Buffalo Resources Announces Q1 2008 Results
28 May 2008 - 10:00PM
Marketwired Canada
Buffalo Resources Corp. ("Buffalo") (TSX VENTURE:BFR) is pleased to announce
record cash flow from operations and net earnings for the first quarter ended
March 31, 2008. All comparative results for the three months ended February 28,
2007 are those of Choice Resources Corp.
HIGHLIGHTS
- Cash flow from operations of $8.7 million or $0.13 per share.
- Net earnings of $1.9 million or $0.03 per share.
- Daily average production of 3,777 boe/d, a 92% increase over 1,959 boe/d for 2007.
- Buffalo's oil (predominantly heavy oil) realized a record selling price of
$79.86 per bbl for the month of March compared with $35.50 per bbl for the month
of December 2007.
- No hedging contracts are in place - Buffalo participates fully as oil and gas
commodity selling prices rise.
- Depletion, depreciation and accretion expense of $16.71 per boe.
- Drilled 7 wells at a 100% success rate during the quarter.
- Completed an $11 million equity financing in May 2008.
FINANCIAL ($000s except shares and per share amounts)
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March 31, February 28,
Three months ended 2008 2007
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Revenue 20,626 8,358
Cash flow from operations 8,726 1,825
Basic and diluted per share $ 0.13 $ 0.05
Net earnings (loss) 1,898 (1,021)
Basic and diluted per share $ 0.03 ($0.03)
Capital expenditures, net 8,763 7,180
March 31, December 31,
As at 2008 2007
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Total indebtedness, net 63,869 63,628
Shareholders' equity 95,702 94,461
Total assets 210,992 205,272
Common shares outstanding (000s) 65,702 65,702
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OPERATIONS
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March 31, February 28,
Three months ended 2008 2007
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Average daily production
Oil and NGLs (bbls/d) 1,966 298
Natural gas (mcf/d) 10,868 9,965
Barrels of oil equivalent (boe/d) 3,777 1,959
Average realized prices
Oil and NGLs ($/bbls) 69.90 56.87
Natural gas ($/mcf) 8.10 7.11
Barrels of oil equivalent ($/boe) 60.02 47.41
Field netback ($/boe) 31.12 21.39
Cash flow ($/boe) 25.41 10.29
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Q1 2008 OPERATIONS
The amalgamation of The Buffalo Oil Corporation ("Old Buffalo") and Choice
Resources Corp. ("Choice") which occurred on August 2, 2007 created a company
with sufficient mass to reap the benefits of the recent rise in oil and gas
selling prices. For the three months ended March 31, 2008, cash flow from
operations was $8.7 million ($0.13 per share), an increase of 381% compared with
the previous year.
Mainly as a consequence of the amalgamation, average daily production increased
93% from 1,959 barrels of oil equivalent per day ("boe/d") for the three months
ended February 28, 2007 to 3,777 boe/d for the three months ended March 31,
2008. Because of Old Buffalo's focus on heavy oil, the gas weighting of the
production-mix has decreased from 85% in 2007 to 48% in the current period.
World oil prices increased sharply over the period between February 2007 and
March 2008. The Company had no hedging in place through the current quarter and
was able to participate fully in these price increases. The price of Hardisty
Heavy 12 degrees API oil, which approximates the realized price for the majority
of Buffalo's oil, averaged $70.05 per barrel for the current period, an increase
of 70% over the equivalent price for the 2007 period. Buffalo realized an
average oil and NGL selling price of $69.90 per barrel for the quarter. The
AECO-C daily spot gas price averaged $7.96 per MMBtu for the three months ended
March 31, 2008, up 9% over the average of $7.29 per MMBtu in 2007. Buffalo
realized an average gas selling price of $8.10 per Mcf. Revenue for the quarter
was $20.6 million or $60.02 per boe.
Royalty expense was $4.6 million or 22% of revenue, reflecting a higher
proportion of sales revenue being derived from properties which are subject to
the payment of gross overriding royalties than in the previous year when the
royalty expense ratio was 20%. Operating costs were $5.4 million and decreased
8% from the prior year on a unit basis to $15.40 per boe. This was largely the
result of the change in product mix and the construction in late 2007 of a
central battery at the Company's Killam property which reduced costs for rental
equipment, water handling and workovers. The Company's field netback averaged
$31.12 per boe, a 45% increase over 2007. Despite a 93% increase in production,
general and administrative expense of $1.2 million was 9% lower than in 2007,
reflecting the synergies of the amalgamation. Depletion, depreciation and
accretion expense ("DD&A") was $5.7 million for the period. On a unit basis,
DD&A was $16.71 per boe compared with $15.84 per boe in 2007. This increase
derives from the asset values applied in the amalgamation of the two companies.
