Stonefire Energy Corp.

Stonefire Energy Corp.

August 24, 2009 18:00 ET

Stonefire Energy Corp. Announces 2009 Second Quarter Financial Results

CALGARY, ALBERTA--(Marketwire - Aug. 24, 2009) -


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, 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

Financial and Operating Highlights

Three months ended Six months ended
Jun 30, Jun 30, Jun 30, Jun 30,
2009 2008 2009 2008
($ except share amounts) (unaudited) (unaudited) (unaudited) (unaudited)
Petroleum and natural
gas revenue $ 3,992,257 $ 4,959,295 $ 8,416,624 $ 7,410,033
Funds flow from (used in)
operations (1) 2,036,662 2,434,653 3,915,551 3,149,711
Per share, basic (1) 0.08 0.11 0.15 0.14
Net income (loss) (133,663) 708,520 (331,198) 562,247
Per share, basic 0.00 0.03 (0.01) 0.02
Capital expenditures $ 1,463,273 $ 3,654,880 6,332,891 7,676,552
Working capital deficit
(end of period) $(21,785,558)$(12,218,762)
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
Class A 18,202,500 18,202,500 18,202,500 18,202,500
Class B 1,012,000 1,012,000 1,012,000 1,012,000
Conversion of Class B
shares (2) 7,637,573 3,609,005 7,637,573 3,609,005
Weighted average basic
shares outstanding 26,852,073 22,823,505 26,852,073 22,823,505
Class A share trading
High $ 1.65 $ 2.30
Low 0.95 0.65
Close $ 1.17 $ 2.19
Crude oil (bbls/d) 211 - 256 -
Natural gas liquids
(bbls/d) 200 128 189 113
Natural gas (mcf/d) 5,751 3,569 5,465 2,889
Total (boe/d at 6:1) 1,369 722 1,356 594
Average selling price
Crude oil (per bbl) $ 59.97 $ - $ 51.01 $ -
Natural gas liquids
(per bbl) 46.59 103.38 43.24 91.05
Natural gas (per mcf) 3.81 11.57 4.62 10.54
Operating netback (per
boe at 6:1) 19.82 43.45 19.78 37.69
Funds flow netback (per
boe at 6:1) $ 16.35 $ 37.06 $ 15.95 $ 29.13

(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, 2009, the Class B shares are converted at
the period-end Class A share price of $1.17 (2008 - $2.19) and added to
the Class A shares to calculate basic shares outstanding.
(3) Sales of crude oil by the Corporation commenced in August 2008.
Accordingly, there was no selling price for crude oil in the
comparative 2008 periods.

2009 Second Quarter Corporate Highlights

- Second quarter production averaged 1,369 boe per day, an all time quarterly high for the Corporation and an 89.6 percent increase over the 722 boe per day average production for the second quarter of 2008. Second quarter production also grew by 2 percent over the first quarter of 2009 and was Stonefire's eighth consecutive quarter of production growth.

- Funds flow from operations for the second quarter was $2.0 million or $16.35 per boe, an 8.4 percent increase over first quarter funds flow of $1.9 million and a quarter-over-quarter increase of 5.1 percent on a funds flow per boe basis due mainly to improved oil and NGL pricing and reduced Crown royalties. Second quarter funds flow was 16.4 percent lower than second quarter 2008 funds flow of $2.4 million mainly due to reduced commodity prices.

- The Corporation continued to achieve very low operating and cash costs (inclusive of operating, transportation, interest and general and administrative costs), which came in at $4.58 per boe and $9.33 per boe, respectively, in the second quarter. This represents a decline in operating costs of 32.3 percent from the second quarter of 2008. The most recent quarterly operating costs and total cash costs are expected to position Stonefire in the most efficient decile of junior and mid-sized exploration and production companies in Western Canada. The Corporation remains on track to average $4.50 per boe in operating costs for 2009.

- Capital spending for the second quarter totalled approximately $1.5 million of which approximately $1.0 million was spent on drilling, completion and equipping of new wells.

- Stonefire commenced a three-well (2.5 net) drilling program late in the second quarter with the spud of a 50 percent working interest operated gas well at McLeod. All three wells will qualify for the Alberta Drilling Royalty Credit and are expected to generate approximately $1.1 million of drilling credits net to Stonefire. The wells also qualify for the New Well Royalty Reduction program. Drilling and completion costs are trending approximately 25 percent lower than one year ago.

- Added three gross sections (2.3 net) of land during the quarter. Of the total land added, two gross (1.3 net) sections were added at Edson, bringing Stonefire's total contiguous land holdings in the Edson area to 17.5 gross (16.8 net) sections, all of which are Stonefire- operated.

- The Corporation remains well-capitalized and liquid, exiting the second quarter with net debt of $21.8 million versus total available bank lines of $30 million.

President's Message

Production, Prices, Costs

The Corporation is pleased to report another quarter of record production with average production of 1,369 boe per day, an increase of nearly 90 percent from second quarter 2008 production of 722 boe per day and up slightly over our first quarter average. This represents Stonefire's eighth consecutive quarter of production growth.

