Stonefire Energy Corp.

Stonefire Energy Corp.

August 15, 2008 09:00 ET

Stonefire Energy Corp. Announces 2008 Second Quarter Financial Results

CALGARY, ALBERTA--(Marketwire - Aug. 15, 2008) -


Stonefire Energy Corp. (the "Corporation" or "Stonefire") (TSX VENTURE:SFE.A) (TSX VENTURE:SFE.B) is pleased to announce that it has filed on SEDAR its unaudited financial statements and related management's discussion and analysis ("MD&A") for the three month and six month periods ended June 30, 2008. Selected operational and financial results are outlined below and should be read in conjunction with Stonefire's unaudited financial statements and related MD&A which can be found at

Financial and Operating Highlights

Three months ended Six months ended
Jun 30, Jun 30, Jun 30, Jun 30,
2008 2007 2008 2007
($ except share amounts) (unaudited) (unaudited) (unaudited) (unaudited)
Petroleum and natural
gas revenue $ 4,959,295 $ 354,852 $ 7,410,033 $ 747,264
Funds flow from (used in)
operations (1) 2,434,653 9,702 3,149,711 (17,507)
Per share, basic (1) 0.11 0.00 0.14 (0.00)
Net income (loss) 708,520 (196,976) 562,247 (496,887)
Per share, basic 0.03 (0.01) 0.02 (0.02)
Capital expenditures $ 3,654,880 $4,362,435 7,676,552 8,302,638
Working capital deficit
(end of period) $(12,218,762) $ (206,365)
Shares outstanding
(end of period)
Class A, including
shares under share
purchase loans 18,265,000 15,265,000
Class B 1,012,000 1,012,000
Options 1,775,000 1,421,000
Weighted average shares
Class A 18,202,500 15,265,000 18,202,500 13,604,669
Class B 1,012,000 1,012,000 1,012,000 1,012,000
Conversion of Class B
shares (2) 3,609,005 7,084,000 3,609,005 7,084,000
----------- ----------- ------------ -----------
Weighted average basic
shares outstanding 22,823,505 23,361,000 22,823,505 21,700,669
Class A share trading
High $ 2.30 $ 2.29
Low 0.65 1.05
Close $ 2.19 $ 1.25
Natural gas liquids
(bbls/d) 128 20 113 19
Natural gas (mcf/d) 3,569 361 2,889 391
Total (boe/d at 6:1) 722 80 594 85
Reference prices
WTI (US$ per bbl) $ 123.98 $ 65.03 $ 110.94 $ 61.65
AECO (Cdn$ per GJ) 9.69 6.70 8.59 6.86
Average selling price
Natural gas liquids
(per bbl) 103.38 55.61 91.05 53.98
Natural gas (per mcf) 11.57 7.73 10.54 7.87
Operating netback
(per boe at 6:1) 43.45 25.58 37.69 23.48
Funds flow netback
(per boe at 6:1) $ 37.06 $ 1.33 $ 29.13 $ (1.14)

(1) Management uses funds flow from operations (before changes in non-cash
working capital) to analyze operating performance and leverage. Funds
flow from operations as presented does not have any standardized
meaning prescribed by Canadian generally accepted accounting
principles (GAAP) and, therefore, may not be comparable with the
calculation of similar measures by other entities.

(2) For the period ended June 30, 2008, the Class B shares are converted at
the period-end Class A share price of $2.19 (2007 - $1.25) and added to
the Class A shares to calculate basic shares outstanding.

2008 Second Quarter Corporate Highlights

- Average production of 722 boe/d, an increase of 803 percent over Q2 2007 production of 80 boe/d and a record high quarterly rate.

- Continued 100 percent exploration success in the quarter with the drilling of 1 (1.0 net), 2,353 metre-deep multi-zone exploration well in the Edson field. This maintains 100 percent drilling success through the first half with the drilling of a total of three gross, 2.5 net exploration wells.

- Record high funds flow of $2.4 million and a record high average operating netback of $43.45 per boe in the quarter.

- Strengthened financial capacity, with lines of credit increased from $14.0 million to $17.0 million in June.

- Shot 22 kilometres of 100 percent working interest, proprietary, 2D seismic program at Edson and Leaman.

- Capital spending of $3.7 million for the quarter with majority spent on drilling, completions and the tie-in of 1.0 net well.

- Satisfied the remainder of the Corporation's total $5.7 million in flow-through spending obligations for 2008.

- Average operating costs of $6.77 per boe for the quarter, 36 percent lower than in Q2 2007. Operating costs are forecast to average $5.00 to $6.00 per boe for the remainder of 2008.

President's Message

It is a great pleasure to report on Stonefire's activities for the second quarter of 2008. During the quarter Stonefire continued to experience success in executing its business plan of organic growth via the drill bit. The quarter saw record production, record operating netbacks, record cash flow and continued 100 percent exploration drilling success.

Average production for the quarter of 722 boe per day represented an 803 percent increase over the second quarter of 2007 and a 55 percent increase over the first quarter of 2008. Record production in the quarter was achieved in spite of a total shut-in of the Corporation's McLeod production of approximately 250 net boe per day for two weeks in June due to a third-party pipeline outage.

