Veteran Resources Inc.
TSX : VTI

Veteran Resources Inc.

November 14, 2005 09:00 ET

Veteran Resources Inc. Announces 2005 Third Quarter Results

CALGARY, ALBERTA--(CCNMatthews - Nov. 14, 2005) - Veteran Resources Inc. (TSX:VTI) ("Veteran" or the "Company"):

A Message from the President:

As announced on November 4, 2005, Veteran has entered into an agreement with Bear Ridge Resources Ltd. ("Bear Ridge"), pursuant to which Bear Ridge will acquire all of the shares of Veteran, under a plan of arrangement, subject to the approval of the Veteran shareholders. A management information circular and proxy statement, providing details of the proposed transaction, will be mailed to Veteran's shareholders in mid-December and voted upon at the Special Shareholders' Meeting scheduled for January 17, 2006.

Veteran's Board of Directors has unanimously approved the transaction supported by the management and staff of Veteran. The Bear Ridge team has a proven track record of growth and we believe has the resources to take the assets of Veteran to the next level. We believe that the combination of the two companies will provide the critical mass required to be more competitive in the Peace River Arch (PRA) area while providing a diversification of risk through multiple core areas.

Both companies are exploration oriented and favour growth from the drill bit. The companies have therefore agreed that drilling and development activity should continue at Veteran, until the time of completion of the plan of arrangement, as reflected in Veteran's Board approving an increase in the 2005 capital budget by $6 million to $27 million. The budget increase is to support accelerated drilling programs at Gunnell and Earring, both of which are underway and will continue into 2006.

During the third quarter Veteran participated in the drilling of 4 (2.4 net) wells resulting in two oil wells and two natural gas wells for a 100 percent success rate. To date the Company has participated in 28 (14.2 net) wells with an 81 percent success rate. During the fourth quarter, Veteran expects to participate in 14 (4.6 net) wells. In total, Veteran anticipates drilling 35 (16.7 net) wells in 2005. As a result of this ongoing success, current production now exceeds 2,000 boe per day.

Gunnell, BC

Drilling has commenced on the 15 (3.3 net) well horizontal drilling program that will continue into 2006. To date, two wells have been drilled and are being completed as natural gas wells. The third is currently drilling. In total six (1.3 net) wells are expected to be drilled by year-end.

Earring, AB

The Company has been actively acquiring land, supported by 430 square kilometres of three dimensional seismic, in the Earring area and has accumulated 27,700 (15,600 net) acres with an additional 1,900 (400 net) acres to be earned by farmin. The first well of the fourth quarter drilling program, is currently drilling, with a total of 3 (1.5 net) wells expected to be drilled by year-end.

Gordondale, AB

To date Veteran has drilled three wells in the Gordondale area, all Dunvegan Formation natural gas wells. Two (1.83 net) wells have been tied-in and are currently producing at 220 boe per day net to Veteran. A third discovery, in which the Company has 100 percent working interest, is awaiting pipeline construction and is expected to be on stream in December.

In closing, I would like to thank the shareholders for their continued support which has resulted in what is now, I believe, the start of a new level of growth. I would also like to thank the Board of Directors for believing in management's vision which has now come to fruition. Finally, I would like to acknowledge Veteran's staff for their hard work and commitment to implementing our ambitious growth strategy over the last 15 months.



HIGHLIGHTS

Three months ended September 30,
2005 2004 Change
------------------------------------------------------------------------
(Restated
- Note 1)
FINANCIAL (unaudited)
Oil and natural gas revenues $ 7,916,185 $ 2,415,500 228%

Funds from operations (1) $ 4,759,585 $ 1,187,555 301%
Per common share - basic $ 0.07 $ 0.02
Per common share - diluted $ 0.07 $ 0.02

Net earnings $ 2,006,142 $ 328,815 510%
Per common share - basic $ 0.03 $ 0.01
Per common share - diluted $ 0.03 $ 0.01

Capital expenditures $ 7,399,491 $ 1,546,070 379%
Property dispositions $ (190,810) $ - -
--------------
$ 7,208,681

