sheets

September 30, December 31,
2005 2004
------------- -------------
(unaudited) (audited)
Assets
Current assets
Cash and cash equivalents $ 1,043 $ 621,293
Accounts receivable 2,926,852 2,106,947
Prepaid expenses and deposits 84,071 113,411
------------- -------------
3,011,966 2,841,651

Petroleum and natural gas properties 47,824,889 40,024,437
------------- -------------
$50,836,855 $42,866,088
------------- -------------
------------- -------------

Liabilities and Shareholders' Equity
Current liabilities
Accounts payable and accrued liabilities $ 4,098,810 $ 5,705,124
Bank debt (note 1) 2,256,000 -
------------- -------------
6,354,810 5,705,124

Asset retirement obligations 2,248,400 1,772,800

Future income taxes 6,431,600 4,194,700

Shareholders' equity
Share capital (note 2) 26,632,980 24,546,378
Contributed surplus 303,473 264,937
Retained earnings 8,865,592 6,382,149
------------- -------------
35,802,045 31,193,464
------------- -------------
$50,836,855 $42,866,088
------------- -------------
------------- -------------

See accompanying notes to financial statements.


RAVEN ENERGY LTD.
Statements of Income and Retained Earnings
(unaudited)

Three Months Ended Nine Months Ended
------------------------ ------------------------
September 30, September 30,
------------------------ ------------------------
2005 2004 2005 2004
------------ ----------- ----------- ------------

Revenue
Petroleum and
natural gas $ 5,211,256 $ 3,695,155 $14,880,343 $ 9,502,021
Royalties, net of
Alberta Royalty Tax
Credit (826,975) (579,041) (2,197,072) (1,455,907)
------------------------ ------------------------
4,384,281 3,116,114 12,683,271 8,046,114

Expenses
Operating 798,177 600,927 2,317,556 1,588,013
General and
administrative 116,850 89,741 502,905 366,171
Interest 58,360 (4,009) 142,167 (27,649)
Depletion, depreciation
and accretion 2,151,100 1,994,050 6,150,600 5,210,550
------------------------ ------------------------
3,124,487 2,680,709 9,113,228 7,137,085
------------------------ ------------------------
Income before
income taxes 1,259,794 435,405 3,570,043 909,029

Future income taxes 421,400 169,100 1,086,600 94,085
------------------------ ------------------------

Net income 838,394 266,305 2,483,443 814,944

Retained earnings,
beginning of period 8,027,198 5,556,573 6,382,149 5,007,934
------------------------ ------------------------
Retained earnings,
end of period $8,865,592 $ 5,822,878 $ 8,865,592 $ 5,822,878
------------------------ ------------------------
------------------------ ------------------------

Earnings per share
- basic and diluted $ 0.03 $ 0.01 $ 0.07 $ 0.03
------------------------ ------------------------
------------------------ ------------------------

Weighted average number
of common shares
outstanding - basic 33,460,074 31,261,161 33,406,025 29,952,275
------------------------ ------------------------
------------------------ ------------------------
Weighted average number
of common shares
outstanding - diluted 33,699,962 31,501,345 33,638,800 30,298,091
------------------------ ------------------------
------------------------ ------------------------

See accompanying notes to financial statements


RAVEN ENERGY LTD.
Statements of Cash Flows
(unaudited)

Three Months Ended Nine Months Ended
------------------------ ------------------------
September 30, September 30,
------------------------ ------------------------
2005 2004 2005 2004
------------ ----------- ----------- ------------

Cash provided by (used in):

Operating activities
Net income $ 838,394 $ 266,305 $ 2,483,443 $ 814,944
Items not involving cash:
Stock based compensation - 14,763 38,536 45,270
Depletion, depreciation
and accretion 2,151,100 1,994,050 6,150,600 5,210,550
Future income taxes 421,400 169,100 1,086,600 94,085
------------------------ ------------------------
Funds from operations 3,410,894 2,444,218 9,759,179 6,164,849
Change in non-cash
working capital (287,547) 148,629 (228,189) (20,605)
------------------------ ------------------------
3,123,347 2,592,847 9,530,990 6,144,244

Financing activities
Bank debt (1,923,000) 370,000 2,256,000 370,000
Issue of share capital,
net of issuance costs 3,236,902 84,000 3,236,902 6,679,596
Change in non-cash
working capital 20,063 - 16,927 (11,253)
------------------------ ------------------------
1,333,965 454,000 5,509,829 7,038,343

