Redcliffe Exploration Inc.
TSX VENTURE : RXP.A
TSX VENTURE : RXP.B

Redcliffe Exploration Inc.

August 25, 2009 19:37 ET

Redcliffe Announces Q2 2009 Financial Results

CALGARY, ALBERTA--(Marketwire - Aug. 25, 2009) -

THIS NEWS RELEASE IS NOT FOR DISSEMINATION IN THE UNITED STATES OR TO U.S. PERSONS.

Redcliffe Exploration Inc. ("Redcliffe" or the "Company") (TSX VENTURE:RXP.A) (TSX VENTURE:RXP.B) is pleased to announce that it has filed its unaudited interim consolidated financial statements and related Management's Discussion and Analysis as of and for the three and six months ended June 30, 2009 with Canadian securities regulatory authorities. These filings are available for review at www.sedar.com.

Q2/H1 2009 Highlights:

- Production for the six months ended June 30, 2009 increased 9% to 1,043 boe/d compared to 948 boe/d for the corresponding period in 2008. This increase would have been larger had the Company not experienced extensive shut-ins of third-party processing and compression facilities in the Gold Creek and Wapiti area lasting approximately seven weeks and four weeks, respectively, at the two systems processing Gold Creek and Wapiti gas. As a result, production for Q2 2009 averaged 791 boe/d versus 983 boe/d for Q2 2008.

- Net debt decreased 15% to $7,333,000 at June 30, 2009, compared to $8,587,000 at December 31, 2008. This compares to Redcliffe's bank lines at June 30, 2009 of $14.1 million. The decrease was primarily the result of completing the first tranche of a private placement equity financing on June 30, 2009 for gross proceeds of $4,385,750. In July, the Company completed the second tranche of the private placement financing for additional gross proceeds of $314,250, as well as a public offering for gross proceeds of $3,500,000. On a pro forma basis, after giving effect to the subsequent financings, net debt would be approximately $4.4 million at June 30, 2009.

- Net capital expenditures totaled $685,000 for Q2 2009 and $2,641,000 for the six months ended June 30, 2009. Redcliffe participated in the drilling of 2 (1.43 net) wells during Q2 2009 resulting in 1 (1.0 net) natural gas well and 1 (0.43 net) dry and abandoned well, for an overall net success rate of 70%. The gas well was tested at rates of over 2,000 mcf/d and is expected to be tied in during Q3 2009. Production is expected to commence once natural gas prices strengthen.

- Petroleum and natural gas sales decreased 39% to $2,162,000 and 61% to $6,877,000 for the three and six months ended June 30, 2009, respectively, compared to the corresponding periods in 2008. This was primarily caused by a decrease in product prices realized of 44% and 59% for the respective periods in 2009 compared to 2008, and has had a corresponding impact on cash flows from operations in 2009.



Three months Six months
ended ended
June 30 June 30
--------------------------------------
Financial 2009 2008 2009 2008
----------------------------------------------------------------------------
($ thousands, except per share amounts)

Petroleum and natural gas sales 2,162 6,565 6,877 11,282
Funds from operations (1) 747 2,854 2,635 5,010
Per basic and diluted share 0.01 0.04 0.03 0.07
Cash provided by operating activities 6 2,456 1,265 4,555
Per basic and diluted share - 0.03 0.01 0.06
Net loss and comprehensive loss 1,147 310 2,415 1,224
Per basic and diluted share 0.01 - 0.03 0.02
Capital expenditures, net 685 4,413 2,641 8,622
Basic and diluted weighted-average
shares (thousands) 92,446 76,729 91,718 73,036

Capital Structure June 30, 2009 December 31, 2008
----------------------------------------------------------------------------
($ thousands, except share amounts)

Working capital deficiency (2) 439 4,885
Bank debt 7,333 8,587
Net debt (3) 7,772 13,472
Total assets 62,156 66,683
Shares outstanding (thousands)
Class A (4) 95,051 74,235
Class B 1,494 1,494

Three months Six months
ended ended
June 30 June 30
--------------------------------------
Operations 2009 2008 2009 2008
----------------------------------------------------------------------------

