Spartan Exploration Ltd.
TSX : SPE

Spartan Exploration Ltd.

November 15, 2010 07:00 ET

Spartan Exploration Ltd. Enjoys Record Production Growth and Releases Financial and Operating Results for the Three and Nine Months Ended September 30, 2010

CALGARY, ALBERTA--(Marketwire - Nov. 15, 2010) - Spartan Exploration Ltd. ("Spartan" or the "Company") (TSX:SPE), is pleased to provide an operational update on its Pembina Cardium drilling activities and to report on its financial and operating results for the three and nine months ended September 30, 2010. Selected financial and operational information is outlined below and should be read in conjunction with Spartan's interim financial statements and the related management discussion and analysis which are available for review at www.sedar.com or on Spartan's website at www.spartanexp.com.

HIGHLIGHTS

  • Spartan currently has a total of 12 (8.87 net) Cardium horizontal oil wells producing in Pembina. The success of the Company's Cardium drilling program has resulted in significant per share growth in production, reserves and cash flow. Spartan has exceeded its year end exit target of 1,800 boe/d and is currently producing approximately 1,825 boe/d (82% oil and liquids), based on field estimates.

  • During the third quarter, Spartan increased average daily production to 979 boe/d (84% oil and liquids) from 242 boe/d during the third quarter of 2009, representing an increase of 305%; production per share increased by 174% for the quarter, as compared to the quarter ended September 30, 2009, using basic weighted average shares outstanding for each period;

  • Spartan achieved an operating netback of $42.11 per boe and a corporate netback of $40.38, an increase of 9% and 26%, respectively, over the previous quarter, despite a 3% decrease in commodity prices during the same period;

  • Cash flow from operations for the third quarter was $3.64 million, an increase of 438% from cash flow of $676 thousand for the quarter ended September 30, 2009; Spartan generated cash flow per share of $0.13 for the quarter ended September 30, 2010 using basic weighted average shares outstanding;

  • Net earnings for the quarter ended September 30, 2010 was $757 thousand, an increase of 698% from the comparable period in 2009; Spartan generated net earnings per share of $0.03 for the quarter ended September 30, 2010 using basic weighted average shares outstanding;

  • Spartan exited the third quarter with a strong balance sheet. As at September 30, 2010, Spartan had a working capital surplus $2.2 million and an undrawn credit facility of $12.0 million;

  • Spartan drilled 12 (5.87 net) wells in the third quarter; including eight (4.55 net) horizontal Cardium wells in the Pembina area of central Alberta, 2 (0.57 net) Bakken wells and one (0.25 net) water disposal well in southeast Saskatchewan and one (0.50 net) Shaunavon vertical well in southwest Saskatchewan; and

  • During the third quarter, Spartan shot and interpreted a 31 square mile proprietary 3D seismic covering certain of Spartan's lands in southeast Saskatchewan;

Third Quarter Financial Highlights

  Three Months Ended September 30   Nine Months Ended September 30  
  2010 2009 % 2010 2009 %
             
Financial            
             
Total revenue $5,530,697 $1,216,339 355% $10,665,003 $2,646,458 303%
             
Cash flow from operations (1) $3,636,608 $676,251 438% $6,308,015 $1,468,802 329%
  per share – basic $0.13 $0.03   $0.23 $0.08  
  per share – diluted $0.11 n/a   $0.20 n/a  
             
Net earnings $756,994 $94,858 698% $1,026,164 $169,979 504%
  per share – basic $0.03 $0.00   $0.04 $0.01  
  per share – diluted $0.02 n/a   $0.03 n/a  
             
Capital expenditures $13,936,550 $9,409,388 48% $30,941,893 $10,496,888 195%
             
Working capital surplus (deficit) $2,229,685 $(2,901,780)   $2,229,685 $(2,901,780)  
             
Weighted average shares outstanding (2)            
  Basic 28,633,546 19,376,251 48% 27,305,243 19,376,251 41%
  Diluted 33,417,550 19,376,251 72% 32,089,247 19,376,251 66%
             
Operating            
             
Oil equivalent (6:1)            
  Barrels of oil equivalent (000's) 90,083 22,306 304% 169,183 51,193 230%
  Barrels of oil equivalent per day 979 242 305% 620 188 230%
  Total revenue ($CDN per boe) $61.35 $54.55 12% $62.94 $52.22 21%
  Royalties $7.80 $3.30 136% $7.93 $2.39 232%
  Transportation costs (per boe) $1.75 $1.88 (6.9)% $2.07 $1.72 20%
  Operating costs (per boe) $9.74 $10.53 (7.5)% $11.91 $9.70 23%
             
Oil production            
  Barrels (000's) 72,144 15,970 352% 137,921 44,870 208%
  Barrels per day 784 173 353% 505 164 208%
  Average selling price ($CDN per bbl) $69.16 $66.91 3% $69.98 $55.69 26%
             
Gas production            
  Cubic feet (000's) 87,314 28,172 210% 150,130 28,172 433%
  Cubic feet per day 949 308 208% 550 103 434%
  Average selling price ($CDN per mcf) $3.95 $3.22 23% $4.33 $3.22 34%
             
NGL production            
  Barrels (000's) 3,579 1,649 117% 6,460 1,649 292%
  Barrels per day 37 18 106% 23 6 283%
  Average selling price ($CDN per barrel) $53.56 $34.65 55% $53.90 $34.65 56%
               
Operating Netback (per boe) $42.11 $38.84 8% $41.12 $38.41 7%
               
G&A (cash portion per boe) $1.73 $8.30 (79)% $3.84 $9.42 (59)%
               
Corporate netback (per boe) $40.38 $30.54 32% $37.28 $28.99 29%
               
(1) Cash flow from operations is a non-GAAP measurement. 
               
