CALGARY, ALBERTA--(Marketwire - Aug. 7, 2008) - Open Range Energy Corp. ("Open Range" or the "Corporation") (TSX:ONR) is pleased to announce its financial and operating results for the three and six months ended June 30, 2008, to provide highlights from third-quarter operations undertaken to date, and to provide an operational outlook, including upwardly revised production guidance, for the remainder of 2008.
FINANCIAL AND OPERATING HIGHLIGHTS
Three months Three months Six months Six months
ended ended ended ended
June 30, June 30, June 30, June 30,
2008 2007 2008 2007
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Petroleum and
natural gas
revenue (1) $ 11,280,829 $ 5,555,957 $ 20,447,727 $ 9,991,800
Funds from operations 7,242,093 3,708,699 12,841,761 6,163,167
Per diluted share 0.26 0.19 0.52 0.33
Earnings (loss) (31,439) 1,277,452 (1,945,057) 256,488
Per basic and
diluted share - 0.06 (0.09) 0.01
Working capital
(net debt) (5,808,924) (9,684,735) (5,808,924) (9,684,735)
Capital
expenditures $ 5,884,953 $11,284,524 $ 25,509,590 23,869,797
Weighted
average shares
outstanding - basic
and diluted 27,131,143 19,763,841 24,465,119 18,901,963
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Production
Natural gas
(mcf per day) 10,630 7,009 10,188 6,239
Oil and NGL
(bbls per day) 225 156 220 135
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Total (@ 6:1)
(boe per day) 1,996 1,324 1,918 1,175
Realized average
sales prices
Natural gas ($ per mcf)(1) 9.44 7.43 9.02 7.62
Oil and NGL ($ per bbl) 105.18 57.68 92.65 56.57
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Combined average
($ per boe) 62.10 46.13 58.57 46.98
Royalties ($ per boe) (12.65) (4.32) (10.76) (5.60)
Operating costs
($ per boe) (5.88) (5.39) (6.37) (5.88)
Transportation
costs ($ per boe) (0.93) (0.85) (0.75) (0.88)
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Operating
netback ($ per boe) 42.64 35.57 40.69 34.62
General and
administrative
costs ($ per boe) (2.72) (4.79) (3.32) (5.75)
Net interest
income (expense)
($ per boe) (0.06) 0.01 (0.59) 0.12
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Corporate
netback ($ per boe) 39.86 30.79 36.78 28.99
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(1) Includes realized gains (losses) on commodity contracts.
CORPORATE HIGHLIGHTS
During the three months ended June 30, 2008, Open Range:
- Initiated completion operations on the Corporation's 3,800-metre Foothills exploratory well at Rough, Alberta, completing the primary Glauconitic target zone and establishing a new Glauconitic natural gas and NGL pool;
- Increased production by 51 percent over the second quarter of 2007, to an average of 1,996 boe per day, of which 89 percent was natural gas;
- Increased funds from operations by 95 percent and funds from operations per diluted share by 37 percent over the second quarter of 2007, to $7.2 million and $0.26 per share (after the impact of realized hedging losses of $1.2 million or $0.05 per diluted share), respectively;
- Increased operating netbacks per unit of production by 20 percent over the second quarter of 2007, to $42.64 per boe;
- Reduced combined cash costs per unit of production by 13 percent from the second quarter of 2007, to an average of $9.59 per boe; and
- Exited the quarter with net debt of only $5.8 million on the Corporation's $40 million available credit facilities.
Subsequent to the end of the quarter ended June 30, 2008, Open Range:
- Conducted flow-testing of the Rough discovery well and initiated preparations for tie-in and production;
- Initiated a two-rig drilling program at the core Ansell/Sundance property, with the goal to drill an additional eight gross wells at the property by year end;
- Approved an increase of more than 50 percent to its 2008 capital budget, to $70 million from $45 million, reflecting the repeatable, high-quality results at Ansell/Sundance; and
- Approved plans to drill the Corporation's first horizontal well into a Deep Basin target at Ansell/Sundance.
