high-growth junior producer
Exploration, development and acquisition of Petroleum and Natural Gas - Alberta
Message: Announces Year End Results/Filing of Annual Information Form/Operations Update
| April 3, 2009 | ||
| Arcan Resources Ltd. Announces Year End Results, Filing of Annual Information Form and Operations Update | ||
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CALGARY, ALBERTA--(Marketwire - April 3, 2009) - Arcan Resources Ltd. (TSX VENTURE:ARN) ("Arcan" or the "Company") announces today the filing of its Annual Information Form ("AIF") for the year ended December 31, 2008 and is pleased to provide an update on its operations. The AIF contains the information and reports concerning Arcan's crude oil, natural gas and natural gas liquids reserves in addition to other oil and gas information required to be provided under National Instrument 51-101 - Standards of Disclosure for Oil and Gas Activities. Arcan has also filed its annual financial statements and management's discussion and analysis for the year ended December 31, 2008. These documents, including Arcan's AIF, can be retrieved electronically from the SEDAR system under Arcan's profile at www.sedar.com. Highlights: - Net asset value of $3.77 per fully diluted share (proved plus probable before tax discounted 10%) at December 31, 2008, including the impact of Alberta's new royalty framework. This represents a 38% increase over the $2.73 (proved plus probable before tax discounted 10%) per fully diluted share as at December 31, 2007. This value increase more than offsets the significant commodity price declines and the impact of Alberta's new royalty framework. - Proved plus probable ("P+P") reserves at December 31, 2008 are 9.8 million boe, up 36% from 7.2 million boe at December 31, 2007. Arcan's P+P reserves have an approximate 18 year reserve life index based on Q4, 2008 production rates and are 76% proved and 82% light oil. - Finding, development and acquisition ("FD&A") costs for the year ended December 31, 2008 are estimated at $16.63/boe proven and $16.18/boe P+P (including changes in future capital) as a result of waterflood, driving a recycle ratio of 3.3 times based on average operating netback (revenue less royalties and operating costs) for the year estimated at $53.98/boe. - New exploration gas well discovered in Hamburg was placed on production on April 1, 2009, at rates exceeding 1,000 (500 net) boe per day. This well is expected to only pay a 5% royalty for its first 500 mmcf of production. - Deer Mountain and Hamburg GG Pool waterflood implementation projects have been successful in creating two high quality light sweet oil assets with low production declines and long reserve life. Infrastructure is in place to develop and exploit these assets. In Hamburg, the Corporation has up to 8 infill locations in the Slave Point GG Pool which are expected to have Good Production Practice ("GPP") status. In Deer Mountain, the Corporation has years of drilling inventory built by its technical team. - Bank line of $50 million confirmed to April 2010. Six Months
Year Ended Year Ended Ended
December 31, December 31, December 31,
Highlights 2008 2007 2006
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Financial ($000's, except per
share amounts)
Petroleum and natural gas revenues 48,657 27,505 6,304
Cash provided by operating
activities 23,969 11,429 2,348
Funds from operations (1) 24,553 10,927 2,689
Per share - basic (1) 0.65 0.33 0.11
Net income (loss) 7,001 (910) (318)
Per share - basic 0.19 (0.03) (0.01)
- diluted 0.18 (0.03) (0.01)
Bank loan 29,633 13,906 11,502
Total assets 149,724 123,285 82,019
Total liabilities 61,493 43,815 33,888
Shareholders' equity 88,231 79,471 48,130
Capital expenditures, net - cash 34,922 50,272 33,776
Common shares outstanding 37,869 36,492 26,534
Weighted average - basic 37,543 32,724 25,295
Weighted average - diluted (3) 38,525 32,724 25,295
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Sales Volumes
Crude oil and NGLs (bbls per day) 1,128 798 373
Natural gas (mcf per day) 2,220 2,278 1,377
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Barrels of oil equivalent
(boe per day) (2) 1,498 1,178 603
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(1) The reader is referred to the section - "Special Note Regarding
Non-GAAP Measures" in this press release.
(2) The reader is referred to the section - "BOE Presentation" in this
press release.
(3) Basic and diluted weighted average shares are the same for 2007 and
2006 as the Company incurred a loss in both of these periods.