(2) See MD&A. Excludes 883,563 common shares issued to employees on March 1, 2008 in exchange for promissory notes.  In accordance with Canadian Institute of Chartered Accountants ("CICA") Handbook Emerging Issues Committee ("EIC") - 132, "Share Purchase Financing", the Company was required to treat such shares as stock options.  See Note 9 to the December 31, 2009 audited financial statements. 
               
Boe Presentation -- For the purpose of calculating unit revenues and costs, natural gas is converted to a barrel of oil equivalent ("Boe") using six thousand cubic feet ("Mcf") of natural gas equal to one barrel of oil unless otherwise stated. Barrels of oil equivalent ("Boe") may be misleading, particularly if used in isolation. A Boe conversion ratio of six Mcf to one barrel ("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. All Boe measurements and conversions in this report are derived by converting natural gas to oil in the ratio of six thousand cubic feet of gas to one barrel of oil. Mboe means 1,000 Boe. 
 

OUTLOOK

Results from the Company's Cardium drilling program in Pembina continue to exceed expectations. To date, Spartan has drilled or participated in the drilling of 14 (9.82 net) horizontal Cardium oil wells, with a drilling success rate of 100%. The Company currently has a total of 12 (8.87 net) Cardium horizontal oil wells producing in Pembina, with early production results continuing to meet or exceed our expectations. Detailed results for wells that have a minimum of seven days of production are as follows:

  Average Daily Production(1)  
Producing Days Hi Low Average Number of Wells
  (boe/d) (boe/d) (boe/d) (gross/net)
7 days 774 116 (2) 322 9 / 7.13
15 days 702 141 (2) 324 7 / 5.47
30 days 553 161 (2) 306 5 / 4.43
90 days 321 162 222 3 / 3.00
         
(1) Producing day average after recovery of all frac fluids. 
(2) Well was restricted due to third party facilities constraints. 
         

The Company has another 2 (0.95 net) Cardium horizontal wells that have been drilled, completed and are awaiting tie-in and is expecting to drill up to another 4 (3.75 net) Cardium horizontal wells prior to the end of the year.

The success of the Company's Cardium drilling program has resulted in significant per share growth in production, reserves and cash flow. The Company has exceeded its year end exit target of 1,800 boe/d and is currently producing approximately 1,825 boe/d (82% oil and liquids), based on field estimates.

Spartan currently has access to 46.6 (24.4 net) sections of Cardium rights in the Pembina area of central Alberta (owned lands and farmin lands) and maintains a drilling inventory of approximately 147 (86 net) horizontal locations.

In Saskatchewan, during the third quarter Spartan drilled and completed two (0.57 net) Bakken wells and one (0.25 net) water disposal well in southeast Saskatchewan and one (0.50 net) Shaunavon vertical well in southwest Saskatchewan which was completed subsequent to the end of the quarter and is currently suspended.

In addition, the Company shot and interpreted a 31 square mile proprietary 3D seismic covering certain of Spartan's lands in southeast Saskatchewan. Spartan's partner funded 100% of the cost of the seismic program.

Spartan has approximately 68 net sections of undeveloped land in southeast Saskatchewan that is prospective for Bakken and/or Mississippian light oil targets. Approximately 60% of this acreage is on the southern trend between Viewfield and the U.S. border, where significant industry activity is currently taking place. In southwest Saskatchewan, Spartan has approximately 20 net sections of land that is prospective for both Upper and Lower Shaunavon medium gravity oil targets.

The management and directors of Spartan appreciate the support of our shareholders. We remain committed to achieving per share growth for our investors, through the accumulation of a high quality, repeatable inventory of low risk oil drilling prospects.

READER ADVISORY

This press release contains certain forward-looking statements (forecasts) under applicable securities laws relating to future events or future performance. Forward-looking statements are necessarily based upon assumptions and judgements with respect to the future including, but not limited to, the outlook for commodity markets and capital markets, the performance of producing wells and reservoirs, well development and operating performance, general economic and business conditions, weather, the regulatory and legal environment and other risks associated with oil and gas operations. In some cases, forward-looking statements can be identified by terminology such as "may", "will", "should", "expect", "projects", "plans", "anticipates" and similar expressions. These statements represent management's expectations or beliefs concerning, among other things, future operating results and various components thereof affecting the economic performance of Spartan. Undue reliance should not be placed on these forward-looking statements which are based upon management's assumptions and are subject to known and unknown risks and uncertainties, including the business risks discussed above, which may cause actual performance and financial results in future periods to differ materially from any projections of future performance or results expressed or implied by such forward-looking statements. Accordingly, readers are cautioned that events or circumstances could cause results to differ materially from those predicted.