EXPLORATION AND OPERATIONS UPDATE
ROUGH: OPEN RANGE CONFIRMS SIGNIFICANT RESOURCE POTENTIAL
Open Range has successfully completed the primary reservoir zone, the Glauconitic sandstone, at its 70 percent working interest Rough 15-35 discovery well drilled under farm-in in the fourth quarter of 2007 in the Alberta Foothills.
Completion operations commenced June 18, 2008. The primary objective, the Glauconitic Zone, was fracture-stimulated followed by a four-day production test. The well tested at rates of 1.5-3.0 mmcf per day, with natural gas liquids of 35 bbls per mmcf.
Pressure transient analysis (PTA) results were encouraging with estimated reservoir pressure of 50,220 kPa (7,284 psi). This is consistent with the over-pressured Deanne Glauconitic "A" and "B" pools offsetting Rough. It strongly suggests that the Rough pool lies within the same over-pressured Deep Basin fairway and that the discovery well intersected a new pool not in pressure communication with existing offsetting production. The offsetting pools have produced more than 50 bcf of liquids-rich natural gas to date, with initial production from successful wells of 0.6-7.0 mmcf per day.
Flowing wellhead pressure during testing ranged from 2,700 kPa to 8,000 kPa, which may indicate lower permeability than the offsetting pool average. A reservoir flow capacity of 0.483 mDm was derived from the PTA. Well logs indicate that in the primary Glauconitic target, the 15-35 well encountered among the thickest net pay yet discovered in the area and porosity of 14 to 20 percent was among the highest encountered in the area to date. These are excellent reservoir characteristics and are suggestive of significant gas-in-place potential in the new pool.
The Corporation has also confirmed a second new pool discovery following successful completion of a second zone in the 15-35 well. This zone tested at 0.3-1.5 mmcf per day on clean-up. This zone will be flow tested shortly.
Open Range has signed a best efforts tie-in agreement to a third-party gas plant. Well equipping and tie in operations are planned to commence later in August, with the well to come on-production early in the fourth quarter of 2008. The Corporation anticipates initial production of approximately 200-300 boe per day, including natural gas liquids, from the Rough 15-35 well.
The Corporation is actively evaluating drilling methodologies for the pool's development, including further vertical wells and horizontal wells using multi-stage fracture technology. Pay thickness, porosity estimates and reservoir pressure encountered to date all are highly suggestive of a substantial gas-in-place resource. At Rough Open Range holds a total of 39 gross sections of undeveloped land at an average working interest of 94 percent.
ANSELL/SUNDANCE: DRIVES PRODUCTION GROWTH AND TWO-RIG DRILLING PROGRAM
Open Range's core Ansell/Sundance property in the Deep Basin region of west-central Alberta remains the Corporation's growth engine and continues to yield a growing opportunity base through an expanding development drilling inventory. The play's demonstrated repeatability is reducing technical risks and has enabled Open Range to achieve operating efficiencies leading to lower cash costs and higher netbacks per unit of production.
Open Range's new quarterly record production, averaging 1,996 boe per day in the second quarter of 2008, a 51 percent increase over the average for the comparative period in 2007 and an 8 percent increase over the first quarter of 2008, was entirely due to growth at the Ansell/Sundance property. New production was realized from three recent wells brought on-stream late in the first quarter. Volumes from Open Range's other producing properties at Big Bend, Ferrier and Garrington averaged a combined 487 boe per day in the second quarter, with minimal capital expenditures undertaken.
Late in the second quarter, following spring break-up, two (0.9 net) wells were spud at Ansell/Sundance, initiating the Corporation's first continuous two-rig drilling program at the property. The Corporation anticipates maintaining accelerated operations for the remainder of 2008 and into 2009, subject to commodity prices.
The Ansell/Sundance property is currently contributing approximately 1,600 boe per day or 78 percent of the Corporation's production from 26 gross producing wells totalling 93 commercial pay zones. Late in the second quarter completion and tie-in operations were finalized on one (1.0 net) well drilled in the first quarter. Of the remaining two (0.6 net) wells drilled in the first quarter, one well came on-production in early August and the other well is expected to be on production late in the third quarter. The Corporation currently has three (1.4 net) wells at various stages of completion operations; all are expected to be on-production late in the third quarter.
