Terra Energy Corp.
TSX VENTURE : TTR

Terra Energy Corp.

May 26, 2006 09:00 ET

Terra Energy Corp. Releases Stronger 2006-Q1 Results

CALGARY, ALBERTA--(CCNMatthews - May 26, 2006) - Terra Energy Corp. ("Terra Energy" or the "Corporation")(TSX VENTURE:TTR) is pleased to release its 2006 first quarter results. The 2006-Q1 Consolidated Interim Financial Statements and the Management Discussion and Analysis have been posted on www.sedar.com and on Terra Energy's website www.terraenergy.ca.

Highlights of 2006-Q1:

- Revenues increased 48.6% over 2005-Q1 to $11,787,550

- Cash flow from Operations increased 33.1% over 2005-Q1 to $5,068,870

- Average daily production increased 15.4 % over 2005-Q1 to 2,486 boe/d, with significant reserves (greater than 2,000 boe/d) remaining behind pipe

- Revenue per boe up 28.8% over 2005-Q1 to $52.68

- Production expenses decline $3.73 per boe from average 2005 levels

- Netbacks per boe up 12.2% over 2005-Q1 to $28.61

- Two key infrastructure projects were completed at the end of 2006-Q1, the results of which will increase production in subsequent quarters

- 6 gross wells (5.04 net) drilled with a 83% success rate

Operational Highlights

Terra Energy increased production by 15.4% in 2006-Q1 compared to 2005-Q1 as a result of increase in natural gas production (16.2%) and natural gas liquids (435.6%) from new wells brought onstream. Crude oil production fell 33.6% as a result of the divestiture by Terra Energy approximately 150 bbls/d of non-core crude oil production at the end of 2005-Q4.



Three months ended March 31 2006 2005 Percent
Growth
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Average Average
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Oil (bbl/d) 353 532 (33.6%)
Natural Gas (mcf/d) 10,902 9,384 16.2%
Liquids (bbl/d) 316 59 435.6%
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Total (boe/d) 2,486 2,155 15.4%
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Late in 2006-Q1 Terra Energy completed two key infrastructure projects. The first was the completion of the 17km Septimus pipeline project tieing in approximately 600 boe/d of production from Terra Energy's Septimus field to our Wilder gas plant. In addition, Terra Energy tied-in approximately 225 boe/d of production in our Boudreau field. The full benefit of the added production volumes from the recently tied-in wells will be realized in subsequent quarters. A third infrastructure project at Mica was completed early in 2006-Q2. As a result of the successful completion of the above infrastructure projects, Terra Energy expects production growth to continue in the upcoming quarters.

During the quarter Terra Energy drilled 6.0 gross (5.04 net) wells, of which 83.3% were successful. Terra Energy's 2006 Capital Expenditure budget calls for the drilling of 25 gross wells, the balance of which will be drilled in the 3rd and 4th quarters of 2006 as part of the 2006 Summer Drilling Program.



Financial Highlights

Three Months Ended Percent
March 31 2006 2005 2006 2005 Growth
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($ / boe)($ / boe)($ / boe)
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Revenues $11,787,550 $7,932,681 $52.68 $40.90 28.8%

Royalties $2,363,529 $984,507 $10.56 $5.08 107.9%

Production
Expenses $3,023,642 $2,000,190 $13.51 $10.31 31.0%

Operating
Netback $6,400,379 $4,947,984 $28.61 $25.51 12.2%

G&A Expenses $1,129,064 $786,695 $5.05 $4.06 24.4%

Interest Expense $418,314 $351,678 $1.87 $1.81 3.3%

Realized Foreign
Exchange (gain)
loss $(48,498) - $(0.22) - n/a

Non-cash
Expenses $4,448,678 $5,254,890 $19.88 $27.09 (26.6%)

Income Tax
Expense
(recovery) $683,231 $(451,555) $3.05 $(2.33) (231.2%)
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Net Income
(loss) $(230,410) $(993,724) $(1.03) $(5.12) 79.9%
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Cashflow from
Operations $5,068,870 $3,809,611 $22.66 $19.64 15.4%
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Revenues grew 48.6% to $11,787,550 in 2006-Q1 compared to $7,932,681 in 2005-Q1 as a result of higher production volumes and prices. Revenues on a per unit of production basis increased 28.8% to $52.68 compared to $40.90 in 2005-Q1. Terra Energy's revenues increased as a result of the expiry of certain financial natural gas and crude oil hedges in 2005-Q4. As a result of the expiry, the majority of Terra Energy's natural gas and crude oil production was sold at spot market prices during 2006-Q1.

Production expenses on a per unit of production basis fell in 2006-Q1 to $13.51 / boe. This represents a further reduction in production expenses over 2005-Q4 of $1.41 / boe and a reduction of $3.73 / boe compared to average production expenses for 2005. Production expenses on a per unit of production are expected to continue to drop as additional production is brought onstream throughout 2006.



