TRAFINA Energy Ltd.
TSX VENTURE : TFA.A

TRAFINA Energy Ltd.

August 25, 2011 19:05 ET

Trafina Announces Initial Production from McMullen, Slant Well Development Plan and Q2 2011 Results

CALGARY, ALBERTA--(Marketwire - Aug. 25, 2011) -

NOT FOR DISTRIBUTION TO U.S. NEWS WIRE SERVICES OR FOR DISSEMINATION IN THE U.S.

Trafina Energy Ltd. (TSX VENTURE:TFA.A) ("Trafina" or the "Company") is pleased to announce production from its McMullen lands, its initial slant well development plan and results for the three and six months ended June 30, 2011. Trafina's second quarter 2011 financial statements and management's discussion and analysis will be made available on SEDAR at www.sedar.com and are also available on the Company's website at www.trafinaenergy.com.

OPERATIONAL UPDATE

Trafina continues to execute its strategy of increasing its oil weighting. Subsequent to June 30, 2011, three vertical heavy oil wells at McMullen have been drilled, cased, completed and are on production. Based on raw field data gathered over the past two weeks, the 5-28-77-25W4 well is currently producing approximately 40 barrels of oil per day and the 16-28-77-25W4 well is currently producing approximately 30 barrels of oil per day. The 11-28-77-25W4 well was placed on production on August 23, 2011 therefore production has yet been established. The wells are being produced at restricted rates in order to alleviate sand production which is a necessary part of the initial production process. As the percentage of sand being produced drops, the wells may be sped up. At present, none of the wells are producing any water but historical area production would signify that water production will eventually be part of the total production phase. Trafina is extremely pleased with the initial production rates of the three wells at McMullen. Production and sales are part of a two-tank cascading system which is present at each well. This means that sales oil is not available until it 'cascades' from the production tank into the sales tank. It should be noted that raw field production and actual sales may differ. Oil sales are expected to occur in September 2011.

On March 11, 2011 the Corporation filed a Primary Recovery Scheme application ("PRSA") with the Energy Resources Conservation Board. Trafina expects approval of the PRSA prior to the end of the third quarter, 2011. Under the PRSA as many as eight slant wells may be drilled from each existing vertical well surface lease. Given the success of its vertical well drilling, the Corporation is moving to the next phase of development. Under its revised capital program Trafina expects to drill up to eight slant wells that effectively exploit one quarter section of reserves from the 5-28 well. Subject to board approval and adequate financing capability, Trafina expects to drill additional slant wells in 2012. The slant wells would be drilled from the existing vertical well surface location thereby reducing developmental footprints. The Corporation's economic modeling assumed that two vertical wells of the original five vertical evaluation wells expected to be drilled would meet the geological, reservoir and production thresholds required to justify the drilling of eight slant wells per quarter section. Trafina is pleased with the success of its drilling program whereby all three vertical wells were successful. In addition to its slant well development program, during the upcoming winter Trafina plans to execute a 3D seismic program across several prospective areas of Trafina's McMullen lands in order to identify potential future drilling locations.

As previously disclosed viscosity, pay and pressure (being three of the crucial elements necessary for commercial production) were confirmed with the drilling of the vertical evaluation wells. The electric logs of the three vertical wells are analogous to several wells drilled by another operator in the property immediately adjacent to the Trafina McMullen lands. Trafina's management believes the Company's significant heavy oil prospects offer the potential for exponential growth in reserves, production and cash flow.

In addition to McMullen, the Company is continuing to develop its oil prospect at Pembina in Alberta. At the time of writing, two additional Cardium wells have been drilled and cased and are awaiting multi-stage fracturing operations which are scheduled to occur in early September. These oil prospects are all supported by stable natural gas production at Wetaskiwin, Alberta.

Q2 2011 HIGHLIGHTS

  • Completed a public offering of $9.0 million.
  • Reduced the Company's net debt and working capital deficiency by 63 percent from Q2 2010.
  • Completed construction of an all-access road and five drilling locations at Trafina's heavy oil project in the McMullen area of Northeastern Alberta.
  • Sets up a three vertical well evaluation drilling program at McMullen which commenced in July.
  • Commenced the drilling of a second horizontal Cardium well at Pembina in June which was subsequently rig-released in late July.
  • Sold various non-core properties for gross proceeds of $0.45 million.
  • Renewed the credit facility agreement with a Canadian chartered bank with up to $5.8 million of borrowing capacity.