SECOND HALF 2008 OUTLOOK: CAPEX EXPANSION AND FIRST HORIZONTAL TEST AT ANSELL/SUNDANCE
The Corporation is pleased to announce an increase to its 2008 capital investment program to $70 million from $45 million. With capital spending to June 30, 2008 totalling $25.5 million, the $25 million budgetary expansion represents an increase of 128 percent to funds available for the second half of 2008 under the previous budget. The entire 2008 capital investment program, including the announced expansion, can be funded by cash flow from ongoing operations and the Corporations credit facilities.
The majority of the additional funds will be utilized at Ansell/Sundance to drill an additional eight gross wells, increasing the total to 21 (10.2 net) wells at Ansell/Sundance in 2008 at an average 49 percent working interest. Accelerating activity at Ansell/Sundance reflects the repeatable, high-quality results generated to date at the multi-zone Deep Basin area and the diminishing risks of Open Range's expanding development drilling inventory. Open Range's management team remains focused on continuing to add to the opportunity base throughout the area in order to accelerate the Corporation's growth.
Open Range is also pleased to announce that one of the additional eight gross wells planned at Ansell/Sundance will be drilled horizontally. It will be completed with multi-stage fracture technology to test the economic viability of horizontal drilling in the Bluesky formation. The Corporation's management is cautiously optimistic about the horizontal test. If successful it could be a catalyst to additional capital and operating efficiencies, as well as suggesting the viability of testing other potential horizons among the more than one-dozen separate geological reservoirs identified at Ansell/Sundance to date.
Additionally the Corporation is pleased to announce an increase to its 2008 production guidance to an average 2008 rate of 2,100 boe per day and an exit rate of 2,700 boe per day (up from the previously announced rates of 2,000 boe per day and 2,500 boe per day, respectively).
Open Range is pleased to announce the recent addition of Cliff Wiebe to the Corporation's technical team as Manager, Completions. Mr. Wiebe has over 25 years of industry experience and will add his expertise to this crucial phase of operations as the Corporation's number of new wells continues to increase.
Open Range also announces that Kenneth Woolner, a member of the Board of Directors since the Corporation's inception in late 2005, will be stepping down effective immediately to pursue personal interests outside of the oil and natural gas business. Mr. Woolner has confirmed that he is retiring from all Board of Directors' positions that he currently holds. The Corporation would like to thank Mr. Woolner, an accomplished explorationist over a successful industry career, for his timely insights and significant contributions and guidance. Open Range wishes him the very best in his new pursuits. The Corporation expects to announce the addition of a new Board member in the near future.
Management's Discussion and Analysis
The following management's discussion and analysis (MD&A) is a review of operations, current financial position and outlook for Open Range Energy Corp. ("Open Range" or the "Corporation") for the three- and six-month periods ended June 30, 2008 and 2007. This MD&A should be read in conjunction with the unaudited interim financial statements for the three and six months ended June 30, 2008 and 2007, and the audited annual financial statements for the year ended December 31, 2007. This MD&A is dated August 7, 2008.
BOE PRESENTATION
The use of barrels of oil equivalent (boe) may be misleading, particularly if used in isolation. A boe conversion ratio of 6 mcf:1 barrel is based on an energy equivalency conversion method primarily applicable at the burner tip and is not intended to represent a value equivalency at the wellhead.
NON-GAAP MEASUREMENTS
The terms "funds from operations", "funds from operations per share" and "operating netback" in this discussion are not recognized measures under Canadian generally accepted accounting principles (GAAP). Open Range management believes that in addition to net earnings, funds from operations and operating netback are useful supplemental measurements. Open Range utilizes funds from operations to evaluate operating performance and assess leverage. The Corporation considers funds from operations to be an important measure of the results generated by its principal business activities before the consideration of how those activities are financed or how the results are taxed and before abandonment expenditures. Operating netback is a benchmark used in the oil and natural gas industry to measure the contribution of oil and natural gas sales following the deduction of royalties, operating expenses and transportation costs. Users are cautioned, however, that these measures should not be construed as an alternative to net earnings determined in accordance with GAAP as an indication of Open Range's performance.
