Storm Resources Ltd. ("Storm" or the "Company") is Pleased to Announce Its Financial and Operating Results For the Three and ...
18 August 2011 - 9:26AM
Marketwired Canada
Storm Resources Ltd. (TSX VENTURE:SRX)
Storm has also filed its unaudited condensed interim financial statements as at
June 30, 2011 and for the three and six months then ended along with the
Management's Discussion and Analysis ("MD&A") for the same period. This
information appears on SEDAR at www.sedar.com and on Storm's website at
www.stormresourcesltd.com.
Selected financial and operating information for the three and six months ended
June 30, 2011 appears below and should be read in conjunction with the related
financial statements and MD&A.
Consolidated Highlights
Three
Thousands of Cdn$, except volumetric and per Months to Six Months to
share amounts June 30, 2011 June 30, 2011
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FINANCIAL
Gas sales 1,011 1,412
NGL sales 177 274
Oil sales 748 1,231
Royalty income - -
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Production revenue 1,936 2,917
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Funds from operations (1) 710 769
Per share - basic ($) 0.03 0.03
Per share - diluted ($) 0.03 0.03
Net income (loss) (562) (883)
Per share - basic ($) (0.02) (0.03)
Per share - diluted ($) (0.02) (0.03)
Capital expenditures, net of dispositions 2,012 11,714
Cash plus accounts receivable less accounts
payable 12,224 12,224
Weighted average common shares outstanding
(000s)
Basic 26,377 26,377
Diluted 26,377 26,377
Common shares outstanding (000s)
Basic 26,377 26,377
Fully diluted 28,391 28,391
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OPERATIONS
Oil equivalent (6:1)
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Barrels of oil equivalent (000s) 54 79
Barrels of oil equivalent per day 595 436
Average selling price (Cdn$ per Boe) 35.74 36.93
Royalties
Gas production
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Thousand cubic feet (000s) 269 379
Thousand cubic feet per day 2,958 2,094
Average selling price (Cdn$ per Mcf) 3.76 3.72
NGL Production
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Barrels (000s) 2 3
Barrels per day 22 18
Average selling price (Cdn$ per barrel) 86.53 85.50
Oil Production
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Barrels (000s) 7 13
Barrels per day 80 69
Average selling price (Cdn$ per barrel) 103.20 97.85
Wells drilled
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Gross - -
Net - -
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(1) Funds from operations and funds from operations per share are non-GAAP
measurements. See discussion of Non-GAAP Measurements on page 5 of the
MD&A and the reconciliation of funds from operations to the most
directly comparable measurement under GAAP, "Cash Flows from Operating
Activities", on page 11 of the MD&A.
PRESIDENT'S MESSAGE
SECOND QUARTER 2011 HIGHLIGHTS
-- Production averaged 595 Boe per day for the quarter which represents
115% growth from first quarter production of 276 Boe per day. As Storm
Resources Ltd. ("Storm" or the "Company") commenced operations August
17, 2010, there is no prior year comparison.
-- Production performance of the first horizontal development wells in the
Montney at Umbach and in the Muskwa/Otter Park shales of the Horn River
Basin continue to meet expectations with declines moderating on both
horizontals throughout the quarter.
-- The first of four follow-up horizontals to be drilled at Umbach in the
second half of 2011 was cased in early July and completion with 10
fracture stimulations is under way. Drilling of the second horizontal
commenced in early August.
-- Operating netback was $25.98 per Boe and non-GAAP funds from operations
was $0.7 million in the second quarter.
-- Capital investment was $2.0 million with major expenditures being $0.7
million for land acquisition and $0.8 million for drilling.
-- At June 30, 2011, Storm's net funds available for investment (working
capital surplus excluding prepaids) were $12.2 million and the value of
Storm's investments in publicly listed companies totaled $9.6 million
(proceeds from the possible future sale of these securities may be used
to finance the Company's capital programs).
OPERATIONS REVIEW
Horn River Basin ("HRB"), North East British Columbia
Storm's undeveloped land position in the HRB totals 120 gross sections at a 40%
working interest (31,200 net acres) and is prospective for natural gas from the
Muskwa, Otter Park and Evie/Klua shales. This land position was acquired jointly
with Storm Gas Resource Corp. ("SGR") which owns the remaining 60% working
interest. Storm owns 2.5 million shares of SGR representing 22% equity
ownership, giving Storm exposure to 53% of the upside in the HRB when combined
with the 40% working interest in the undeveloped lands. In July 2011, SGR
announced a decision by its board of directors (the "Board") to enter into a
review of strategic alternatives in order to maximize shareholder value. The
process of reviewing strategic alternatives will be overseen by a special
committee comprised of the independent directors of the Board. SGR has not set a
definitive schedule to complete this review.