SELECTED FINANCIAL INFORMATION

For the three months ended June 30,
2011 2010 % Change
Total petroleum and natural gas revenue ($) 1,302,854 1,275,671 +2
Royalties ($) 117,330 129,710 -10
Operating, processing, and transportation expenses ($) 810,128 889,492 -9
Funds flow used-in operations(1) ($) (146,024 ) (73,035 ) +100
per basic and diluted common share ($) --- ---
Weighted average basic shares outstanding 49,748,788 18,425,034 +170
Loss before income taxes ($) 273,497 667,676 -59
Net loss ($) 273,497 642,533 -57
per basic and diluted common share ($) 0.01 0.03
Net capital expenditures (dispositions) - cash ($) 975,064 (563,895 )
Total assets ($) 18,960,323 16,674,841 +14
Net debt and working capital deficiency(2) ($) 1,364,826 3,667,818 -63
  1. Funds flow used in operations is a Non-IFRS Measure. See "Non-IFRS Measures" in this MD&A.
  2. Net debt and working capital deficiency consists of current assets minus current liabilities less effects of commodity contracts.
For the six months ended June 30,
2011 2010 % Change
Total petroleum and natural gas revenue ($) 2,839,963 2,770,306 +3
Royalties ($) 257,507 334,973 -23
Operating, processing, and transportation expenses ($) 1,873,273 2,034,335 -8
Funds flow used-in operations(1) ($) (363,098 ) (416,048 ) -13
per basic and diluted common share ($) --- (0.02 )
Weighted average basic shares outstanding 39,899,742 18,359,814 +117
Loss before income taxes ($) 1,339,734 2,237,295 -40
Net loss ($) 1,209,734 1,956,637 -38
per basic and diluted common share ($) 0.03 0.11
Net capital expenditures - cash ($) 2,971,983 707,906 +320
Total assets ($) 18,960,323 16,674,841 +14
Net debt and working capital deficiency(2) ($) 1,364,826 3,667,818 -63
  1. Funds flow used in operations is a Non-IFRS Measure. See "Non-IFRS Measures" in this MD&A.
  2. Net debt and working capital deficiency consists of current assets minus current liabilities less effects of commodity contract s.

About Trafina

Trafina is a junior oil and gas company based in Calgary, Alberta. The Company's main areas of interest are in the McMullen and Pembina areas of Alberta and in the Rangeview and Divide areas of southwest Saskatchewan with other operated and non-operated production in Wetaskiwin. Trafina's shares trade on the TSX Venture Exchange under the stock symbol TFA.A and warrants trade under the stock symbol TFA.WT.A.

Basis of Presentation and Cautionary Statement: Information in this press release expressed in boes is derived by converting natural gas to oil in the ratio of six thousand cubic feet (mcf) of natural gas to one barrel (bbl) of oil. Boes may be misleading, particularly if used in isolation. A boe conversion ratio of 6 mcf: 1 bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

Non-IFRS Measures: This news release uses the term "funds flow used in operations," which is not defined under IFRS and should not be considered an alternative to, or more meaningful than, cash flow from (used in) operating activities as determined in accordance with IFRS as an indicator of the Company's performance. Trafina's determination of funds flow used in operations may not be comparable to that reported by other companies. The Company also presents funds flow used in operations per share whereby per share amounts are calculated using weighted average shares outstanding consistent with the calculation of earnings per share. Management believes that in addition to cash flow from operating activities, funds flow used in operations is a useful supplemental measure as it demonstrates Trafina's ability to generate cash necessary to repay debt or fund future growth through capital investment before changes in non-cash working capital balances. Investors are cautioned, however, that the measure should not be construed as an alternative to cash flow from operating activities determined in accordance with IFRS as an indication of Trafina's performance. See Trafina's MD&A for a reconciliation of cash flow used in operating activities to funds flow used in operations.

Forward Looking Statements: This news release contains forward looking statements and forward looking information based on management's current expectations regarding the timing of completing the Pembina well, as well as the timing and approval of the PRSA, the number of slant wells authorized under the PRSA, the drilling of future slant wells and the execution of a 3-D seismic program. Operational forward looking information is based on management's expectations regarding actual production rates from the three McMullen wells, future growth in reserves and cash flow, results of operations, future commodity prices and foreign exchange rates, future capital and other expenditures (including the amount, nature and sources of funding thereof), plans for and results of drilling activity, environmental matters, business prospects and opportunities and future economic conditions. Readers are cautioned that assumptions used in the preparation of such information, although considered reasonable at the time of preparation, may prove to be incorrect. Forward looking statements involves significant known and unknown risks and uncertainties. Reference is made to Trafina's revised annual information form for the year ended December 31, 2010 dated April 8, 2011 and management's discussion and analysis for the year ended December 31, 2010 for a description of some of the risks that could affect the Company's future results and could cause results to differ materially from those expressed in the Company's forward looking statements. The forward looking statements contained in this news release are made as at the date hereof and, except as required by applicable securities laws, Trafina does not undertake any obligation to update publicly or otherwise any such statements.

Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

Contact Information

  • Trafina Energy Ltd.
    Kelly J. Ogle
    President and Chief Executive Officer
    (403) 263-0800
    (403) 263-0811 (FAX)
    info@trafinaenergy.com

    Trafina Energy Ltd.
    Robert W. Lamond
    Chairman
    (403) 269-9889
    (403) 269-9890 (FAX)
    www.trafinaenergy.com