Daily production
Crude oil and condensate (bbl/d) 151 188 187 151
Natural gas liquids (bbl/d) 101 124 141 141
Natural gas (mcf/d) 3,233 4,027 4,287 3,939
Oil equivalent (boe/d @ 6:1) 791 983 1,043 948
Per million diluted shares 8.6 12.7 11.4 12.9
Average prices (5)
Crude oil and condensate ($/bbl) 62.02 128.69 53.77 116.32
Natural gas liquids ($/bbl) 20.25 55.85 23.64 55.92
Natural gas ($/mcf) 3.82 10.19 5.57 9.27
Oil equivalent ($/boe) 30.04 73.38 36.44 65.36
Netback
Operating netback ($/boe) (6) 18.80 44.31 19.36 38.60
Realized gain (loss) on financial
derivatives ($/boe) - (2.69) (0.94) (1.40)
General and administrative ($/boe) (6.79) (8.19) (5.17) (6.66)
Interest ($/boe) (1.63) (1.54) (1.16) (1.53)
Funds from operations ($/boe) 10.38 31.89 13.97 29.01
Drilling activity
Gross wells 2.00 3.00 3.00 3.00
Net wells 1.43 2.50 1.63 2.50
Success rate, net wells 70% 100% 74% 100%

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(1) Funds from operations is calculated as cash provided by operating
activities and adding changes in non-cash working capital and asset
retirement expenditures, if any. Funds from operations is used to
analyze the Company's operating performance and leverage. Funds from
operations does not have a standardized measure prescribed by GAAP and
therefore may not be comparable with calculations of similar measures
for other companies.
(2) Working capital deficiency includes only accounts receivable, prepaid
expenses and deposits, and accounts payable and accrued liabilities.
(3) Net debt represents the sum of working capital deficiency and bank debt.
(4) The Company completed additional equity financings subsequent to June
30, 2009, resulting in the issuance of an additional 15,257,000 Class A
shares. As of the date hereof, the Company has 110,307,788 Class A
shares outstanding.
(5) Average prices are before the deduction of transportation costs; oil
equivalent includes sulphur sales.
(6) Operating netback equals petroleum and natural gas sales less royalties,
operating expenses and transportation costs, calculated on a boe basis.
Operating netback does not have a standardized measure prescribed by
GAAP and therefore may not be comparable with the calculation of similar
measures for other companies.


Production & Operations:

Operationally, Redcliffe continued to closely monitor capital spending in Q2 2009, spending only $1,257,000 as we focused on strengthening our balance sheet in a decreasing natural gas price environment. This capital was financed by the sale of certain minor interest properties for $572,000 and cash flows from operations in the quarter. The Company participated in the drilling of two wells in the Pembina area during the quarter. This drilling resulted in a natural gas well at 12-27 (WI 100%) that tested over 2,000 mcf/d. Redcliffe expects to complete a short tie-in during Q3 2009 but not bring the well on stream until late fall when gas prices are anticipated to show some recovery. The other well drilled in the area (WI 43%) was unsuccessful.

At Redcliffe's Gold Creek/Wapiti/Karr core area there was no drilling in Q2 2009. The previously drilled 1-27 (WI 38%) potential multi-zoned gas well is expected to be completed and tested in Q3 2009 but is not expected to be brought on production until late fall or winter for gas pricing reasons. Similarly, the previously tested 16-27 discovery (WI 30%) will remain shut-in pending gas price improvement. Redcliffe will, however, continue to grow prospect inventory in this core area and to enhance its position in the emerging Montney and Nikanassin tight sand plays as well as the traditional multi-zoned gas/condensate targets in the area. Redcliffe has interests in over 100 gross sections of land within this core focus area.

Redcliffe has planned the drilling of 2-3 gas prospects in Q4 2009 and a further 2 gas prospects in Q1 2010, including its first well in the Karr horizontal Montney play. In Pembina, 1-2 oil prospects are also scheduled to be drilled prior to year-end.

Production in Q2 2009 was negatively impacted by longer than anticipated third-party processing plant and compressor station maintenance activities in Gold Creek and Wapiti lasting approximately seven weeks and four weeks, respectively, at the two systems processing Gold Creek and Wapiti gas. In addition, again due to natural gas pricing concerns, productive zones within certain producing wells were not brought on production once capacity to produce was returned in the third quarter. Redcliffe is currently producing at approximately 1,000 - 1,050 boe/d with an estimated 200 - 300 boe/d shut-in. This does not include the potential contribution from the 1-27 Gold Creek discovery scheduled to be completed in Q3 2009. Analysis of the drilling information to date suggests a potential for this well to produce 100 - 200 boe/d net to Redcliffe from the three prospective zones.

