CALGARY, Aug. 12 /CNW/ - Verenex Energy Inc. ("Verenex" or the "Company")
(TSX - VNX) is pleased to report its unaudited interim operating and financial
results for the three and six months ended June 30, 2008.
Verenex is a Canada-based international exploration and production
company with a world-class exploration portfolio in the Ghadames Basin in
Libya.
Highlights
Operations - Libya
- Announced results of DeGolyer and MacNaughton ("DM") independent
assessment of oil and gas resources in Area 47 on August 5, 2008,
expressed as a range of estimates. In summary, the aggregate of DM's
best estimate of gross contingent resources and geologic risk-
adjusted mean estimate of gross prospective resources effective
February 1, 2008, is approximately 1.6 billion barrels of oil
equivalent ("boe"). The full range of DM estimates are as follows:
- The best estimate of gross contingent resources is approximately
396 million boe, with low and high estimates of 106 and 701
million boe, respectively.
- The best estimate of additional gross prospective resources
(unrisked) is approximately 2.3 billion boe, with low, high and
mean estimates of 1.1, 4.8 and 2.7 billion boe, respectively.
- The geologic risk-adjusted mean estimate of gross prospective
resources is approximately 1.2 billion boe.
- Announced the Company's seventh oil discovery in Area 47 at A1-47/04
on July 28, 2008, the first in Block 4 in the northern part of Area
47. The well flowed at a maximum aggregate rate of 6,603 barrels of
oil per day ("bopd") of light sweet crude oil and 8.6 million cubic
feet per day ("mmcf/day") of associated natural gas from 85 feet of
perforations in the Lower Acacus and Memouniat formations. This
significant result confirms the potential of a new Lower Acacus play
fairway in the northern part of Area 47 and provides the first
positive results in the deeper Memouniat Formation.
- Completed flow testing of A4-47/02 in Block 2, the third appraisal
well on the A1-47/02 oil discovery. The well flowed at a maximum rate
of 2,490 bopd of light sweet crude oil and 2.1 mmcf/day of associated
natural gas from a 52 foot interval in Basal Sand 1 in the Lower
Acacus Formation. The A4 well intersected a water oil contact in this
basal sand at the same subsea depth as encountered in the A2 and A3
appraisal wells, confirming an oil column height of at least 155 feet
in a large structural and stratigraphic trap encompassing the A1,
A2, A3 and A4 wells.
- The Libya National Oil Corporation ("NOC") advised that certain areas
around pre-existing oil discoveries at A1-NC3A and G1-NC02 located
within or on the boundary of Block 2 in Area 47 are unavailable to
Verenex for exploration or exploitation. Resources associated with
these pre-existing discoveries were excluded from the DM assessment.
Resolution of this issue has cleared the way to drill in adjacent
areas and the NOC has recently approved drilling of the I1-47/02 well
south of the G1-NC02 discovery which is expected to spud before the
end of August 2008.
- During the May to August 2008 period, drilled and cased three new
field wildcat ("NFW") exploration wells (B1-47/04, C1-47/04 and G1-
47/02) and one appraisal well (A4-47/02) thereby increasing the total
number of drilled and cased wells to 14. A 15th well H1-47/02 was
spudded in early August and a 16th well I1-47/02 is preparing to
spud.
- The B1 and C1-47/04 NFW exploration wells in Block 4 were cased based
on encouraging formation evaluation results which indicated the
presence of hydrocarbons in the Lower Acacus and Memouniat
Formations. The G1-47/02 NFW exploration well in Block 2 was also
cased based on indicated hydrocarbons in the Lower Acacus Formation.
- To date, nine wells (seven exploration wells and two appraisal wells)
have been successfully flow tested at an aggregate rate of
approximately 92,500 bopd and have been suspended as potential future
oil production wells. Flow testing of the C1-47/04 well is underway.
- Completed the interpretation of the 1,208 square kilometre 3D seismic
survey carried out in late 2007 in the eastern part of Area 47,
increasing total 3D seismic coverage to 1,708 square kilometres or
28% of Area 47. Processing and interpretation of the 2,400 kilometre
2D seismic survey carried out in early 2008 in the central and
southern part of Area 47 is progressing and is expected to be
completed by the end of September.
Area 47 Drilling & Testing Results
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Tested
Maximum
Form- Perfor- Aggregate
Total ations ated Oil Flow
Well Well Year Well Depth Tested Interval Rate(3.)
Name No. Spud Type(1.) (ft) (2.) (ft) (bopd) Status
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A1-47/02 1 2006 NFW 11,550 LA 174 12,500 Discovery
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B1-47/02 2 2007 NFW 11,030 LA, MA 312 23,800 Discovery
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C1-47/02 3 2007 NFW 9,900 LA, AO 188 23,570 Discovery
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D1-47/02 4 2007 NFW 9,720 LA, MA 157 7,742 Discovery
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E1-47/02 5 2007 NFW 9,639 LA 11 1,216 Discovery
(4.)
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F1-47/02 6 2007 NFW 10,300 LA 18 7,215 Discovery
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A2-47/02 7 2007 Appraisal 10,400 LA 48 7,352 Intersected
WOC(5.)