Working capital deficiency,
including bank loan

Shareholders' equity

Common shares outstanding
September 30
Basic 67,265,372 57,928,706 16%
Weighted average - basic 66,273,144 57,928,706 14%
Diluted 72,189,706 67,101,706 8%

OPERATIONS
Average daily sales
Natural gas (mcf per day) 5,578 1,969 183%
Crude oil (bbl per day) 416 216 93%
Natural gas liquids (bbl per day) 52 33 57%

Barrels of oil equivalent
(boe per day) 1,397 577 142%

Average sales price
Natural gas (per mcf) $ 9.66 $ 6.79 42%
Crude oil (per bbl) $ 69.10 $ 52.58 31%
Natural gas liquids (per bbl) $ 65.80 $ 46.41 42%

Netback pricing (per barrel of
oil equivalent)
Oil and natural gas revenues $ 61.59 $ 45.51 35%
Royalties $ (11.61) $ (6.43) 80%
Production $ (8.89) $ (9.96) -11%
------------------------------------
$ 41.09 $ 29.12 41%
------------------------------------
------------------------------------

------------------------------------------------------------------------
Wells drilled
Gross 4 -

Net 2.39 -

Success rate 100% -
------------------------------------------------------------------------


HIGHLIGHTS

Nine months ended September 30,
2005 2004 Change
------------------------------------------------------------------------
(Restated
- Note 1)
FINANCIAL (unaudited)
Oil and natural gas revenues $ 15,949,284 $ 6,566,625 143%

Funds from operations (1) $ 8,610,504 $ 3,130,765 175%
Per common share - basic $ 0.13 $ 0.05
Per common share - diluted $ 0.13 $ 0.05

Net earnings $ 2,940,584 $ 340,259 764%
Per common share - basic $ 0.05 $ 0.01
Per common share - diluted $ 0.04 $ 0.01

Capital expenditures $ 21,176,864 $ 5,390,746 293%
Property dispositions $ (1,706,236) $ - -
--------------
$ 19,470,628

Working capital deficiency,
including bank loan $ 13,079,025 $ 5,264,440 148%

Shareholders' equity $ 32,996,767 $ 22,365,517 48%

Common shares outstanding
September 30
Basic 67,265,372 57,928,706 16%
Weighted average - basic 63,794,780 57,914,246 10%
Diluted 72,189,706 67,101,706 8%

OPERATIONS
Average daily sales
Natural gas (mcf per day) 4,195 1,813 131%
Crude oil (bbl per day) 317 217 46%
Natural gas liquids (bbl per day) 44 26 69%

Barrels of oil equivalent
(boe per day) 1,060 545 95%

Average sales price
Natural gas (per mcf) $ 8.63 $ 6.82 27%
Crude oil (per bbl) $ 61.55 $ 48.38 27%
Natural gas liquids (per bbl) $ 60.96 $ 42.18 45%

Netback pricing (per barrel of
oil equivalent)
Oil and natural gas revenues $ 55.11 $ 43.96 25%
Royalties $ (9.66) $ (6.37) 52%
Production $ (9.83) $ (9.17) 7%
------------------------------------
$ 35.62 $ 28.42 25%
------------------------------------
------------------------------------

------------------------------------------------------------------------
Wells drilled
Gross 21 8

Net 12.10 2.30

Success rate 78% 63%
------------------------------------------------------------------------

(1) Funds from operations is a non-GAAP measure that represents cash
generated from operating activities before changes in non-cash
working capital and is used by the Company to analyze operating
performance, leverage and liquidity. Funds from operations may not
be comparable to similar measures used by other companies.

All calculations converting natural gas to crude oil equivalent in this
report have been made using an industry accepted ratio of six thousand
cubic feet of natural gas to one barrel of crude oil.


