Stonefire Energy Corp.

Stonefire Energy Corp.

April 06, 2009 16:01 ET

Stonefire Energy Corp. Announces Year End 2008 Financial Results and Files Its NI 51-101 Disclosure

CALGARY, ALBERTA--(Marketwire - April 6, 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 audited financial statements, related management's discussion and analysis ("MD&A") and its Annual Information Form for the year ended December 31, 2008. The Corporation has also filed today its reserves data and other oil and gas information for the year ended December 31, 2008 as mandated by National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities. Selected operational and financial results are outlined below and should be read in conjunction with Stonefire's audited financial statements and related MD&A. Copies of these filings can be found at

Financial and Operating Highlights

Three months ended Year ended
Dec 31, 2008 Dec 31, 2007 Dec 31, 2008 Dec 31, 2007
($ except
share amounts) (unaudited) (unaudited) (audited) (audited)
Petroleum and natural
gas revenues $ 5,684,332 $ 1,720,144 $ 18,480,340 $ 2,880,146
Funds flow from
(used in)
operations(1) 3,493,187 673,994 9,438,848 632,351
Per share, basic(1) 0.13 0.03 0.36 0.03
Net income (loss) 1,052,428 343,164 2,396,101 (399,404)
Per share, basic 0.04 0.01 0.09 (0.02)
Capital expenditures $ 4,750,190 $ 4,850,234 21,115,145 18,731,496
Working capital
deficit (end of
year) $(19,368,218) $(7,691,921)
Shares outstanding
(end of year)
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 16,701,821 18,202,500 14,803,815
Class B 1,012,000 1,012,000 1,012,000 1,012,000
Conversion of Class
B shares(2) 6,772,615 9,108,000 6,772,615 9,108,000
Weighted average shares
outstanding - basic 25,987,115 26,821,821 25,987,115 24,923,815
Class A share trading
High $ 2.75 $ 2.29
Low 0.65 0.72
Close $ 1.30 $ 0.80
Crude oil (bbls/d) 248 - 83 -
Natural gas liquids
(bbls/d) 185 102 137 42
Natural gas (mcf/d) 5,148 1,629 3,816 735
Total (boe/d at 6:1) 1,291 373 856 164
Average selling price
Crude oil (per bbl) $ 59.36 $ - $ 72.13 $ -
Natural gas liquids
(per bbl) 45.89 70.72 76.92 65.90
Natural gas (per mcf) 7.49 7.07 8.91 7.00
Operating netback (per
boe at 6:1) 33.36 25.68 36.01 23.88
Funds flow netback (per
boe at 6:1) $ 29.41 $ 19.64 $ 30.13 $ 10.56

(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 year ended December 31, 2008, the Class B shares are converted
at the year-end Class A share price of $1.30 (2007 - $1.00) and added
to the Class A shares to calculate basic shares outstanding.

- Average production for 2008 was 856 boe/d, an all-time high for the Corporation and a 422 percent increase over 2007 average production of 164 boe/d. Average production for 2008 also exceeded the production target of 800 boe/d set early in 2008.

- Stonefire achieved a December 2008 production rate of 1,342, an all-time high for the Corporation and a 248 percent increase over December 2007 production of 386 boe/d.

- Increased production volumes drove strong growth in funds flow from operations. Annual funds flow was $9.4 million, a year-over-year increase of 1,390 percent in dollar terms and 1,100 percent on a per share basis. Fourth quarter 2008 funds flow was $3.5 million ($0.13 per share), an increase of 418 percent in dollar terms and 333 percent per share over Q4 2007.

- The Corporation delivered continued drilling success in 2008 with the drilling of eight gross (seven net) wells, resulting in seven gross (six net) producing wells for a success ratio of 88 percent.

- Stonefire added corporate reserves of 3.709 million boe on a proved plus probable (P+P) basis and 2.240 million on a proved basis at December 31, 2008.

- All-in finding and development costs for 2008 reserve additions, including future development capital, are highly competitive at $8.42 per boe P+P and $13.08 per boe proved.

- Continued improvement in operating efficiencies, with operating costs averaging $5.48 per boe in 2008, a decrease of 38 percent from 2007 operating costs of $8.88 per boe. Q4 2008 operating costs averaged $3.91 per boe, a decrease of 51 percent from Q4 2007 operating costs of $7.98 per boe.

- Capital spending totalled $21.1 million with $15.5 million or 74 percent spent on drilling and completions. The Corporation has no outstanding flow-through spending obligations.

- Stonefire generated revenue of $18.5 million in 2008 an increase of 542 percent over 2007 revenue of $2.9 million.

- The Corporation's gross land base grew from 24,800 acres entering 2008 to 31,852 acres at year-end, an increase of 28 percent, all in the greater Edson area.

- The Corporations drilling inventory increased substantially through 2008 and stood at 44 gross (33 net) locations at year-end 2008. All wells in inventory are Stonefire-operated.