As detailed in the table below, the net asset value ("NAV") of $3.77 per diluted share at December 31, 2008 (on the basis of proved plus probable ("P+P") reserves discounted at 10% including the impact of the New Royalty Framework for Alberta ("NRF")) has increased by 38% over December 31, 2007. This calculation is presented for December 31, 2008 and December 31, 2007 and incorporates estimates that may not be comparable year-over-year and are only at one point in time. In calculating net asset value, an independent evaluation was performed for reserves, however, land values and seismic values are based on management's estimates. The reader is cautioned that the presentation does not reflect all aspects of the Company. Certain figures for 2007 have been adjusted to reflect the estimate of the impact of the NRF by GLJ Petroleum Consultants Ltd. ("GLJ"). Estimates of net asset value do not represent fair market value. ----------------------------------------------------------------------------
Net Asset Value December 31, 2008 December 31, 2007
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(P+P (P+P (P+P (P+P
($000s except number discounted discounted discounted discounted
of shares and per share) at 5%) at 10%) at 5%) at 10%)
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Present value of reserves 226,925 171,457 163,488 127,302
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Undeveloped acreage
(2007 - $290 per acre) 11,062 11,062 9,542 9,542
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Seismic 800 800 1,000 1,000
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Working capital deficit (40,406) (40,406) (30,141) (30,141)
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Dilution proceeds (1) 0 0 4,789 4,789
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Estimated value 198,381 142,913 148,678 112,495
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Shares (thousands) 37,869 (1) 37,869 (1) 41,239 41,239
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Estimated NAV per share (1) 5.24 3.77 3.61 2.73
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(1) Share figures for 2008 only include the 37,868,560 common shares of
Arcan outstanding as all other convertible securities were
non-dilutive. For 2007, shares include all dilutive securities
namely: 36,491,555 common shares; the 6,550,400 Performance Shares
convertible into 1,335,005 common shares (which conversion was affected
in March, 2008); 1,500,000 performance warrants exercisable at $1.00
per share; 598,631 warrants exercisable at an average of $1.93 per
share; and 1,313,500 stock options that are in the money at their
average exercise price of $1.38 (these were all dilutive securities
exercisable below the $2.37 December 31, 2007 share trading price).
The values below are based on the Company's December 31, 2008 reserve report prepared by GLJ that is summarized in the AIF being filed concurrently on SEDAR. Estimates of future net revenue do not represent fair market value. Overview The world changed significantly in 2008. What started as a year of record oil prices ended with one of the most disappointing years on record. Declines in commodity prices, imminent increases in royalty rates, financial liquidity crises and massive sell-offs in equity markets marked the end of 2008. Arcan's share price has not been immune to the market's collapse. In spite of external forces, Arcan had an excellent year highlighted by low finding costs, solid reserves additions and growth in NAV per share. These efforts culminated in a 38 percent increase in NAV to $3.77 per diluted share at December 31, 2008 over $2.73 per diluted share at December 31, 2007. While Arcan is not emphasizing short-term cash flow, focusing instead on building long-term value for the future, Arcan's high netbacks and record funds from operations of just under $25 million in 2008 (well over double Arcan's 2007 funds from operations of $10.9 million) provided funding for a large proportion of Arcan's $34.9 million net capital program. This helped Arcan avoid taking on too much debt, placing it in a strong financial position to weather the current challenging times. Late in 2008, Arcan increased bank lines to $50 million based on the solid reserve and NAV additions. Arcan expects to self fund through 2009 on cash flow from operations and its bank line which has been reviewed and is now secured until April 2010. To support its cash flow, Arcan has entered into a fixed price oil swap contract to receive $64.40 per barrel in exchange for Canadian dollar WTI on oil production of 500 barrels per day for the period from April 1 to December 31, 2009. While the last year was one of tremendous challenges and changes, Arcan's management saw the value that grows from investing in solid assets. Arcan focused on its core light oil properties. In Deer Mountain, Arcan added value through drilling, waterflood and increasing its land base from approximately 14 to 64 sections of contiguous land. At Hamburg, Arcan achieved GPP on its Slave Point GG oil pool in February 2009. Arcan expects to increase production on this property by adding pump jacks and implementing water injection in the middle of the pool. Also, Arcan is reviewing drilling plans in light of the recent Alberta royalty reduction incentives. For 2009, Arcan plans to prudently invest in capital items within its cash flow and secure bank lines. Arcan expended $34.9 million ($38.4 million including future