Stonefire Energy Corp.
TSX VENTURE : SFE.A
TSX VENTURE : SFE.B

Stonefire Energy Corp.

May 25, 2009 16:05 ET

Stonefire Energy Corp. Announces 2009 First Quarter Financial Results

CALGARY, ALBERTA--(Marketwire - May 25, 2009) -

NOT FOR DISTRIBUTION TO UNITED STATES NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES.

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 period ended March 31, 2009. 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 www.sedar.com.



Financial and Operating Highlights

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Three months ended
Mar 31, 2009 Mar 31, 2008
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FINANCIAL (unaudited) (unaudited)
($ except share amounts)
Petroleum and natural gas revenue $ 4,424,367 $ 2,450,738
Funds flow from operations (1) 1,878,889 715,059
Per share, basic (1) 0.07 0.03
Net loss (197,535) (146,273)
Per share, basic (0.01) (0.01)
Capital expenditures 4,869,618 4,021,672
Working capital deficit (end of period) $ (22,358,947) $ (10,998,534)
Shares outstanding (end of period)
Class A, including shares under share
purchase loans 18,265,000 18,265,000
Class B 1,012,000 1,012,000
Options 1,775,000 1,775,000
Weighted average shares outstanding
Class A 18,202,500 18,202,500
Class B 1,012,000 1,012,000
Conversion of Class B shares (2) 9,108,000 8,188,000
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Weighted average basic shares outstanding 28,322,500 27,402,500
Class A share trading
High $ 1.30 $ 1.25
Low 0.95 0.65
Close $ 1.00 $ 1.10
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OPERATIONS
Production
Crude oil (bbls/d) 302 -
Natural gas liquids (bbls/d) 178 98
Natural gas (mcf/d) 5,175 2,209
Total (boe/d at 6:1) 1,342 466
Reference prices
WTI (US$ per bbl) $ 43.08 $ 97.90
AECO (Cdn$ per GJ) 4.66 7.49
Average selling price
Crude oil (per bbl) 44.68 -
Natural gas liquids (per bbl) 39.45 74.96
Natural gas (per mcf) 5.54 8.88
Operating netback (per boe at 6:1) 19.75 28.76
Funds flow netback (per boe at 6:1) $ 15.56 $ 16.86

(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 March 31, 2009, the Class B shares are converted at
the period-end Class A share price of $1.00 (2008 - $1.10) and added to
the Class A shares to calculate basic shares outstanding.


2009 First Quarter Corporate Highlights

- Average production for the quarter was 1,342 boe per day, an all time high for the Corporation and a 188 percent increase over Q1 2008 production of 466 boe per day. The Q1 2009 production mix was 23 percent light oil, 13 percent natural gas liquids (NGLs) and 64 percent sweet natural gas.

- Funds flow from operations was $1.88 million, a 163 percent increase over Q1 2008. Quarterly funds flow of $0.07 per share represented a period-over-period increase of 133 percent. The strong increase in funds flow was due to higher production, the recent addition of premium priced light sweet crude oil to Stonefire's product mix and reduced operating costs per unit of production, offset in part by lower commodity prices period-over-period.

- Continued drilling success with the drilling of one, 100 percent working interest, multi-zone gas well at Edson in February 2009 to a total measured depth of 2,391 metres. The well commenced production through Stonefire's Edson gas plant on April 1, 2009 at approximately 1 mmscfd (million standard cubic feet per day) plus 25 bbls per mmscf of NGL.

- Operating costs for the quarter were $4.49 per boe, a decline of 52 percent from Q1 2008 costs of $9.33 per boe and in line with Stonefire's 2009 full-year target of $4.50 per boe. Transportation costs averaged $1.20 per boe in the quarter, down by 33 percent from Q1 2008 costs of $1.78 per boe.

- Bank lines were reviewed after the end of the quarter and remain unchanged at $30 million. Current net debt of $22.4 million is comfortably below the bank line limit.

- Completed a 6-kilometre addition to the Stonefire-operated gas gathering system at McLeod and installed a group metering station. Stonefire now operates approximately 15 kilometres of gas gathering, a group metering station and wellsite facilities in the McLeod area. The McLeod area contributed approximately 20 percent of Stonefire's total production during the quarter.

- Completed a 100 percent working interest, proprietary 10.4-square-kilometre 3D seismic program over a portion of Stonefire's 100 percent working interest lands at Edson.

- Added 1,600 acres (2.5 sections) of 100 percent working interest land at Edson bringing Stonefire's total contiguous land holdings in the Edson area to 15.5 sections, all at 100 percent working interest.

- Achieved operating netbacks of $19.75 per boe. Lower netbacks than in previous quarters resulted mainly from reduced commodity prices. Declining operating costs helped offset reduced commodity prices.

- Stonefire's high-quality drilling inventory continued to increase through the quarter and at the end of Q1 stood at 49 gross locations with an average working interest of 82 percent. All future locations are Stonefire-operated.