BALANCE SHEETS
(Unaudited)

As at September 30, 2005 December 31, 2004
------------------------------------------------------------------------
ASSETS

Current
Accounts receivable $ 9,011,299 $ 3,076,374
Prepaid expenses 198,131 134,755
------------------------------------------------------------------------
9,209,430 3,211,129

Capital assets (Note 2) 51,140,048 34,436,786
------------------------------------------------------------------------
$ 60,349,478 $ 37,647,915
------------------------------------------------------------------------
LIABILITIES

Current
Bank overdraft $ 3,853,507 $ 254,684
Accounts payable and
accrued liabilities 8,306,948 5,957,296
Bank loan (Note 3) 10,128,000 5,528,000
------------------------------------------------------------------------
22,288,455 11,739,980

Asset retirement obligations
(Note 4) 2,221,457 1,670,088

Future income taxes 2,842,799 1,101,272

Contingencies (Note 9)

SHAREHOLDERS' EQUITY
Share capital (Note 5) 28,115,789 21,702,999
Contributed surplus (Note 6) 811,595 304,777
Retained earnings (Note 5) 4,069,383 1,128,799
------------------------------------------------------------------------
32,996,767 23,136,575
------------------------------------------------------------------------
$ 60,349,478 $ 37,647,915
------------------------------------------------------------------------
------------------------------------------------------------------------


STATEMENTS OF EARNINGS AND RETAINED EARNINGS (DEFICIT)
(Unaudited)
------------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
2005 2004 2005 2004
------------------------------------------------------------------------
REVENUES
Oil and natural gas $ 7,916,185 $ 2,415,500 $ 15,949,284 $ 6,566,625
Royalties,
net of ARTC (1,491,801) (341,509) (2,795,457) (952,097)
------------------------------------------------------------------------
6,424,384 2,073,991 13,153,827 5,614,528
------------------------------------------------------------------------

EXPENSES
Production 1,142,259 528,928 2,846,417 1,369,110
General and
administrative 560,967 332,039 1,796,836 1,099,413
Financing charges 147,224 63,587 432,915 158,770
Depletion,
depreciation
and accretion 1,553,335 809,639 3,467,925 2,621,627
------------------------------------------------------------------------
3,403,785 1,734,193 8,544,093 5,248,920
------------------------------------------------------------------------

Earnings before taxes 3,020,599 339,798 4,609,734 365,608
Capital taxes - 10,983 - 25,349
Future income taxes
(note 7) 1,014,457 - 1,669,150 -
------------------------------------------------------------------------

Net earnings for
the period 2,006,142 328,815 2,940,584 340,259
Retained earnings
(deficit),
beginning of period 2,063,241 11,444 1,128,799 (6,844,903)
Elimination of
deficit through
reduction of
share capital (Note 5) - - - 6,844,903
------------------------------------------------------------------------
Retained earnings,
end of period $ 4,069,383 $ 340,259 $ 4,069,383 $ 340,259
------------------------------------------------------------------------
------------------------------------------------------------------------
Earnings per common
share (Note 5)
Basic $ 0.03 $ 0.01 $ 0.05 $ 0.01
------------------------------------------------------------------------
------------------------------------------------------------------------
Diluted $ 0.03 $ 0.01 $ 0.04 $ 0.01
------------------------------------------------------------------------
------------------------------------------------------------------------


STATEMENTS OF CASH FLOWS
(Unaudited)
------------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
2005 2004 2005 2004
------------------------------------------------------------------------
(restated - (restated -
Note 1) Note 1)
OPERATING ACTIVITIES

Net earnings
for the period $ 2,006,142 $ 328,815 $ 2,940,584 $ 340,259
Non-cash items
Stock-based
compensation 185,651 49,101 532,845 168,879
Depletion,
depreciation
and accretion 1,553,335 809,639 3,467,925 2,621,627

Future income taxes 1,014,457 - 1,669,150 -
------------------------------------------------------------------------
Funds from operations 4,759,585 1,187,555 8,610,504 3,130,765
Expenditures on asset
retirements (9,068) (94,180) (149,194) (150,694)
Changes in non-cash
working capital (527,071) (253,767) (1,948,229) (175,648)
------------------------------------------------------------------------
4,223,446 839,608 6,513,081 2,804,423
------------------------------------------------------------------------