Investing activities
Petroleum and natural
gas properties (4,171,787) (2,942,681)(13,475,452)(15,332,755)
Change in non-cash
working capital (285,095) (2,609,452) (2,185,617) (2,467,098)
------------------------ ------------------------
(4,456,882) (5,552,133)(15,661,069)(17,799,853)
------------------------ ------------------------
Increase (decrease) in
cash and cash equivalents 430 (2,505,286) (620,250) (4,617,266)

Cash and cash equivalents,
beginning of period 613 2,507,840 621,293 4,619,820
------------------------ ------------------------
Cash and cash equivalents,
end of period $ 1,043 $ 2,554 $ 1,043 $ 2,554
------------------------ ------------------------
------------------------ ------------------------

See accompanying notes to financial statements

Supplemental cash flow information:

Cash paid (received)
during the period for:
Interest expense $ 57,970 $ (4,009) $ 122,725 $ (35,503)


RAVEN ENERGY LTD.
Notes to Financial Statements
Nine months ended September 30, 2005
(unaudited)


The interim financial statements of Raven Energy Ltd. ("Raven" or the "Company") have been prepared by management in accordance with accounting principles generally accepted in Canada. The interim financial statements have been prepared following the same accounting policies and methods of application as the financial statements for the fiscal year ended December 31, 2004, except as noted below. The disclosures provided below are incremental to those included with the annual financial statements. The interim financial statements should be read in conjunction with the financial statements and notes thereto in the Company's annual report for the year ended December 31, 2004.

1. Bank debt:

The Company has access to a demand revolving facility of $10,000,000 from a Canadian chartered bank. The credit facility bears interest at the bank's prime rate plus 0.50% per annum and is secured by a general security agreement constituting a first ranking security interest in all personal property and a first ranking charge on all real property.

2. Share capital:

(a) Authorized:

The authorized share capital consists of an unlimited number of common shares without nominal or par value and an unlimited number of preferred shares, issuable in series. No preferred shares have been issued.



(b) Common shares issued:

Number of Shares Amount
----------------- ------------
Balance, December 31, 2004 33,378,552 $24,546,378
Income tax effect of flow-through
shares issued in 2004 - (1,172,100)
Private placement 1,500,000 3,300,000
Share issue costs - (63,098)
Income tax effect of share issue costs - 21,800
----------------- ------------
Balance, September 30, 2005 34,878,552 $26,632,980
----------------- ------------
----------------- ------------


On September 26, 2005 the Company completed a private placement of 1,500,000 flow-through common shares at a price of $2.20 per share for gross proceeds of $3,300,000. Directors and officers of the Company subscribed for 157,000 flow-through common shares for consideration of $345,400.

c) Stock option plan:

The Company has a stock option plan as described in note 7(d) of the December 31, 2004 financial statements. There were no changes in the Company's stock option plan during the first nine months of 2005. The following table summarizes information about the stock options outstanding at September 30, 2005:



Options Outstanding Options Exercisable
---------------------------------- ---------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
exercise Number Contractual Exercise Number Exercise
prices Outstanding Life (Years) Price Exercisable Price
----------------------------------------------- ---------------------
$1.00 - 1.39 450,000 2.3 $1.00 450,000 $1.00
$1.40 - 1.79 200,000 0.7 $1.40 200,000 $1.40
$1.80 - 2.00 100,000 3.4 $1.80 100,000 $1.80
----------------------------------------------- ---------------------
$1.00 - 2.00 750,000 2.0 $1.21 750,000 $1.21
----------------------------------------------- ---------------------
----------------------------------------------- ---------------------


2. Share capital:

c) Stock option plan:

On October 6, 2005 the Company granted 575,000 stock options to its directors, officers, consultants and employees at an exercise price of $1.85 per share. A total of 400,000 of these options were granted to directors and officers of Raven and vest in full upon granting. All stock options granted expire five years from the date of grant.

3. Financial instruments:

The Company has a price risk management program whereby the commodity price associated with a portion of its future production is fixed. The Company has entered into fixed price sales contracts for a portion of its future gas production resulting in an average contracted volume of 2.4 million cubic feet per day for the month of October 2005 at a weighted average contract price of $6.90 per thousand cubic feet and 2.2 million cubic feet per day for the period November 1, 2005 to March 31, 2006 at a weighted average contract price of $11.19 per thousand cubic feet.

The TSX Venture Exchange does not accept responsibility for the adequacy or accuracy of this release.

Contact Information

  • Raven Energy Ltd.
    Laurie Smith
    President & Chief Executive Officer
    (403) 264-9058