During the second quarter, production from this area averaged 350 Boe per day
net to Storm at an operating netback of $14.81 per Boe. The first horizontal
well (0.4 net) was completed with 12 fracture treatments, commenced production
March 7, 2011 at a rate of 6.5 Mmcf per day gross raw gas and averaged 5.8 Mmcf
per day gross raw gas in the second quarter. Current production is approximately
5.0 Mmcf per day gross raw gas, or 290 Boe per day sales net to Storm, after
accounting for 12% shrinkage. The rate is restricted by 2 3/8" tubing and high
gathering system pressures (tubing pressure 800 psig, casing pressure 1,280
psig) which has resulted in production declining at a relatively moderate
annualized rate of 35% since early May. A second horizontal well (40% working
interest) drilled in late 2010 may be completed in the fourth quarter of 2011
depending on natural gas prices and potential reserve additions from additional
undrilled horizontal locations that would be recognized with a successful
completion. At current natural gas prices, Storm expects that no royalties will
be paid on production from the first two horizontals in the next two years due
to their qualification under British Columbia's Deep Royalty Credit and
Infrastructure Royalty Credit Programs.
Storm's initial efforts in the HRB have been focused on the Muskwa and Otter
Park shales within a central project area consisting of 21 gross sections (8.4
net to Storm). Within this area, Storm management estimates that gross
Discovered Petroleum Initially in Place ("DPIIP")(1) is 2.0 to 2.2 TCF in the
Muskwa and Otter Park shales based on average net pay of 95 metres, porosity of
3.7% to 5.0%, gas saturation of 77% and an adsorbed gas content of 61 Scf/ton.
The parameters used in estimating DPIIP came from analysis of 3-D seismic data
and from vertical wells within the central project area including two wells
drilled, completed and tested by SGR/Storm plus log data from four additional
wells.
(1) Discovered Petroleum Initially in Place ("DPIIP") - is defined in the
Canadian Oil and Gas Evaluation Handbook ("COGEH") as the quantity of
hydrocarbons that are estimated to be in place within a known
accumulation. Original Gas in Place ("OGIP") is a more commonly used
industry term when referring to gas accumulations. DPIIP is divided into
recoverable and unrecoverable portions, with the estimated future
recoverable portion classified as reserves and contingent resources.
There is no certainty that it will be economically viable or technically
feasible to produce any portion of this DPIIP except for those portions
identified as proved or probable reserves.
Umbach, North East British Columbia
At Umbach Storm has 55,400 net undeveloped acres which are primarily prospective
in the Montney formation (101 gross sections, 72 net sections). Production
averaged 168 Boe per day in the second quarter and was reduced by a scheduled
maintenance turnaround at the McMahon Gas Plant which caused production to be
shut in for the final two weeks of the second quarter and the first two weeks of
the third quarter.
Storm's first horizontal well (0.6 net) was completed with seven 100-ton
fracture treatments, came on production March 6, 2011 at 5.0 Mmcf per day gross
raw gas, and second quarter production averaged 1.6 Mmcf per day gross raw gas
(shut in for last 2 weeks of the quarter). The second quarter operating netback
was $19.90 per Boe. Current production is approximately 1.6 Mmcf per day gross
raw gas or 170 Boe per day net sales to Storm after including shrinkage of
approximately 11% and natural gas liquids recovery of approximately 30 barrels
per Mmcf of sales. This horizontal qualified for a royalty initiative capping
the royalty rate at 2% for the first 12 months of production; however,
subsequent horizontals will not benefit from this initiative as it expired at
the end of 2010.
In the second half of 2011, Storm plans to drill four follow-up horizontal wells
(2.4 net) and another one to two vertical delineation wells (0.6 to 1.6 net).
The first of these horizontals was cased in early July and is currently being
completed with 10 fracture stimulations. Drilling operations commenced on the
next horizontal in early August. To try to improve productivity, horizontal
length is being increased and 10 to 12 fracture treatments are planned on all
future horizontals. The cost to drill, complete and tie in horizontals with 10
fracture treatments is forecast to be $4.5 million using a mechanical packer
system instead of the perf and plug system used on the first horizontal.