RECONCILIATION OF CASH FLOW PER GAAP TO FUNDS FROM OPERATIONS
Open Range's method of calculating funds from operations may differ from that of other corporations and, accordingly, may not be comparable to measures used by other corporations. Open Range calculates funds from operations by taking cash flow from operating activities as determined under GAAP before the change in non-cash working capital related to operating activities and asset retirement expenditures incurred as the Corporation believes the uncertainty surrounding the timing of collection, payment or incurrence of these items makes them less useful in evaluating Open Range's operating performance. A summary of this reconciliation is as follows:
Three months Three months Six months Six months
ended ended ended ended
June 30, June 30, June 30, June 30,
2008 2007 2008 2007
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Cash flow from
operating
activities (per GAAP) $ 8,310,361 $ 4,624,227 $ 13,466,332 $ 6,995,300
Change in
non-cash working
capital (1,115,410) (915,528) (793,536) (832,133)
Asset retirement
expenditures 47,142 - 168,965 -
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Funds from
operations $ 7,242,093 $ 3,708,699 $ 12,841,761 $ 6,163,167
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FORWARD-LOOKING STATEMENTS
This MD&A contains certain forward-looking statements, which are statements that include terms such as "will", "intend", "anticipate", "expect", "plan", "assume", "contemplate", "believe", "shall" and similar terms and such forward-looking statements include assumptions with respect to (i) production; (ii) future capital expenditures; (iii) funds from operations; (iv) cash flow; and (v) debt levels. The reader is cautioned that assumptions used in the preparation of such information may prove to be incorrect. While management believes the forward-looking statements are reasonable, all such forward-looking statements involve substantial known and unknown risks and uncertainties, certain of which are beyond the Corporation's control. Such risks and uncertainties include, without limitation, risks associated with oil and natural gas exploration, development, exploitation, production, marketing and transportation, loss of markets, volatility of commodity prices, currency fluctuations, imprecision of reserve estimates, environmental risks, increased competition from other producers, inability to retain drilling rigs and other services, delays resulting from or inability to obtain required regulatory approvals and ability to access sufficient capital from internal and external sources, the impact of general economic conditions in Canada, the United States and overseas, industry conditions, changes in laws and regulations (including the adoption of new environmental laws and regulations) and changes in how they
are interpreted and enforced, changes in federal and provincial tax laws and legislation (including the adoption of new royalty regimes), the lack of availability of qualified personnel or management, fluctuations in foreign exchange or interest rates, stock market volatility and market valuations of companies with respect to announced transactions and the final valuations thereof, and obtaining required approvals of regulatory authorities. The Corporation's actual results, performance or achievements could differ materially from those expressed in, or implied by, these forward-looking statements (as a result of assumptions proving incorrect or due to the effect of risks) and, accordingly, no assurances can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do, what benefits, including the amount of proceeds, that the Corporation will derive therefrom. Readers are cautioned that the foregoing list of factors is not exhaustive and reference is made to the items under "Risk Factors" in the Corporation's Annual Information Form (AIF) for the year ended December 31, 2007. All subsequent forward-looking statements, whether written or oral, attributable to the Corporation or persons acting on its behalf are expressly qualified in their entirety by these cautionary statements. Furthermore, the forward-looking statements contained in this MD&A are made as at the date hereof and the Corporation does not undertake any obligation to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by applicable securities laws.
DETAILED FINANCIAL ANALYSIS
PRODUCTION
Three months Three months Six months Six months
ended ended ended ended
June 30, June 30, June 30, June 30,
2008 2007 2008 2007
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Production
Oil and NGL (bbls/d) 225 156 220 135
Natural gas (mcf/d) 10,630 7,009 10,188 6,239
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Total (boe/d) 1,996 1,324 1,918 1,175
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Total (boe) 181,652 120,451 349,101 212,702
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% natural gas 89 88 89 88
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Open Range's production for the three and six months ended June 30, 2008 increased significantly from the comparative periods in 2007. The increase resulted from the continued successful drilling activity in the second half of 2007 and the first half of 2008. Production in the three and six months ended June 30, 2008 averaged 1,996 boe per day and 1,918 boe per day, respectively. This represented an increase of 51 percent and 63 percent, respectively, from the average production of 1,324 boe per day and 1,175 boe per day for the respective three and six months ended June 30, 2007. Natural gas production in the three and six months ended June 30, 2008 increased to 10,630 mcf per day and 10,188 mcf per day, respectively, from 7,009 mcf per day and 6,239 mcf per day, respectively, for the three and six months ended June 30, 2007. Oil and natural gas liquids (NGL) production in the three months ended June 30, 2008 increased by 44 percent to 225 barrels per day from 156 barrels per day in the second quarter of 2007. In the six months ended June 30, 2008, oil and NGL production increased by 63 percent to 220 boe per day from 135 boe per day in the first half of 2007.