FINANCING ACTIVITIES
Bank loan (2,550,000) 1,700,000 4,600,000 4,900,000
Proceeds on issuance
of common shares 6,409,000 - 6,903,750 -
Costs on issuance of
common shares (444,608) - (444,608) 39,710
------------------------------------------------------------------------
3,414,392 1,700,000 11,059,142 4,939,710
------------------------------------------------------------------------

INVESTING ACTIVITIES
Capital asset
additions (7,399,491) (1,546,070) (21,176,864) (5,390,746)
Capital asset
dispositions 190,810 - 1,706,236 -
Changes in non-cash
working capital (1,021,374) 26,847 (1,700,418) (1,886,212)
------------------------------------------------------------------------
(8,230,055) (1,519,223) (21,171,046) (7,276,958)

Increase
(decrease) in cash (592,217) 1,020,385 (3,598,823) 467,175
Cash (bank overdraft),
beginning of period (3,261,290) (222,979) (254,684) 330,231
------------------------------------------------------------------------
Cash (bank overdraft),
end of period $(3,853,507)$ 797,406 $ (3,853,507)$ 797,406
------------------------------------------------------------------------
------------------------------------------------------------------------

Taxes Paid $ - $ 10,983 $ - $ 57,403
Interest paid $ 147,224 $ 59,305 $ 437,146 $ 149,050


Caution to Reader

This report contains forward-looking statements and the reader is cautioned not to place undue reliance on these statements, as there can be no assurance that the plans, intentions or expectations upon which they are based will occur. By their nature, forward-looking statements involve numerous assumptions, known and unknown risks and uncertainties, both general and specific, that contribute to the possibility that the predictions, forecasts, projections and other forward-looking statements will not occur. Although Veteran believes that the expectations represented by such forward-looking statements are reasonable, there can be no assurance that such expectations will prove to be correct. These statements are based on current expectations that involve a number of risks and uncertainties including but not limited to: the risks associated with the oil and gas industry (e.g., operational risks in development, exploration, and production; the uncertainty of reserve estimations; the uncertainty of estimates and projections relating to production, costs and expenses, and health, safety, and environmental risks), commodity price and exchange rate fluctuations 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 Veteran's operations or financial results are included in Veteran's reports on file with regulatory authorities. The Company cautions that events or circumstances could cause actual results to differ materially from those projected. Particular risks related to the forward-looking statements addressed above are:

- Actual drilling results achieved in 2005 may differ from the levels of risk assigned by the Company, or the Company's drilling program could change if results are not as estimated, which will affect estimates of production volumes and cash flows.

- Actual prices received by the Company for its commodity sales may differ from the pricing estimates used in projections, based upon forecasts utilized by the Company's independent reservoir engineers Sproule Associates Limited, which will affect estimates of cash flows.

- The average estimated 2005 foreign exchange rate, based upon a forecast utilized by the Company's independent reservoir engineers Sproule Associates Limited, may differ from actual exchange rates for the year, which will affect estimates of cash flows.

- Actual interest rates may differ from estimates used by the Company which will affect estimates of cash flows.

- The cost of materials and services required to complete the 2005 drilling program may differ from cost estimates used by the Company. If this difference is significant, there may be an impact on the number of wells drilled in 2005 by the Company.

- The cost of materials and services required to operate producing wells may differ from cost estimates used by the Company which will affect estimates of cash flows.

Conversion

Boe's are derived by converting natural gas to oil in the ratio of 6 mcf to 1 bbl. Boe's may be misleading, particularly if used in isolation. A boe conversion ratio of 6 mcf to 1 bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent an equivalency at the wellhead.

Contact Information

  • Veteran Resources Inc.
    Philip J. Loudon
    President and Chief Executive Officer
    (403) 699-8629
    or
    Veteran Resources Inc.
    J. Peter Henry
    Vice President and Chief Financial Officer
    (403) 699-8632
    Website: www.veteranresources.net