President's Message

It is a great pleasure to report on Stonefire's activities during the first quarter of 2009. Stonefire continued to achieve success in executing its business growth plan, delivering record production for the seventh consecutive quarter, continued drilling success and declining operating costs per unit of production and strong growth in funds flow in both dollar and per share terms. We're particularly pleased about the latter result given lower commodity prices.

Average production for the quarter was 1,342 boe per day an all-time high, and included 36 percent light oil and NGL. First quarter production was up by 188 percent over the first quarter of 2008. First quarter production also increased by 4 percent from the fourth quarter of 2008 even though Stonefire delayed bringing on new production at Edson beyond the quarter to take advantage of the Alberta New Well Royalty reduction effective April 1, 2009.

The Corporation had continued drilling success with the drilling of one, 100 percent working interest multi-zone gas well at Edson in the first quarter. The well was spud February 7 and drilled to a measured depth of 2,391 metres. Five Deep Basin gas zones were completed with two limited-entry fracture treatments and the well commenced production on April 1st, 2009 through Stonefire's Edson gas plant at approximately 1.0 mmscfd plus liquids. Under the new provincial incentive program the well will be subject to a 5 percent Crown royalty for the next year.

During the quarter the Stonefire-operated McLeod gas gathering system was expanded by 6 kilometres and a group metering station was installed. These projects removed several production bottlenecks and are forecast to reduce the McLeod area's per unit of production operating costs by approximately 20 percent. Production from the McLeod area now accounts for approximately 20 percent of Stonefire's total production and is expected to continue growing.

At Edson we expanded Stonefire's land base by 2.5 sections in the quarter through a purchase of Crown mineral rights from a third party. It now stands at 15.5 sections of 100 percent working interest contiguous land. The 3D seismic program shot at Edson in the first quarter has identified several multi-zone drilling opportunities and has helped expand the Corporation's drilling inventory to 49 gross wells.

During the quarter natural gas prices continued to decline reaching six-year lows largely driven by the world wide economic slowdown, reduced industrial gas demand in North America and continued supply growth due to prolific results in U.S. unconventional gas shale plays, resulting in high levels of gas storage relative to seasonal averages. Along with the decline in commodity prices we've seen a dramatic drop in drilling in North America, with the drilling rig count now down by nearly 50 percent from a year ago. This is normally a strong sign that natural gas supply will soon decline and will help stabilize gas prices in the near future. The current wild cards, however, are further slides in gas demand, very high levels of storage and production adds from high-graded U.S. unconventional shale gas drilling projects that continue amidst the price slump. These factors are offset by increasing demand for natural gas for electrical generation in North America, the start of the summer cooling season in the U.S. and high initial production decline rates for new shale gas horizontal wells. The interplay of all these factors makes it difficult to predict the exact timing of a price rebound for natural gas.

In the meantime, therefore, cost control and protecting the corporate balance sheet become paramount issues for any oil and natural gas company. On both these fronts Stonefire is well positioned. Stonefire is a low-cost operator, with first quarter operating costs of $4.49 per boe and transportation costs of $1.20 per boe. These costs will likely enable Stonefire to be in the top decile of energy companies in Western Canada. In part this stems from our high-quality, liquids-rich sweet gas production base in the Deep basin area of west central Alberta. In addition, our control of gas processing facilities, high working interest and operatorship of 99 percent of our production make a strong contribution to our efficiencies and we believe will help sustain low operating costs going forward. Stonefire also operates all its capital projects and can react quickly to market conditions by either increasing or decreasing capital spending.

Our bank line with the National Bank of Canada was reviewed after the end of the first quarter and remains unchanged at $30 million. Net debt at the end of the first quarter stood at $22.4 million. The Corporation currently has nearly $8 million of unused borrowing capacity available. Our debt level is forecast to decline over the next several months due to limited second quarter capital spending that should be exceeded by funds flow.

As we exercise careful balance sheet management and conservative capital spending through this cyclical down phase, Stonefire nonetheless intends to remain active in the field in 2009. The economics of our Deep Basin gas and light oil drilling opportunities are positive even at current commodity pricing. Stonefire is preparing drilling locations for up to an additional 5 gross (4.5 net) wells in 2009 to be drilled in the third and fourth quarters. These wells are all close to Stonefire-operated infrastructure and will benefit from the new Alberta drilling royalty credit and new well incentive program along with declining service costs. Our capital budget for the year is forecast at approximately $11.5 million, of which $4.9 million was spent in the first quarter. The budget will be funded mainly from cash flow and will be adjusted as dictated by our cash flow and commodity prices. In spite of the current challenging economic environment the Management team at Stonefire is confident and is working to achieve continued success in 2009.

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 March 31, 2009, including the Corporation's unaudited financial statements and accompanying MD&A, please refer to the SEDAR website at www.sedar.com or on the Corporation's website at www.stonefire-energy.com.

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 rwilliams@stonefire-energy.com

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

Contact Information

  • Stonefire Energy Corp.
    Mr. Richard Dahl
    President and CEO
    (403) 262-9885
    (403) 262-9887 (FAX)
    or
    Stonefire Energy Corp.
    Mr. Ronald Williams
    Vice President, Finance and CFO
    (403) 262-9885
    (403) 262-9887 (FAX)