Open Range has revised its 2008 production guidance and is forecasting average production of 2,100 boe per day in 2008 and expects to exit the year with production of approximately 2,700 boe per day. Previous guidance was 2,000 boe per day and 2,500 boe per day, respectively.
OIL AND NATURAL GAS REVENUES
Three months Three months Six months Six months
ended ended ended ended
June 30, June 30, June 30, June 30,
2008 2007 2008 2007
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Revenue
Oil and NGL $ 2,149,680 $ 816,198 $ 3,712,350 $ 1,385,991
Natural gas 10,377,537 4,719,196 17,788,418 8,561,056
Realized gains
(losses) on
commodity contracts (1,246,388) 20,563 (1,053,041) 44,753
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Total $ 11,280,829 $ 5,555,957 $ 20,447,727 $ 9,991,800
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Average realized
price
Oil and NGL ($/bbl) 105.18 57.68 92.65 56.57
Natural gas ($/mcf) 10.73 7.40 9.59 7.58
Realized gains on
commodity
contracts ($/mcf) (1.29) 0.03 (0.57) 0.04
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Combined average
($/boe) 62.10 46.13 58.57 46.98
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Benchmark pricing
Edmonton Par
(Cdn$/bbl) 126.55 72.66 112.36 70.19
Alberta Spot
(Cdn$/mcf) 10.10 7.06 8.94 7.17
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Revenue, including realized gains and losses on commodity contracts, for the three months ended June 30, 2008 increased by 103 percent to $11.3 million from $5.6 million in the comparative period in 2007. The increase in revenue resulted from a 51 percent increase in daily average production and a 35 percent increase in the combined average sales price from the second quarter of 2007. In the first half of 2008, revenue increased by 105 percent to $20.4 million from $10 million in the comparative period in 2007. The increase was due to a 63 percent increase in production and a 25 percent increase in the average sales price. The period-over-period changes in average sales prices for oil, NGL and natural gas realized by Open Range were consistent with the fluctuations in benchmark oil and natural gas prices over the same periods. Open Range's average sales price for natural gas continued to be at a premium to the Alberta natural gas spot benchmark price due to the high energy content of the Corporation's natural gas production.
Open Range realized losses on commodity contracts of $1.2 million for the three months ended June 30, 2008. These realized losses related to natural gas commodity contracts and amounted to a reduction of $1.29 per mcf on the Corporation's natural gas production for the three months ended June 30, 2008. For the six months ended June 30, 2008 the Corporations realized a loss on commodity contracts of $1.1 million, which amounted to a reduction of $0.57 per mcf on the Corporation's natural gas production for the first half of 2008.
UNREALIZED LOSSES ON COMMODITY CONTRACTS
Open Range's management utilizes commodity contracts as a risk management technique to protect exploration and development economics, reduce volatility in cash flows and mitigate the unpredictable commodity price environment. For the three and six months ended June 30, 2008, the Corporation recorded an unrealized loss on commodity contracts of $2.1 million and $6 million, respectively. These amounts represented the change in the fair value of the commodity contracts held by the Corporation during the three- and six-month periods ended June 30, 2008.
Natural gas hedging contracts entered into as at June 30, 2008 and 2007 are as follows:
Average Average
AECO Spot AECO Spot
Volume Floor Ceiling
Period (GJ/d) Type (Cdn$/GJ) (Cdn$/GJ)
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Jan. to Dec. Costless
2007 2,500 Collar $ 7.00 $ 10.20
Jan. to Dec. Costless
2007 1,250 Collar $ 7.00 $8.00-9.90
Apr. 2007 to Costless
Mar. 2008 1,000 Collar $ 7.00 $ 10.16
Nov. 2007 to Costless
Mar. 2008 1,500 Collar $ 7.50 $ 10.67
Jan. to Dec. Costless
2008 3,000 Collar $ 6.75 $7.50-9.12
Apr. to Oct.
