Terra Energy Corp.
TSX VENTURE : TTR

Terra Energy Corp.

February 21, 2007 19:06 ET

Terra Energy Year End Reserves Increases to 16.1 Million BOE's

CALGARY, ALBERTA--(CCNMatthews - Feb. 21, 2007) - Terra Energy Corp. (TSX VENTURE:TTR) ("Terra Energy" or the "Company") is pleased to announce the results of its year end reserves evaluation, as prepared by GLJ Petroleum Consultants Ltd. ("GLJ") as at December 31, 2006.

Terra Energy made significant additions to its reserves and undeveloped land holdings during 2006, positioning Terra Energy for growth in 2007. The Company's production and reserves are concentrated in its core area of Fort St. John, B.C. and the greater Peace River Arch area in B.C. and Alberta.

"Building on our exploration success in 2005 and development activities in 2006, Terra Energy is well positioned to boost production levels and reserves in the upcoming year", says Cas H. Morel, President and CEO of Terra Energy. "Terra Energy's number one priority in 2007 will be to tie-in significant behind pipe reserves through the completion of a series of pipeline projects. In addition, the Company will return to its exploration roots and carry out a focused high impact exploration drilling program".

HIGHLIGHTS

Terra Energy is pleased to release the following summary highlights of the GLJ reserves report, Terra Energy's land holdings and net asset values, all as at December 31, 2006:

- Total proved and probable reserves increased 13.5% from 14,232 mboe to 16,160 mboe (85.1% natural gas)

- Net Present Value of proved and probable reserves (10% discount rate, before tax, forecast prices) of $210.4mm, despite a reduction in natural gas prices and an increase in capital costs

- Total proved reserves increased 7.8% from 9,183 mboe to 9,902 mboe (83.9% natural gas)

- Reserve life index increased to over 10 years (proved plus probable)

- Net asset value of the Company of $218.1mm (NPV 10%)

- Net asset value per share (basic) of $2.61 (NPV 10%)

- Total Company undeveloped land holdings increased to 187,878 acres (gross) or 145,804 acres (net)

The following tables summarize certain information contained in the GLJ reserves report. The report was prepared in accordance with National Instrument 51-101, Standard of Disclosure of Oil and Gas Activities ("NI 51-101"). Additional reserves information as required under NI 51-101 will be included in the Company's Annual Information Form which will be filed on SEDAR. Oil equivalent amounts have been calculated using a conversion rate of 6,000 cubic feet of natural gas to one barrel of oil.

OIL AND GAS RESERVES

Terra Energy increased total proved and probable reserves by 13.5% from 14,232 mboe to 16,160 mboe during 2006, based on forecast prices and costs. Reserves consisted of 85.1% natural gas, 7.1% crude oil and 7.8% natural gas liquids as at December 31, 2006.

Terra Energy increased total proved and probable reserves after production by approximately 2,957 mboe, replacing 2006 production by 287.4%. The Company's reserve additions are net of property dispositions during 2006 which totaled 341 mboe. The growth in reserves is attributable to the successful drilling program Terra Energy executed in 2006, where Terra Energy had a 77.6% drilling success rate.



Forecast Prices December 31, 2006 - December 31, 2005
Company Interest
Oil Natural Gas Liquids Total Total
Reserves Category (mbbl) (mmcf) (mbbls) (mboe) (mboe)
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Proved Producing 713 27,671 607 5,932 4,921
Proved Non-Producing 118 21,744 228 3,970 4,262
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Total Proved 831 49,415 835 9,902 9,183
Total Probable 319 33,062 429 6,258 5,049
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Total Proved + Probable 1,150 82,477 1,264 16,160 14,232
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NET PRESENT VALUE AND FUTURE NET REVENUE

The forecast prices used in the GLJ reserves report were GLJ's forecast prices as at January 1, 2007. The increase in future net revenue is due to significant reserves additions through exploration and development drilling.

The estimated future net revenues are presented before deducting future estimated site restoration costs and are reduced for future abandonment costs and estimated future capital for future development associated with non-producing, undeveloped and probable additional reserves.



Summary of Net Present Values of Future Net Revenue ($000's)
Before Income Taxes, discounted at (% / year)

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Forecast Prices December 31, 2006
Reserves Category 0% 5% 10% 15% 20%
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Proved Producing $ 138,814 $ 107,946 $ 88,990 $ 76,294 $ 67,214
Proved Non-Producing $ 84,339 $ 63,636 $ 51,337 $ 42,754 $ 36,331
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Total Proved $ 223,153 $ 171,582 $ 140,327 $ 119,048 $ 103,545
Total Probable $ 162,105 $ 100,173 $ 70,038 $ 52,544 $ 41,183
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Total Proved + Probable $ 385,258 $ 271,755 $ 210,365 $ 171,592 $ 144,728
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Forecast Prices December 31, 2005
Reserves Category 0% 10%
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Proved Producing $ 114,663 $ 81,379
Proved Non-Producing $ 101,969 $ 75,303
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Total Proved $ 216,632 $ 156,682
Total Probable $ 121,310 $ 68,743
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Total Proved + Probable $ 337,942 $ 225,425
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Although reserves increased by 13.5% year over year, the net present value of Terra Energy's reserves (PV 10%) fell by 6.7% as a result of a reduction in the natural gas price forecasts and an increase in capital costs used by GLJ. Below is a comparison of natural gas prices, used by GLJ, for reserves as at December 31, 2005 and reserves as at December 31, 2006.