In the interest of providing Spartan shareholders and potential investors with information regarding the Company, including management's assessment of Spartan's future plans and operation, certain statements throughout this press release constitute forward looking statements. All forward-looking statements are based on the Company's beliefs and assumptions based on information available at the time the assumption was made. The use of any of the words "anticipate", "continue", "estimate", "expect", "may", "will", "project", "should", "believe" and similar expressions are intended to identify forward looking statements. By its nature, such forward-looking information involves known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward looking statements. Spartan believes the expectations reflected in those forward looking statements are reasonable but no assurance can be given that these expectations will prove to be correct and such forward looking statements contained throughout this press release should not be unduly relied upon. These statements speak only as of the date specified in the statements.

In particular, this press release may contain forward looking statements pertaining to the following:

  • the performance characteristics of the Company's oil and natural gas properties;
  • oil and natural gas production levels;
  • capital expenditure programs;
  • the quantity of the Company's oil and natural gas reserves and anticipated future cash flows from such reserves;
  • projections of commodity prices and costs;
  • supply and demand for oil and natural gas;
  • expectations regarding the ability to raise capital and to continually add to reserves through acquisitions and development; and
  • treatment under governmental regulatory regimes.

The material assumptions in making these forward-looking statements include certain assumptions disclosed in the Company's most recent management's discussion and analysis included in the material available on this press release.

The Company's actual results could differ materially from those anticipated in the forward looking statements contained throughout this press release as a result of the material risk factors set forth below, and elsewhere in this press release:

  • volatility in market prices for oil and natural gas;
  • liabilities inherent in oil and natural gas operations;
  • uncertainties associated with estimating oil and natural gas reserves;
  • competition for, among other things, capital, acquisitions of reserves, undeveloped lands and skilled personnel;
  • incorrect assessments of the value of acquisitions and exploration and development programs;
  • geological, technical, drilling and processing problems;
  • fluctuations in foreign exchange or interest rates and stock market volatility;
  • failure to realize the anticipated benefits of acquisitions;
  • general business and market conditions; and
  • changes in income tax laws or changes in tax laws and incentive programs relating to the oil and gas industry.

These factors should not be construed as exhaustive. Unless required by law, Spartan does not undertake any obligation to publicly update or revise any forward looking statements, whether as a result of new information, future events or otherwise.

Barrels of oil equivalent (boe) may be misleading, particularly if used in isolation. A boe conversion ratio of six thousand cubic feet (mcf) of natural gas to one barrel (bbl) of oil is based on an energy conversion method primarily applicable at the burner tip and is not intended to represent a value equivalency at the wellhead. All boe conversions in this press release are derived by converting natural gas to oil in the ratio of six thousand cubic feet of natural gas to one barrel of oil. Certain financial amounts are presented on a per boe basis, such measurements may not be consistent with those used by other companies.

Readers are further cautioned that the preparation of financial statements in accordance with Canadian generally accepted accounting principles ("GAAP") requires management to make certain judgements and estimates that affect the reported amounts of assets, liabilities, revenues and expenses. Estimating reserves is also critical to several accounting estimates and requires judgments and decisions based upon available geological, geophysical, engineering and economic data. These estimates may change, having either a negative or positive effect on net earnings as further information becomes available, and as the economic environment changes.

Cash flow from operations and operating netbacks are not recognized measures under GAAP. Management of Spartan believe that in addition to net income, cash flow from operations and operating netbacks are useful supplemental measures as they demonstrate an ability to generate the cash necessary to repay debt or fund future growth through capital investment. Readers are cautioned, however, that these measures should not be construed as an alternative to net income determined in accordance with GAAP as an indication of Spartan's performance. Spartan's method of calculating these measures may differ from other companies and, accordingly, they may not be comparable to measures used by other companies. For these purposes, Spartan defines cash flow from operations as cash provided by operations before changes in non-cash operating working capital and defines operating netbacks as revenue less royalties and operating expenses.

Readers are also cautioned that this press release may contain the term reserve life index, which is not a recognized measure under GAAP. Management believes that this measure is a useful supplemental measure of the length of time the reserves would be produced over at the rate used in the calculation. Readers are cautioned, however, that this measure should not be construed as an alternative to other terms determined in accordance with GAAP as a measure of performance. The method of calculating this measure may differ from other companies, and accordingly, they may not be comparable to measures used by other companies.

Contact Information

  • Spartan Exploration Ltd.
    Richard F. McHardy
    President & CEO
    (403) 294-9196
    (403) 294-9126 (FAX)
    or
    Spartan Exploration Ltd.
    Michelle A. Wiggins
    Vice President Finance & CFO
    (403) 294-9196
    (403) 294-9126 (FAX)
    or
    Spartan Exploration Ltd.
    1000, 606 - 4th Street SW
    Calgary, Alberta
    www.spartanexp.com