2008 1,500 Swap $ 6.46 $ 6.46
Nov. to Dec.
2008 1,500 Swap $ 7.26 $ 7.26
Apr. to Oct.
2008 1,500 Swap $ 6.50 $ 6.50
Nov. 2008 to Costless
Mar. 2009 1,500 Collar $ 6.75 $ 11.09
Jan. to Dec. Costless 9.00-
2009 1,000 Collar $ 6.50 $ 13.00
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Unrealized Unrealized
Unrealized gain for the Unrealized gain (loss)
loss for the three loss for the for the six
three months months six months months
ended June ended June ended June ended June
Period 30, 2008 30, 2007 30, 2008 30, 2007
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Jan. to Dec.
2007 - $ 396,454 - $ (293,207)
Jan. to Dec.
2007 - 291,644 - (74,830)
Apr. 2007 to
Mar. 2008 - 253,255 $ (68,534) 210,097
Nov. 2007 to
Mar. 2008 - 226,786 (164,411) 169,582
Jan. to Dec.
2008 (830,852) - (2,465,341) -
Apr. to Oct.
2008 (109,296) - (896,353) -
Nov. to Dec.
2008 (232,159) - (424,136) -
Apr. to Oct.
2008 (114,662) - (898,294) -
Nov. 2008 to
Mar. 2009 (342,778) - (485,475) -
Jan. to Dec.
2009 (501,343) - (600,619) -
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(2,131,090) $ 1,168,139 $ (6,003,163) $ 11,642
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For more details on these contracts refer to note 8, Financial Instruments, in the interim financial statements for the three and six months ended June 30, 2008.
ROYALTIES
Three Three Six Six
months months months months
ended ended ended ended
June 30, June 30, June 30, June 30,
2008 2007 2008 2007
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Royalty expense - oil & NGL $ 367,508 $ 336,501 $ 480,949 $ 303,529
Royalty expense - natural gas 1,929,551 184,271 3,274,202 887,743
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Total $ 2,297,059 $ 520,772 $3,755,151 $1,191,272
$ per boe 12.65 4.32 10.76 5.60
% of revenues(1) 18 9 17 12
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(1)Revenue before realized gains (losses) on commodity contracts.
Royalties totalled $2.3 million and $3.8 million for the second quarter and first half of 2008, respectively, compared to $0.5 million and $1.2 million, respectively, for the comparative periods in 2007. Royalties as a percentage of revenue increased in the second quarter and first half of 2008 from the comparative periods in 2007, as the Corporation had fewer wells receiving the beneficial effects of the deep well royalty holiday program. On a per unit of production basis, royalty costs for the three and six months ended June 30, 2008 were up by 192 percent and 92 percent, respectively, from the comparative periods in 2007, mainly due to higher commodity prices and several wells at Ansell/Sundance fully utilizing their royalty holiday entitlement, thus commencing the payment of cash royalties.
Open Range anticipates an average royalty rate for 2008 of approximately 15 percent to 20 percent of revenue. This increase in royalty rates from 2007 reflects the fact that as the Corporation continues to grow, a smaller portion of its production base will receive the beneficial effects of the deep well royalty holiday program on royalty expenses.
On October 25, 2007 the Alberta government announced a New Royalty Framework (NRF) that will result in changes to royalties levied on natural gas and conventional oil produced in Alberta effective January 1, 2009. The Alberta government introduced several modifications to the NRF on April 10, 2008 which still require further clarification, and possibly additional public and industry consultation. Depending on further clarification of the NRF, the proposed changes to royalties could have an impact on the Corporation's net earnings, funds from operations, cash flow from operating activities, operating netbacks, and reserve values, which could create uncertainty as to the recoverability of the carrying value of the Corporation's petroleum and natural gas assets.