During the second quarter of 2009 Stonefire maintained a conservative strategy with an emphasis on protecting the balance sheet during this period of low natural gas prices, without completely halting its drilling-focused growth program. The only new production came at the commencement of the quarter when we brought a previously announced 100 percent working interest multi-zone gas well at Edson on-stream. The well was brought on production April 1 to qualify for the Alberta New Well Royalty Reduction (NWRR) program which provides for a flat 5 percent royalty on new wells for 12 producing months or 500 million cubic feet of natural gas equivalent. The new well came on production at approximately 150 boe per day.

Stonefire continues to benefit from its high-quality and increasingly diversified Deep Basin-focused production base, which in the second quarter consisted of 30 percent light oil and natural gas liquids (NGL) and the remainder sweet natural gas. The NGL and oil production saw an increase in the average selling price over the first quarter of 2009, helping to offset the quarter-over-quarter reduction in the natural gas selling price. On a total boe basis the Corporation's average selling price in the second quarter was $32.04 per boe compared to $36.62 per boe in the first quarter of 2009 a reduction of only 12.5 percent compared to a drop of 31.2 percent in the average natural gas selling price over the same period. Funds flow from operations for the quarter was just over $2 million, an increase of 8.4 percent over the first quarter of 2009 thanks to stronger crude oil and NGL prices, but down 16.4 percent from the second quarter of 2008 due to lower prices of all commodities.

Also noteworthy during this period of lower commodity prices is Stonefire's continued ability to deliver low operating and combined cash costs. Operating costs for the quarter averaged $4.58 per boe, placing us on-track to meet our 2009 target of $4.50 per boe and expected to place Stonefire in the most efficient decile for operating costs among junior and mid-sized exploration and production companies in Western Canada. Importantly, total cash costs which include operating, transportation, interest and general and administrative costs, were $9.33 per boe for the quarter, again expected to be in the top performing decile for Western Canada producers. The quarter also saw declining royalty rates due to the Alberta NWRR, declining reference pricing for natural gas and due to Gas Cost Allowance (GCA) recoveries for the Edson gas plant. The total royalty rate averaged 20 percent in the quarter compared to 31 percent in Q2 of 2008.


The main focus of operations in the quarter was the preparation and commencement of a three- well (2.5 net) summer drilling program. The Corporation selected three high-priority drilling locations, two of which were natural gas targets required to extend our rights to otherwise expiring lands and the third well targeted light oil in our Edson core area. The first well drilled was a 50 percent working interest, Stonefire-operated well spud in mid-June in the McLeod field. The well encountered the target natural gas zone but with lower than expected permeability resulting in a low rate gas well that will remain shut-in for the time being to conserve tie-in and equipping capital. The well has helped to delineate a large producing Ostracod marine sand trend. Subsequent to the quarter Stonefire acquired an additional 2.5 gross sections of crown land over this Ostracod sand trend which will justify additional drilling with increased natural gas prices. The remaining 2 wells of the summer drilling program are 100 percent working interest wells drilled at Edson subsequent to the end of the second quarter. Both have been cased with the first well at Edson testing at approximately 100 boe per day of liquids rich natural gas and was placed on production through Stonefire's Edson gas plant on August 18. The last well was a 1.5 mile step-out to the previously announced light oil pool discovery made in mid-2008 at Edson. It encountered a thick fractured light oil zone and completion operations are currently underway. This summer's drilling program saw total costs approximately 25 percent lower compared to costs in 2008, due to the slow down in the services sector. The program also generated approximately $1.1 million net of drilling royalty credits for Stonefire. All three wells will qualify for the 5 percent royalty under the Alberta NWRR program.


At the start of the second half of 2009 gas prices remain weak due to the current oversupply of natural gas in North America, which has lead to unusually high volumes of natural gas in storage. On the positive side, however, it appears that North American supply may have peaked and may have started to decline due to the drastic reduction in the drilling rig count, which is now less than half of what it was one year ago. The other contributing factor to the current natural gas oversupply has been the economic recession and reduced industrial demand for natural gas, particularly in the United States. It now appears that the U.S. economy may have reached bottom and is starting to rebound which, if true, should lead to increased industrial gas demand. The combination of declining supply and increasing demand should help bring supply and demand for natural gas back into balance and result in more robust gas prices, which could occur as early as late 2009 according to some forecasters.

In the meantime Stonefire is well-positioned with a low-cost, high-quality and diversified Deep Basin-focused production base and complete control over its capital spending projects. The Corporation entered the second half of 2009 with over $8 million of unused Bank lines available, creating a comfortable cushion of liquidity. Our solid financial positioning and conservative capital spending has enabled us to continue refraining from issuing new equity under the current weaker market conditions.

Going forward Stonefire's dedicated management team will continue to focus on maintaining balance sheet integrity by carefully monitoring commodity prices and adjusting capital spending. Our focus will remain on high- grading our inventory of drilling opportunities and on maintaining low controllable costs.

Stonefire Energy Corp. is an Alberta-based corporation formed to participate in oil and gas exploration, development and acquisitions focusing in the West Central region of Alberta. The Corporation's shares trade on the TSX Venture Exchange under the symbols SFE.A and SFE.B. The Corporation 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, 2009, 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, uncertainties, and assumptions certain of which are beyond Stonefire's control. Such risks, uncertainties, and assumptions 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.

Contact Information

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