tax on the conversion of its performance shares) on its properties and infrastructure during the year ended December 31, 2008, expanding net asset value by $44.2 million and replacing production by 6.0 times over December 31, 2007. Arcan's investments left it with an 18 year reserve life, based on its fourth quarter 2008 production rate, weighted 82% towards light oil and an inventory of 9.8 mboe of proved plus probable reserves. For 2008 Arcan had record funds from operations of $24.6 million and a recycle ratio of 3.3 times based on proved plus probable finding, development and acquisition costs of $16.18 per boe and a 2008 corporate netback (operating netback less per boe general and administrative and interest expense) of $53.98 per boe. Arcan exited 2008 with $40.4 million in debt and working capital and for 2009 anticipates remaining within cash flow and its $50 million in bank lines. Arcan endured 2008 with production from a number of very productive wells under regulatory limitations. In February 2009 Arcan received GPP in its Hamburg GG pool. Arcan is in the process of converting one well to a water injector well and is putting pump jacks on two other producing wells. When gas/oil ratios have stabilized Arcan will lift production and expects to add significant production volumes. Production from 2008 was weighted to Arcan's two light oil properties, as anticipated based on 2007 and 2008 investments in these two areas. Production was 1,498 boe per day, a 27% increase from 1,178 boe per day average production for the year ended December 31, 2007. For the three months ended December 31, 2008 production was 1,468 boe per day which is higher than the 1,122 boe per day average production for the three months ending December 31, 2007. In 2008, the true potential and value of Arcan's core areas have started to come to light, and what Arcan has achieved so far is only the beginning. Paramount to Arcan and to its management team, is adding value for the Company's shareholders. We have taken a consistent approach to building solid assets and avoiding short-life, low interest and non-core diversions. The statistics looked strong in 2007 and even stronger in 2008. Arcan again posted over 30 percent year-over-year growth in reserves, boasts an 18 year reserve life index, grew its production base by over 30 percent, focused on light oil and built a strong asset base with a large number of solid drilling locations with low risk profiles, high reserve potential and high operating netbacks. This was a solid start. For 2008, Arcan's management said that it would focus on value and that investments in infrastructure would result in better capital efficiencies and Arcan succeeded with a 3.3 recycle ratio. Arcan expects to maintain its production base in 2009, supplemented by the new 50% working interest exploration natural gas well onstream on April 1, 2009, through a prudent level of investment based on anticipated cash flow. As commodity prices warrant, Arcan will take advantage of its infill drilling locations in the Hamburg GG pool, which is expected to add significant volumes to its production base. Arcan's production base has strengthened and it has added an enviable depth of inventory in each of the three main properties. Earlier investments provide the Company with a long-life, highly concentrated, Company-controlled asset base. Metrics from 2008 show how Arcan can reap the rewards that Arcan's management believe come with such an asset base. For 2009, Arcan is implementing plans to hold down costs and turn drilling success and water injection into solid reserve bookings, allowing Arcan to continue to solidify its value. At December 31, 2008 Arcan had 12 office employees and 9 full time field employees. On March 2, 2009 Arcan issued a press release providing information on its oil and gas reserves as of December 31, 2008 as well as unaudited estimates of certain items relating to its year-end 2008 financial results. Additional information regarding Arcan's annual results including the AIF, the management's discussion and analysis for the three and twelve month periods ending December 31, 2008 and the three and twelve month periods ending December 31, 2007 and the audited financial statements for the year ended December 31, 2008 and for the year ended December 31, 2007, together with the notes related thereto, are being filed by Arcan concurrently with this press release and will be available under Arcan's SEDAR profile at www.sedar.com. Arcan Resources Ltd. is an Alberta, Canada corporation that is principally engaged in the exploration, development and acquisition of petroleum and natural gas located in Canada's Western Sedimentary Basin. Arcan has 37,868,560 common shares, 586,631 Warrants, 1,500,000 performance warrants, and 3,638,500 stock options outstanding. BOE Presentation - Production and reserve information is commonly reported in units of barrel of oil equivalent ("boe"). For purposes of computing such units, natural gas is converted to equivalent barrels of oil using a conversion factor of six thousand cubic feet to one barrel of oil. BOEs may be misleading, particularly if used in isolation. A BOE conversion ratio of six thousand cubic feet of natural gas to one barrel of oil (i.e., 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. Readers should be aware that historical results are not necessarily indicative of future performance. |
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