OPERATING COSTS AND NETBACK
Three Three Six Six
months months months months
ended ended ended ended
June 30, June 30, June 30, June 30,
($ per boe) 2008 2007 2008 2007
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Average realized sales price 62.10 46.13 58.57 46.98
Royalty expenses (12.65) (4.32) (10.76) (5.60)
Operating costs (5.88) (5.39) (6.37) (5.88)
Transportation costs (0.93) (0.85) (0.75) (0.88)
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Operating netback 42.64 35.57 40.69 34.62
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The Corporation's operating netback for the second quarter and first half of 2008 increased to $42.64 per boe and $40.69 per boe, respectively, from $35.57 per boe and $34.62 per boe for the respective periods in 2007. The operating netback increased by 20 percent and 18 percent for the three and six months ended June 30, 2008, respectively, from the comparative periods in 2007. This was mainly due to an increase in the realized average sales price, partially offset by an increase in royalties.
Operating costs were $1.1 million and $2.2 million for the three and six month periods ending June 30, 2008, respectively, compared to $0.7 million and $1.3 million for the respective periods in 2007. On a per unit of production basis, operating costs for the second quarter and first half of 2008 were $5.88 per boe and $6.37 per boe, respectively. These amounts represent a 9 percent and 8 percent respective increase from $5.39 per boe and $5.88 per boe for the comparative periods in 2007. With production continuing to grow and the commissioning of a new 20 mmcf per day Open Range-operated gas plant at Ansell/Sundance near the end of the first quarter, the Corporation expects significant operating efficiencies to be realized at Ansell/Sundance for the balance of 2008. Consequently, Open Range expects operating costs on a per unit of production basis to come down significantly for the remainder of 2008. Transportation costs were $0.2 million or $0.93 per boe for the second quarter of 2008 and $0.3 million or $0.75 per boe for the first half of 2008.
GENERAL AND ADMINISTRATIVE (G&A) COSTS
Three months Three months Six months Six months
ended June 30, ended June 30, ended June 30, ended June 30,
2008 2007 2008 2007
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Gross $ 1,531,563 $ 1,212,338 $ 2,895,029 $ 2,552,640
Partner recovery (387,615) (47,128) (508,919) (207,340)
Capitalized (650,277) (587,867) (1,226,131) (1,121,660)
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Net G&A expense $ 493,671 $ 577,343 $ 1,159,979 $ 1,223,640
Per boe net ($) 2.72 4.79 3.32 5.75
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G&A costs for the three months ended June 30, 2008 totalled $0.5 million or $2.72 per boe after overhead recoveries and capitalization totalling just over $1.0 million. On a per boe basis G&A costs in the second quarter of 2008 declined by 43 per cent to $2.72 per boe from $4.79 per boe in the second quarter of 2007. For the first half of 2008, net G&A costs per boe decreased by 42 percent to $3.32 from $5.75 in the first half of 2007. These substantial reductions per boe for both periods were mainly due to increased production in 2008, combined with the slight decrease in overall net G&A costs. Capitalized G&A costs represented 42 percent of gross G&A costs both for the three and six months ended June 30, 2008 as the Corporation continued to focus on exploration activities and capitalized its exploration, geological and geophysical expenses.
Open Range expects to continue to reduce its net G&A costs per boe in 2008, reflecting the Corporation's continued forecast production growth combined with no significant planned increase in quarterly G&A spending.
INTEREST INCOME AND EXPENSE
Three months Three months Six months Six months
ended June 30, ended June 30, ended June 30, ended June 30,
2008 2007 2008 2007
----------------------------------------------------------------------------
Interest income $ 39,050 $ 37,591 $ 43,510 $ 89,697
Interest expense (50,272) (35,855) (250,221) (65,141)
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Net interest
income(expense) $ (11,222) $ 1,736 $ (206,711) $ 24,556
Per boe net ($) (0.06) 0.01 (0.59) 0.12
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Net interest expense for the first half of 2008 was $0.2 million or $0.59 per boe. The interest income earned on available cash balances through short-term interest-bearing instruments after the financing in April 2008 slightly offset the interest paid on the Corporation's credit facility during the first six months of 2008.
The Corporation had no amounts drawn on its extendable revolving credit facility at June 30, 2008. Open Range's continuing exploration activity will require incurring some debt during the second half of 2008.