Outlook:

The impact of significantly lower commodity prices, especially natural gas prices, has resulted in lower than expected funds from operations in 2009 compared to 2008 despite increasing production rates. This reduced cash flow for re-investment, combined with the uncertainty as to the timing of natural gas price recovery, continues to impact capital spending and growth over the near term. Redcliffe has taken immediate measures to reduce overhead and operating costs as well as defer new production until gas prices rebound.

In the longer term, Redcliffe remains committed to the development of the potentially significant resource base within its Peace River Arch acreage inventory. To finance this growth the Company has taken numerous steps this year to increase financial strength. In Q1 2009, we completed the acquisition of First Western Financial, which added approximately $1.6 million in capital. In Q2 2009 we sold interests in some non-core properties for $572,000 and also undertook two equity financings in late Q2 2009 and early Q3 2009 for aggregate gross proceeds of $8.2 million. This included major investments by significant investors based in both Calgary and Frankfurt, Germany.

These measures place Redcliffe in a stable financial position to initiate drilling activity if natural gas prices strengthen this winter. It also provides us the ability to participate in the acquisition marketplace due to the inability of most small juniors to finance any capital activity. The Company has established itself with drilling success and an unequalled land and prospect inventory base for a company of its size in one of the most active natural gas focused areas in Alberta. With a stronger balance sheet, we are uniquely positioned to aggressively develop this potential asset base commencing in the fourth quarter of 2009. The drilling incentives announced by the Alberta government through March 2011 make this basin competitive at lower pricing levels, reducing our capital cost on an average 2,500 meter well by $500,000 and the initial 5% royalty rate accelerates payout. We remain optimistic that gas prices will recover through 2010 and 2011 and therefore anticipate improved cash flows in the future. In addition, we have continued to demonstrate our ability to raise supporting capital in the equity markets. Redcliffe therefore remains optimistic of our growth prospects and our ability to enhance returns to the shareholders over the next few years.

Reader Advisories

Forward-Looking Statements: This news release contains certain forward-looking statements, including management's assessment of future plans and operations, and capital expenditures and the timing thereof, that involve substantial known and unknown risks, uncertainties and assumptions, certain of which are beyond the Company's control. Such risks, uncertainties and assumptions include, without limitation, those associated with oil and gas exploration, development, exploitation, production, marketing, processing and transportation, 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, delays resulting from or inability to obtain required regulatory approvals and ability to access sufficient capital from internal and external sources, the impact of general economic conditions in Canada, the United States and overseas, industry conditions, changes in laws and regulations (including the adoption of new environmental laws and regulations) and changes in how they are interpreted and enforced, increased competition, the lack of availability of qualified personnel or management, fluctuations in foreign exchange or interest rates, stock market volatility and market valuations of companies with respect to announced transactions and the final valuations thereof, and obtaining required approvals of regulatory authorities. The Company's actual results, performance or achievements could differ materially from those expressed in, or implied by, these forward-looking statements and, accordingly, no assurances can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do so, what benefits that the Company will derive there from. Readers are cautioned that the foregoing list of factors is not exhaustive. Additional information on these and other factors that could affect the Company's operations and financial results are included in reports, including the Company's annual information form for the financial year ended December 31, 2008, on file with Canadian securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com). All subsequent forward-looking statements, whether written or oral, attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by these cautionary statements. Furthermore, the forward-looking statements contained in this news release are made as at the date of this news release and the Company does not undertake any obligation to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by applicable securities laws.

BOE may be misleading, particularly if used in isolation. A BOE conversion 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.

Neither the TSX Venture Exchange nor its Regulation Services Provider accepts responsibility for the adequacy or accuracy of this news release.

Contact Information

  • Redcliffe Exploration Inc.
    Daryl H. Connolly
    President & CEO
    (403) 539-8440
    (403) 539-8433 (FAX)
    Email: dconnolly@redcliffe.ca
    or
    Redcliffe Exploration Inc.
    George Gramatke
    Vice President, Finance & CFO
    (403) 539-8442
    (403) 539-8433 (FAX)
    Email: ggramatke@redcliffe.ca