President's Message

It is a great pleasure to report on Stonefire's activities for 2008. In what could be described as a "break-out" year for Stonefire we continued to execute a drilling-based business growth plan with significant success. The results for 2008 included record production, record reserve growth, record revenue and record cash flow. Our strong reserve growth generated what we believe will prove to be top-decile finding and development costs and top-decile operating costs in the western Canadian oil and natural gas industry. We continue to build a solid foundation of growth opportunities for the Corporation and have maintained our operating strategy of controlling each element of the exploration and production cycle in order to maximize the success rate, control costs and maximize netbacks. The cornerstones of this business strategy are operatorship, high working interest, control of facilities and an exploration focus on multi-zone, Deep Basin drilling prospects. With these proven operating principles we expect to show growth and added value in 2009, despite the downturn in commodity prices and the industry's tighter access to capital. We are mindful of the turmoil and uncertainty in the capital markets, and will carry out a conservative capital spending program in 2009 that maintains prudent debt ratios.

In 2008 the majority ($15.5 million) of our $21.1 million of capital spending was directed to drilling and completions. Stonefire operated all of its capital projects in 2008 and plans to do the same for 2009. Of the eight gross wells drilled in 2008, seven are economic producers for an 88 percent success ratio. Our drilling program of high-working-interest wells resulted in significant reserve additions and several high-impact new pool discoveries. On a proved plus probable basis, 3.7 million boe of reserves were added, according to our independent December 31, 2008 reserves evaluation. These additions replaced the year's production 11.8 times. The resulting proved plus probable finding and development costs were $8.42 per boe including all future development capital. We think this result will place Stonefire in the most efficient 10 percent of the industry in 2008.

One of the exploration highlights for the year was the discovery of a sweet light oil pool at our core Edson property. This 100 percent working interest pool currently has two wells producing approximately 270 bbls per day of clean (no water) 39 degrees API sweet crude oil, which incurs low operating costs and generates solid netbacks even at today's lower prices. Further delineation drilling is planned in 2009 with the potential for up to three additional 100 percent working interest oil wells.

Our control of gas processing at Edson, along with our high average working interest and the operatorship of 98 percent of our production, allowed Stonefire to achieve low operating costs of $5.48 per boe of production in 2008. Operating costs trended lower through the year with increasing production volumes and the resulting operating efficiencies. By the fourth quarter of 2008 operating costs had declined to average only $3.91 per boe. Our operating costs for 2009 have been forecast to average $4.50 per boe which will likely enable Stonefire to be top-decile within the industry in this important category.

Efficient operations and strong commodity pricing through much of 2008 generated a funds flow netback averaging $30.13 per boe for the year. These strong netbacks, in combination with the low proved plus probable finding and development costs mentioned above, gave a recycle ratio for the year of 3.6 times. The recycle ratio is a measure of the Corporation's ability to turn invested capital into cash flow measured on a boe basis. The greater the recycle ratio, the greater the profit margin generated for shareholders.

Balance sheet integrity is a crucial element in these financially uncertain times, and through 2008 Stonefire's credit facilities expanded with our drilling success and production base. At year-end credit lines available to Stonefire totalled $30 million, which was well in excess of the Corporation's net debt and working capital deficiency of $19.4 million. This credit facility with the National Bank of Canada was reviewed and re-approved in early 2009, and we are confident that it will remain intact throughout the year. Stonefire has set a conservative budget for 2009 largely financed with its cash flow. This is prudent and will allow for some growth while maintaining financial flexibility for the Corporation to pursue opportunities that may arise.

We have set a modest $11.5 million capital budget for 2009 focused mainly on drilling and completion of up to six gross (4.5 net) wells in the Edson and McLeod fields. This budget is expected to be funded mainly from cash flow. Activity in the first quarter included the drilling of one 100 percent working interest multi-zone gas well at Edson, a 10.4 square kilometre 3D seismic program also at Edson and a pipeline project to remove production bottlenecks at McLeod. The 2009 budget will be roughly balanced between the first and second halves rather than weighted to the first quarter. This will give Stonefire the flexibility to accelerate or slow down spending as market conditions dictate, and to benefit from declining field service cost.

The rapid slowdown in industrial activity in North America has led to a significant decline in industrial gas demand, which helped to create a near-term oversupply of natural gas despite the very cold winter in much of North America. The oversupply was reflected in U.S. natural gas storage levels moving to well above the five-year average during February and early March, and has put downward pressure on natural gas prices. As in past cycles, I believe the situation will correct itself through reduced drilling, declining supply and perhaps a recovery in industrial demand later in 2009 and into 2010. Crude oil prices also remain low compared to 2008 but it appears the rebalancing of world oil supply and demand is bringing some stability to oil prices. In spite of these wider challenges, Stonefire is in a sound position. We have complete control over our production and capital spending, a high-quality long-life Deep Basin production base, very low operating costs, financial flexibility with $10 million of unused bank line available and high-quality operated drilling prospects with an inventory that has grown to 44 gross locations entering 2009.

Stonefire's management team is dedicated, hard-working and motivated. We will make every effort to continue adding value while maintaining the flexibility to react to changing market conditions.

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 audited financial results for the year ended December 31, 2008, including the Corporation's audited financial statements and accompanying MD&A, please refer to the SEDAR 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.

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)