Having elected not to hedge any of its production, Stonefire was able to benefit fully from strong commodity prices in the quarter and generated record operating netbacks of $43.45 per boe and record funds flow from operations of $2.4 million. Operating costs per unit of production continued to decline with increased production and operating efficiencies, averaging $6.77 per boe for the quarter. Costs are expected to continue to decline with further increases to production, and additional operating efficiencies, especially thanks to the Corporation's 100 percent working interest Edson gas plant, which entered service in September 2007 and is currently providing throughput of approximately 2.8 mmcf per day.

The first well of the Corporation's four-well, 100 percent working interest summer drilling program was successfully drilled and cased late in the second quarter in the Edson field. It was drilled by Stonefire to a true vertical depth of 2,353 metres and encountered six potential Deep Basin natural gas zones. Subsequent to the end of the quarter this well has been completed in four gas zones and is expected to commence production by mid-August at an initial rate of 1 - 2 mmcf per day.

This well maintains our 100 percent drilling success through the end of the second quarter on three gross (2.5 net) exploration gas wells drilled by Stonefire in the Edson and McLeod fields. As of this date two additional, 100 percent working interest wells have been successfully drilled and cased in the Corporation's core Edson area and completion and testing operations are underway. These wells are close to the Corporation's 100 percent working interest Edson gathering and processing facilities and are expected to commence production by late August. With the latest drilling success the Corporation is on track to meet or exceed its production targets for the year of an average 2008 rate of 800 boe per day and an exit rate of 1,000 boe per day.

The Corporation continues to expand its drilling inventory and exploration opportunities. During the quarter Stonefire shot 22 kilometres of 100 percent working interest proprietary seismic data at Edson and Leaman. This data has helped firm up a number of 100 percent working interest exploration drilling locations. Three of the zones recently discovered and completed by Stonefire in the Edson area offer horizontal development potential. These formations are being drilled horizontally with multi-stage fracture completions in the greater Edson area by other operators, with excellent results. Stonefire will be evaluating the potential for horizontal development drilling on its Edson lands following further delineation with vertical wells. Horizontal development drilling holds the potential to generate significant upside for the Corporation.

During the quarter capital expenditures totaled $3.65 million, with the majority ($2.70 million) spent on drilling and completions. Capital expenditures to the end of the second quarter totaled $7.68 million, with the majority ($4.85 million) spent on drilling and completions. During the second quarter bank lines were increased to $17 million from $14 million and the Corporation exited the second quarter with net debt and working capital deficit of $12.2 million. Funds flow from operations for the quarter totaled $2.4 million and the Corporation generated positive earnings of $0.71 million. Also of note in the quarter is that all flow-through spending obligations resulting from past flow-through financings have been satisfied. With increasing cash flow and bank lines Stonefire is well positioned to execute the originally forecast capital budget for 2008 of approximately $12 million while maintaining a conservative debt to cash flow ratio.

Looking forward, Stonefire remains on track to meet or exceed its production targets for 2008. Natural gas and oil prices strengthened considerably in the second quarter and despite a moderate pullback in the third quarter the outlook on commodity pricing, especially for natural gas, remains very positive. Industry forecasts call for increasing demand for natural gas in North America as a fuel of choice. Stonefire is well positioned for future growth with a dedicated and skilled management team, a rapidly growing, long-reserve-life production base, growing cash flow, improving operating efficiencies and netbacks, a growing inventory of high-working-interest, operated drilling locations and control of gas processing facilities in the Corporation's core Edson area.

Stonefire Energy Corp. is an Alberta-based company formed to participate in oil and gas exploration, development and acquisitions focusing in the West Central region of Alberta. The Company's shares trade on the TSX Venture Exchange under the symbols SFE.A and SFE.B. The Company currently has 18,265,000 Class A shares and 1,012,000 Class B shares outstanding.

As referred to above, to view a full copy of the Corporation's unaudited financial results for the period ended June 30, 2008, including the Corporation's unaudited financial statements and accompanying MD&A, please refer to the SEDAR website at or on the Corporation's website at

Reader Advisory

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 and uncertainties, certain of which are beyond Stonefire's control. Such risks and uncertainties include, without limitation, risks associated with oil and gas exploration, development, exploitation, production, marketing 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. Stonefire'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, including the amount of proceeds, that Stonefire will derive therefrom. Readers are cautioned that the foregoing list of factors is not exhaustive. All subsequent forward-looking statements, whether written or oral, attributable to Stonefire 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 Stonefire 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.

Petroleum and natural gas volumes are converted to an equivalent measurement basis referred to as a "barrel of oil equivalent" (boe) on the basis of 6 thousand cubic feet of natural gas equalling 1 barrel of oil. This is based on an energy equivalency conversion method applicable at the burner tip and does not necessarily represent a value equivalency at the wellhead. Readers are cautioned that boe figures may be misleading, particularly if used in isolation.

To request a free copy of Stonefire's financial report or if you would like to be put on Stonefire's mailing list please contact Ronald Williams, Vice President, Finance and CFO at

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

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