Initially, infrastructure costs are not expected to be significant given that
Storm can access existing facilities and pipelines which are connected to
Spectra's McMahon Gas Plant.
Storm is also pursuing a second lead in the Montney formation on additional
lands acquired to the south of the first horizontal well. In the first quarter,
two vertical wells (100% working interest) on these lands were completed in the
Montney formation with 100-ton fracture treatments. Final test rates on each
well were approximately 150 to 200 Mcf per day. These verticals are 5 miles
apart and confirm that the Montney is productive over a large area, however, the
test rates are indicative of lower reservoir quality. Areas likely to have
better reservoir quality have been identified from recently acquired 3-D seismic
and a vertical delineation well is being planned for the fourth quarter of 2011.
Storm management estimates that DPIIP in the Montney formation is approximately
15 to 30 Bcf of raw gas per section which is based on log analysis from a
limited number of vertical wells on Storm's lands plus core data from two
vertical wells in the area. Estimated DPIIP is based on net pay of 15 to 30
metres (using a 3% sandstone scale cut-off), average porosity of 7%, average gas
saturation of 83% and reservoir pressure of 15,300 kPa. Given that there is only
limited production history from the Montney formation in the immediate area,
well performance and recovery factors cannot be estimated at this time.
Red Earth, North Central Alberta
Production at Red Earth averaged 80 barrels of oil per day in the second quarter
from two Slave Point horizontal wells (0.4 net) which commenced production in
early February. The operating netback was $87.00 per barrel in the quarter with
both horizontals benefiting from a 5% royalty rate under Alberta's New Well
Royalty Rate program.
INVESTMENTS
Storm has share ownership positions in one private company and two publicly
traded companies. These shareholdings were transferred to Storm under the Plan
of Arrangement with ARC Energy Trust. The value of the share positions in the
two public companies totaled $9.6 million at the end of the second quarter and
these securities could possibly be sold in the future with the proceeds being
used to finance the Company's capital programs.
Storm Gas Resource Corp. SGR is a private company formed in June 2007 to pursue
unconventional gas opportunities in the HRB and elsewhere. Storm's share
ownership position totals 2.5 million shares, representing 22% ownership of SGR.
Currently, SGR's land position totals 81,400 net acres with 61,000 net acres in
the HRB. SGR's working capital available for investment was $8.5 million at the
end of the first quarter 2011. In July 2011, SGR commenced a review of strategic
alternatives.
Chinook Energy Inc. ("Chinook") Storm holds 4.5 million shares of Chinook which
is a TSX-listed oil and gas exploration and production company (symbol 'CKE')
based in Calgary with operations focused in Tunisia and Western Canada. Storm
Exploration Inc. had previously owned 4.5 million shares of Storm Ventures
International Inc. ("SVI"), a private company, which were converted into shares
of Chinook when SVI and Iteration Energy Ltd. completed a business combination
June 29, 2010.
Bridge Energy ASA ("Bridge") Storm holds 1.05 million common shares of Bridge
(symbol 'Bridge' on the Oslo Stock Exchange), a Norwegian-based exploration and
production company with production of approximately 1,500 Boe per day, several
development opportunities in the UK sector of the North Sea, and a number of
exploratory leads in the Norwegian sector of the North Sea. Bridge is the result
of a business combination completed in March 2010 whereby SVI's United Kingdom
North Sea assets were combined with a private Norwegian based company which
resulted in SVI receiving 28,776,000 common shares of Bridge that were
distributed to SVI shareholders.
OUTLOOK
Storm's 2011 guidance remains unchanged. A total of $24.0 million will be
invested with the majority being allocated towards drilling four horizontals
(2.4 net) and one to two vertical wells (0.6 to 1.6 net) at Umbach. Production
in the fourth quarter of 2011 is expected to average approximately 1,000 to
1,200 Boe per day (15% oil and NGLs). Operating costs are forecast to average
$7.25 per Boe with cash general and administrative costs totaling $2.7 million.
The corporate average royalty rate is estimated to be 10% which includes the
effect of royalty incentive programs in Alberta and British Columbia. The
current cash balance and cash flow is expected to be sufficient to fund planned
2011 capital expenditures.
Current production is approximately 525 Boe per day and third quarter production
is expected to average 500 to 550 Boe per day. Rain, resulting in very wet
ground conditions, delayed drilling and completion operations at Umbach which
will result in new well tie-ins occurring late in the third quarter.
