Skope Energy Inc.

Skope Energy Inc.

February 07, 2012 19:38 ET

Skope Energy Inc. Announces an Amendment to Credit Facility and Provides an Operational Update

CALGARY, ALBERTA--(Marketwire - Feb. 7, 2012) - Skope Energy Inc. ("Skope" or the "Company") (TSX:SKL) announced today that it has signed an amendment to its existing credit facility ("Credit Facility"). Skope is also pleased to announce an operational update and results of its horizontal Mannville well at Pendor.

Credit Facility Amendment

The Company has agreed with its lender to reduce the outstanding principal amount under the Credit Facility to a deemed borrowing base of $57 million and the lender has agreed to extend the Credit Facility to May 31, 2012. Skope has also agreed to convert the Credit Facility to a demand type facility and to make monthly payments from positive net cash flow (net of capital spending sufficient to maintain stable production) and to apply net proceeds of any equity or debt financings sufficient to reduce the outstanding amount under the Credit Facility to $25 million or less. The lender has the option to extend the Credit Facility beyond May 31, 2012 at its discretion.

Various other amendments have been made to the Credit Facility including increased interest rates and structuring fees and certain operating and capital spending targets sufficient to keep production stable during the extension period.

Skope is in discussion with a number of capital providers for equity, debt and/or other financing alternatives and is currently contemplating the best option to maximize shareholder value. Net proceeds from any alternative financing will be applied to further reduce outstanding amounts under the Credit Facility to $25 million or less and to fund potential future acquisitions. Skope expects that alternative financing will be in place on or prior to May 31, 2012.

Operational Update

Skope's operations continue to exceed expectations. Despite lower commodity prices in the past year, Skope continues to generate positive free cash flow and has repaid $8 million of long term bank debt well in advance of its original budget and has positive working capital (before debt payments). This is largely the result of capital spending efficiencies and commodity price hedging activities.

The Company currently has approximately 54% of anticipated net production for calendar 2012 hedged at an average price $4.21 per Mcf. As at the date hereof, the unrealized mark-to-market value of Skope's commodity hedges is approximately $9.9 million.

Lower Decline Rate

Production has remained steady in the range of approximately 25 to 26 mmcf/d with only $5.6 million of capital spent in calendar year 2011, including five horizontal wells drilled during calendar 2011. Decline rates on production have moderated from 17% at acquisition to the current rate of approximately 8% to 10%. This is largely the result of focused field operations including swabbing, recompletions and workover operations. Production has been running at approximately 10% above the proved plus probable curve indicated in Skope's March 31, 2011 independent engineering report.

As a result of its hedging program and low operating costs, Skope continues to have surplus operating cash flow over maintenance capital, providing discretionary cash flow to further repay debt.

Mannville Well

Skope drilled the 16-7-1-8W4 horizontal Mannville well which was brought on stream on January 6, 2012. The well was drilled to a depth of 850 meters using monobore technology and included a 730 meter horizontal section and was completed with 10 fracture treatments. Since the well came on stream, production has been steady at 25 bbl/d of 37 degree API light oil, and 1.0 mmcf/d of natural gas (192 boe/d). The total gross cost of the well was approximately $0.8 million ($0.6 million net to Skope). Skope and its partner, Spur Resources, have identified follow-up Mannville locations to be drilled upon partner approval. Skope has an 80% interest in the well. The results of this Mannville well are early stage and may not be reflective of future production results.

Skope Energy Inc.

Skope is in the business of oil and natural gas acquisition, development and production in Western Canada with a focus on shallow natural gas. Skope owns an 80% working interest in a package of high quality, long-term, low decline producing shallow gas assets, located in southeast Alberta and southwest Saskatchewan.

Skope's common shares are listed on the Toronto Stock Exchange under the symbol "SKL".

Forward-Looking Statements

This news release contains forward looking statements. These statements relate to future events or the Company's future performance. All information and statements contained herein that are not clearly historical in nature constitute forward looking statements, and the words "may", "will", "should", "could", "expect", "plan", "intend", "anticipate", "believe", "estimate", "propose", "predict", "potential", "continue", or the negative of these terms or other comparable terminology are generally intended to identify forward looking statements. These statements involve known or unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward looking statements. Undue reliance should not be placed on these forward looking statements, as there can be no assurance that the plans, intentions or expectations upon which they are based will occur. In particular, forward looking statements in this press release include, but are not limited to, the Company's anticipated 2012 production, future hedging activities, plans to reduce the Company's indebtedness under the Credit Facility, future extensions of the Credit Facility, the Company's plans to secure replacement debt and or equity financing and on the timing contemplated, and the anticipated benefits and use of proceeds therefrom. In addition, this news release contains early production results from Skope's recent Mannville well. The initial results are not necessarily indicative of long-term performance or of ultimate recovery.

Management has included forward-looking information in this press release in order to provide security holders with a more complete perspective on the Company's future operations and such information may not be appropriate for other purposes. These forward-looking statements are based on certain assumptions and are subject to a number of risks. Investors are cautioned that such information, although considered reasonable by the Company, may prove to be incorrect.

Actual results achieved will vary from the information provided in this news release as a result of numerous known and unknown risks and uncertainties including, the availability of capital on acceptable terms or at all, the risk that the Company's Credit Facility will not be renewed or renewed on the same terms, general economic, market and business conditions, volatility in market prices for crude oil and natural gas and hedging activities related thereto, limited, unfavourable, or a lack of access to external sources of capital, risks associated with the oil and gas industry in general such as operational risks in development, exploration and production; delays or changes in plans with respect to exploration or development projects or capital expenditures; the uncertainty of reserve estimates; the uncertainty of estimates and projections relating to test rates, reserves, production, costs and expenses; health, safety and environmental risks; environmental risks; competition; and changes in legislation, including but not limited to tax laws, royalties and environmental regulations.

Readers are cautioned that the foregoing lists of factors are not exhaustive. The forward-looking statement disclosure contained in this press release is expressly qualified by this cautionary statement.

These forward-looking statements are made as of the date of this press release and the Company disclaims any intent or obligation to update publicly any forward-looking statements, whether as a result of new information, future events or results or otherwise, other than as required by applicable securities laws.

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