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AECO - C Spot (CDN$ / MMBTU)
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Year Dec 31, 2005 Dec 31, 2006 % Difference Year over Year
Evaluation Evaluation
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1 $10.60 $7.20 (32.1%)
2 $ 9.25 $7.45 (19.5%)
3 $ 8.00 $7.75 (3.1%)
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RESERVES LIFE INDEX

Based on forecast production from the GLJ reserves report, Terra Energy's reserves life index is calculated as 11.1 years on a proved plus probable basis.



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2006 Reserves 2005 Reserves
% of Reserve % of Reserve
Forecast Life Forecast Life
Proved Reserves Production Index Production Index
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Natural Gas 83% 7.7x 80% 6.7x
Crude Oil 8% 7.7x 10% 5.3x
Natural Gas Liquids 9% 7.0x 10% 5.1x
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Total 100% 7.7x 100% 6.4x
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% of Reserve % of Reserve
Proved Plus Forecast Life Forecast Life
Probable Reserves Production Index Production Index
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Natural Gas 83% 11.4x 81% 9.5x
Crude Oil 8% 10.3x 10% 6.7x
Natural Gas Liquids 9% 9.6x 9% 6.4x
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Total 100% 11.1x 100% 8.9x
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Terra Energy's reserves life index is up from a year ago when the calculated reserves life index was 8.9 years on a proved plus probable basis. Terra Energy was able to increase its reserves life through successful exploration and development drilling which targeted long-life reserves with significant upside potential.

LAND HOLDINGS

Terra Energy increased its land position during 2006 with the majority of the additions in Terra Energy's core area of Fort St. John in North East BC, by way of Crown land sales, strategic joint ventures and by swapping non-core lands for highly prospective lands contiguous to existing Terra Energy acreage.

Terra Energy's gross acreage increased to 187,878 (145,804 net) in 2006, from 147,282 acres (107,302 net), representing an increase of 27.6% (35.9%). Below is a summary of Terra Energy Corp. acreage, broken down by province:



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December 31, 2006 December 31, 2005
Area Gross Acreage Net Acreage Gross Acreage Net Acreage
Alberta 39,840 21,582 46,400 23,764
British Columbia 144,121 120,304 97,430 80,086
Saskatchewan 3,918 3,918 3,452 3,452
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Totals 187,878 145,804 147,282 107,302
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Undeveloped Land Values % Change
Area Dec. 31, 2006 Dec. 31, 2005
Alberta $ 2,377,404 $ 2,017,217 17.9%
British Columbia $26,741,412 $17,266,643 54.9%
Saskatchewan $ 867,749 $ 971,592 (10.7%)
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Totals $29,986,565 $20,255,452 48.0%
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The undeveloped land holdings of the Company were evaluated as at December 31, 2006 by Seaton-Jordan & Associates Ltd. ("Seaton-Jordan"). The estimated value of Terra Energy's net undeveloped land holdings is approximately $30.0mm as at December 31, 2006. This valuation represents an increase of 48.0% over last year's valuation of undeveloped land as prepared by Seaton-Jordan.

NET ASSET VALUE

Terra Energy is pleased to announce the Company's Net Asset Value of $218.1mm (proved plus probable - NPV 10%), estimated as at December 31, 2006. On a per share basis, Terra Energy Net Asset Value was $2.61 / basic or $2.47/diluted.



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Forecast Net Asset Value Calculation
As at December 31, 2006

Basic Shares Outstanding 76,900,833
In the Money Warrants Outstanding (Exercise Price - $1.55) 4,843,700
In the Money Options Outstanding (Exercise Price - $1.56) 6,456,929
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Diluted Shares Outstanding 88,201,462

Estimated Assets NPV 5% NPV 8% NPV 10%
Reserve Value P+P Reserves-
Forecast Prices $271,755,000 $231,234,000 $210,365,000
Undeveloped Land (1) $ 29,986,565 $ 29,986,565 $ 29,986,565
Seismic (2) $ 6,000,000 $ 6,000,000 $ 6,000,000
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Total Assets $307,741,565 $267,220,565 $246,351,565

Estimated Liabilities
Net Debt (Dec 31, 2006 -
audited) (3) $ 45,800,000 $ 45,800,000 $ 45,800,000
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Total Liabilities $ 45,800,000 $ 45,800,000 $ 45,800,000

Forecasted Net Asset Value
(Basic) $261,941,565 $221,420,565 $200,551,565
Net Asset Value Per Share
(Basic) $ 3.41 $ 2.88 $ 2.61

Diluted Net Asset Value
In the Money Option Proceeds $ 10,072,809 $ 10,072,809 $ 10,072,809
In the Money Warrant Proceeds $ 7,499,920 $ 7,499,920 $ 7,499,920

Forecasted Net Asset Value
(Diluted) $279,514,294 $238,993,294 $218,124,294
Net Asset Value Per Share
(Basic) $ 3.17 $ 2.71 $ 2.47

Notes:
(1) As evaluated by Seaton-Jordan & Associates Ltd.
(2) Management estimate.
(3) Net debt at year end (includes working capital deficit).
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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.

The reader is also cautioned that this media release contains the term "Reserve Life Index", which is not a recognized measure under Canadian Generally Accepted Accounting Principles ("GAAP"). Management believes that this measure is a useful supplemental measure of the length of time reserves would be produced at the rate used in the calculation. Readers are cautioned, however, that this measure should not be construed as an alternative to other terms such as net income determined in accordance with GAAP as a measure of performance. Terra Energy's method of calculating this measure may differ from other companies, and accordingly, they may not be comparable to measures used by other companies.

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