Production performance of the first horizontal development wells in Storm's
resource plays at Umbach and the HRB has been very encouraging. The presentation
on Storm's website (www.stormresourcesltd.com) includes updated production
graphs for both horizontal wells. In the second half of 2011, we are planning to
follow up on our success in both areas and will also try to improve productivity
and associated reserves by increasing the number of fracture stimulations on
future horizontals. In the HRB, a second horizontal drilled late in 2010 may be
completed with 14 fracture treatments in the fourth quarter depending on natural
gas prices and potential reserve additions (the first horizontal was completed
with 12 fracture stimulations). At Umbach, we benefit from the recovery of
approximately 30 barrels of natural gas liquids per Mmcf sales and four
horizontals are planned for the second half of 2011. Productivity and the
associated rate of return should be improved by pumping 10 to 12 fracture
treatments on these horizontals as compared to seven fracture treatments on the
first horizontal.
Longer term, we remain optimistic that natural gas prices will eventually
improve. Cost inflation and poor rates of return at current natural gas prices
are expected to gradually reduce natural gas supply as capital is redirected
towards liquids rich opportunities where production rates tend to be lower and
initial declines steeper. In the near term, we will focus on resource
delineation as this is expected to provide a greater return on invested capital
than growing production and/or cash flow.
Storm has now been in business in its current form for 12 months. We have made
steady progress advancing both of our core resource plays, each with multi-year
development potential which provides a solid base for future growth. Generating
accretive, per-share growth remains a commitment for us and we appreciate the
support and patience of our shareholders.
Respectfully,
Brian Lavergne, President and Chief Executive Officer
August 17, 2011
Boe Presentation - For the purpose of calculating unit revenues and costs,
natural gas is converted to a barrel of oil equivalent ("Boe") using six
thousand cubic feet ("Mcf") of natural gas equal to one barrel of oil unless
otherwise stated. Boe may be misleading, particularly if used in isolation. A
Boe conversion ratio of six Mcf to one barrel ("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. All Boe measurements and
conversions in this report are derived by converting natural gas to oil in the
ratio of six thousand cubic feet of gas to one barrel of oil. Mboe means 1,000
Boe.
Forward-Looking Information - This press release contains forward-looking
statements and forward-looking information within the meaning of applicable
securities laws. The use of any of the words "will", "expects", "believe",
"plans", "potential" and similar expressions are intended to identify
forward-looking statements or information. More particularly, and without
limitation, this press release contains forward-looking statements and
information concerning: production; drilling plans; reserve volumes; capital
expenditures; royalties; and production and general and administrative costs.
The forward-looking statements and information in this press release are based
on certain key expectations and assumptions made by Storm, including: prevailing
commodity prices and exchange rates; applicable royalty rates and tax laws;
future well production rates; reserve and resource volumes; the performance of
existing wells; success to be expected in drilling new wells; the adequacy of
budgeted capital expenditures to carrying out planned activities; the
availability and cost of services; and the receipt, in a timely manner, of
regulatory and other required approvals. Although the Company believes that the
expectations and assumptions on which such forward-looking statements and
information are based are reasonable, undue reliance should not be placed on
these forward-looking statements and information because of their inherent
uncertainty. In particular, there is no assurance that exploitation of the
Company's undeveloped lands and prospects will result in the emergence of
profitable operations.
Since forward-looking statements and information address future events and
conditions, by their very nature they involve inherent risks and uncertainties.
Actual results could differ materially from those currently anticipated due to a
number of factors and risks. These include, but are not limited to the risks
associated with the oil and gas industry in general such as: 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 reserves, production, costs and expenses; health, safety and
environmental risks; commodity price and exchange rate fluctuations; marketing
and transportation of petroleum and natural gas and loss of markets;
environmental risks; competition; ability to access sufficient capital from
internal and external sources; stock market volatility; and changes in
legislation, including but not limited to tax laws, royalty rates and
environmental regulations.
Readers are cautioned that the foregoing list of factors is not exhaustive.
Additional information on these and other factors that could affect the
operations or financial results of the Company are included or are incorporated
by reference in the company's MD&A for the three and six months ended June 30,
2011.
The forward-looking statements and information contained in this press release
are made as of the date hereof and the Company undertakes no obligation to
update publicly or revise any forward-looking statements or information, whether
as a result of new information, future events or otherwise, unless so required
by applicable securities laws.
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