The increase in production volumes combined with higher commodity selling prices
produced net income of $1.9 million or $0.03 per share for the current quarter
in contrast to the loss of $1.0 million or $0.03 per share in 2007.
EXPLORATION AND DEVELOPMENT
During the three months ended March 31, 2008 Buffalo incurred $8.8 million in
capital expenditures net of the proceeds from the sale of non-core properties
totalling $2.8 million. This included a 10 square mile 3D seismic shoot in the
Peace River Arch as part of Buffalo's plan to increase its focus on this area.
Buffalo drilled seven wells including three wells at Frog Lake, three wells at
Killam and one well at Whitecourt. In addition, three wells which had been
drilled at Frog Lake in 2007 were completed, equipped and placed on production.
A 2007 discovery well at Expanse, in which Buffalo has a 100% working interest,
was tied-in during March 2008 and is currently producing gas at a rate of 500
Mcf/d. In March Buffalo spudded a Mississippian horizontal well at Pincher
Creek, Alberta which finished drilling in late May. The well was drilled to a
vertical depth of 3,742 metres and then horizontally for 671 metres. Natural gas
from the Mississippian formation was encountered throughout the under-balanced
horizontal drilling operations. The well is expected to be completed, stimulated
and tied-in for production testing by late June.
OUTLOOK
In the second quarter of 2008 world oil selling prices have surpassed the record
levels established in the first quarter. Buffalo's oil and gas selling prices
remain unhedged and the Company is continuing to enjoy the associated increases
in revenue. Initial indications are that the Company will experience strong cash
flow and earnings in the second quarter 2008.
Buffalo is currently preparing to drill seven wells at Frog Lake in the early
summer. A holding application has been made to increase the density of wells at
Frog Lake which will add a further 160 locations for drilling in the fall of
2008 and future years. Two wells are planned for summer drilling in the Peace
River Arch, one at Cecil and a follow up well at Expanse. Buffalo is proceeding
with documentation of its proposed drilling joint venture pursuant to which the
other joint venture partners will invest between $10 million and $20 million to
participate with Buffalo in drilling oil and gas wells on Company owned lands on
normal industry farmout terms.
On May 9, 2008, Buffalo completed an $11 million private placement of units,
each unit consisting of one Buffalo common share and one warrant to acquire a
common share. The net proceeds will be used to reduce debt and to fund the 2008
capital expenditure program.
Buffalo is an emerging Canadian junior oil and gas company engaged in the
exploration, development and production of oil and gas reserves in the provinces
of Alberta and Saskatchewan.
Buffalo's interim financial statements and Management's Discussion and Analysis
for the three months ended March 31, 2008 are available on SEDAR (www.sedar.com)
and on Buffalo's website at www.buffaloresources.com.
Certain information set forth in this press release contains forward looking
statements. Readers are cautioned that the assumptions used in the preparation
of such information, although considered reasonable at the time of preparation,
may prove to be imprecise and, as such, reliance should not be placed on
forward-looking statements. Buffalo's actual results, performance or
achievements could differ materially from those expressed in, or implied by,
these forward-looking statements and accordingly, no assurance can be given that
any of the events anticipated by the forward-looking statements will transpire
or occur, or if any of them do so, what benefits Buffalo will derive therefrom.
Buffalo disclaims any intention or obligation to update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
Barrels of oil equivalent (Boe's) may be misleading, particularly if used in
isolation. A boe conversion ratio of 6 Mcf of gas = 1 Bbl of oil is based upon
an energy equivalency conversion method primarily applicable at the burner tip
and does not represent a value equivalency at the wellhead. The terms "cash flow
from operations" and "field netback" are non-GAAP financial measures that do not
have any standardized meaning prescribed by Canadian Generally Accepted
Accounting Principles ("GAAP") and are therefore unlikely to be comparable to
similar measures presented by other issuers. Both "cash flow from operations"
and "field netback" provide useful information to investors and management since
they are an indicator of the Corporation's profitability and ability to fund
future capital expenditures which drives growth. Cash flow from operations is
calculated as earnings (loss) before charges for depletion, depreciation and
accretion, stock-based compensation and future income taxes and after deducting
asset retirement expenditures. The inclusion of changes in non-cash operating
working capital results in cash flow from operating activities. Field netback
represents the profit margin from the sale of oil, natural gas and natural gas
liquids and is calculated as revenues less royalties and operating expenses.
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