Production Expenses 2006-Q1 2005-Q4 2005 Average

Cost / BOE $13.51 $14.92 $17.24


During 2006-Q1, Terra Energy benefited from having new production processed at the Corporation's underutilized natural gas plant located at Red Creek and Wilder. Terra Energy added a new compressor at Red Creek in December 2005 which allowed for an increase in throughput capacity from approximately 3,000 mcf per day to approximately 8,000 mcf per day of capacity at the plant by the end of 2006-Q1. The incremental production processed at the Corporation's Red Creek gas plant did not result in a significant increase in operating costs of the plant thus enabling costs to be expensed over a larger production base which in turn reduced operating costs on a per unit of production basis quarter over quarter.

Cash Flow from Operations increased 33.1% in 2006-Q1 to $5,068,870 compared to $3,809,611 in 2005-Q1. The combination of higher realized prices, lower operating cost on a per unit of production basis and higher production volumes resulted in a stronger Cash Flow from Operations.

Non-cash expenses in 2006-Q1 were $4,448,678 representing a decrease from 2005-Q1. Stock based compensation increased in 2006-Q1 compared to 2005-Q1 as a result of the issuance of replacement stock options during 2006-Q1 and accounted for $1,393,309 of the non-cash expenses. With the issuance of replacement options, the total number of stock options granted under Terra Energy's Stock Option Plan remain unchanged, but the weighted average exercise price of all such options has been increased. Although the total number of options granted did not increase due to the issuance of the replacement stock options, Terra Energy is required to expense the total non cash value of the stock options using the Black-Scholes pricing model in the period. Non Cash Expenses significantly were higher in 2005-Q1 as a result of a $2,969,500 financing fee required to be expensed by the Corporation relating to the payback of a standby mezzanine credit facility put in place to assist with the purchase of certain petroleum and natural gas assets at the end of 2004.

2006-Q2 Guidance

Terra Energy expects 2006 to be a year of growth as higher production volumes and lower costs combine to assist in increasing Terra Energy's cash flow and earnings. With the completion of several infrastructure projects late in 2006-Q1 and early 2006-Q2, Terra Energy is now benefiting from the increased production. Preliminary 2006-Q2 production estimates call for average sales of approximately 3,200 boe/d, with over 2,000 boe/d of production remaining "behind pipe". As Terra Energy continues to bring "behind pipe" production onstream, we expect quarter over quarter production growth to continue throughout 2006.

READER ADVISORY

A BOE conversion ratio of six thousand cubic feet per barrel (6mcf/bbl) of natural gas to barrels of oil equivalence is based upon an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency for the individual products at the wellhead. Such disclosure of BOE's may be misleading, particularly if used in isolation.

The media release may contain forward-looking statements including expectations of future production, cash flow and earnings. These statements are based on current expectations that involve a number of risks and uncertainties, which could cause actual results to differ from those anticipated. These risks include, but are not limited to: the risks associated with the oil and gas industry (eg., operational risks in development, exploration and production; delays or changes in plans with respect to exploration or development projects or capital expenditures; the uncertainty of reserve estimates; the uncertainty of estimates and projections relating to production, costs and expenses, and health, safety and environmental risks), commodity price, price and exchange rate fluctuation and uncertainties resulting from potential delays or changes in plans with respect to exploration or development projects or capital expenditures. Additional information on these and other factors that could affect Terra Energy's operations or financial results are included in Terra Energy's reports on file with Canadian securities regulatory authorities.

The reader is further cautioned that estimating reserves requires judgments and decisions based upon available geological, geophysical, engineering and economic data. These estimates may change, having either a positive or negative effect on the net earnings of the Company as further information becomes available and as the economic environment changes.

This media release contains the terms "cash flow from operations" and "cash flow from operations per share", which should not be considered an alternative to, or more meaningful than, cash flow from operating activities as determined in accordance with Canadian generally accepted accounting principles as an indicator of the Corporation's performance. Cash flow from operations per share is calculated using the same weighted average basic and diluted number of shares outstanding used in the calculation of net income (loss) per share. All references to cash flow throughout this media release are based on cash flow before changes in non-cash working capital.

Terra Energy is a junior oil and gas company engaged in the exploration for, and development and production of, natural gas and oil in Western Canada. Terra Energy's common shares trade on the TSX Venture Exchange under the symbol 'TTR'.

THE TSX VENTURE EXCHANGE DOES NOT ACCEPT RESPONSIBILITY FOR THE ADEQUACY OR ACCURACY OF THIS RELEASE.

Contact Information

  • Terra Energy Corp.
    Mr. Bud Love
    Vice President of Finance and Chief Financial Officer
    (403) 699-7777
    (403) 264-7189 (FAX)