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D2-47/02 8 2007 Appraisal 9,850 LA 6 Trace At WOC(5.)
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A3-47/02 9 2008 Appraisal 10,500 LA 22 Trace At WOC(5.)
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A1-47/04 10 2008 NFW 10,400 LA, MEM 85 6,603 Discovery
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A4-47/02 11 2008 Appraisal 10,380 LA 52 2,490 Intersected
WOC(5.)
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B1-47/04 12 2008 NFW 10,250 - - - Awaiting
testing
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C1-47/04 13 2008 NFW 10,155 - - - Testing
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G1-47/02 14 2008 NFW 10,645 - - - Awaiting
testing
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H1-47/02 15 2008 NFW - - - - Drilling
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I1-47/02 16 2008 NFW - - - - Preparing
to spud
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Notes:
1. NFW (new field wildcat exploration well).
2. LA (Lower Acacus), MA (Middle Acacus), AO (Aouinet Ouenine), MEM
(Memouniat).
3. Maximum aggregate well rate as measured through choke sizes of
32/64ths to 128/64ths inch on particular reservoir intervals.
4. The NOC has not yet classified E1-47/02 as a "commercial discovery"
under criteria described in the 1955 Petroleum Law Regulations. These
require that a well produce 1,000 bopd from depths of 8,000 to 10,000
ft on a 28/64ths inch choke (flowing or pumped). The E1-47/02 flowed
782 bopd on a 28/64ths inch choke and 1,216 bopd on a 48/64ths inch
choke without the assistance of a pump.
5. WOC (water oil contact).
Financial
- Funds flow from operations in the second quarter of 2008 was ($0.3)
million compared to 0.1 million for the second quarter of 2007.
- Net loss in the second quarter of 2008 was $2.3 million compared to
net loss of $1.8 million in the second quarter of 2007.
- Working capital surplus at June 30, 2008 was $61.5 million compared
to $95.4 million as at December 31, 2007, including cash amounting to
$75.9 million (December 31, 2007 - $122.5 million) net of restricted
cash amounting to $6.2 million (December 31, 2007 - $7.9 million).
The decrease in working capital is due to the ongoing investments in
the Company's Libya operations.
Highlights
Three Three Six Six
Months Months Months Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
(unaudited) 2008 2007 2008 2007
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Financial (thousands of
Cdn $, except share and
per share amounts)
Petroleum and natural gas
revenues (net) 287 421 527 918
Funds flow from
operations(1) (253) 109 (1,154) 1,184
Net income/(loss) (2,314) (1,846) (251) (2,144)
Capital expenditures 20,944 11,721 36,605 23,665
Working capital surplus 61,452 21,019 61,452 21,019
Common shares outstanding
Basic 44,267,891 36,173,491 44,267,891 36,173,491
Diluted 50,063,924 41,491,391 50,063,924 41,491,391
Weighted average common
shares outstanding
Basic 44,177,670 36,173,491 44,166,547 36,168,605
Diluted 47,364,207 40,085,250 47,428,731 39,792,155
Share trading
High 10.96 14.40 11.24 14.40
Low 8.06 10.80 7.25 6.00
Close 8.14 13.93 8.14 13.93
Operations
Production
Crude oil (bbls/d) - 29 - 42
Natural gas liquids
(bbls/d) 11 15 12 15
Natural gas (mcf/d) 228 278 246 295
Boe/d (6:1)(x) 49 90 53 106
Average reference price
WTI (US$ per bbl) 123.98 65.03 110.94 61.65
Brent (US$ per bbl) 121.38 68.76 109.14 63.26
AECO (Cdn$ per mcf) 10.21 7.07 9.06 7.23
Average selling price
Crude oil (Cdn$ per bbl) - 66.10 - 62.61
Natural gas liquids 74.91 56.90 72.86 51.12
(Cdn$ per bbl)
Natural gas (Cdn$ per mcf) 10.17 7.04 8.23 6.06
Average Operating Netback
(Cdn$ per BOE @ 6:1) 64.06 45.22 54.71 40.50
(1) The above table includes non-GAAP measures, which may not be
comparable to other companies. See MD&A for further discussion.
Capital Expenditures (Cdn $)
During the second quarter of 2008, the Company invested approximately
$20.9 million. Libya accounted for essentially all of the investment activity
level with approximately $10.9 million in drilling, $4.5 million in testing
and completions, $1.0 million in geological and geophysical costs,
$1.3 million in capitalized General and Administration ("G&A") and office
costs, inventory $2.9 million and $0.3 in pre-engineering facility costs.
Outlook
The Company currently has two drilling rigs under long term contract
which enables the spudding of up to 11 to 12 wells during 2008. The Company is
on track to achieve this target with seven wells spudded to date in 2008. The
Company is currently seeking bids for a third drilling rig that could
potentially be deployed in 2009.
Flow testing of the C1-47/04 NFW exploration well in Block 4 in the
northern part of Area 47 is underway and is expected to be completed by
mid-September utilizing the KCA DEUTAG Service Rig 32. Both the Memouniat and
Lower Acacus Formations are expected to be tested.
The Company expects to complete the drilling and formation evaluation
program on the H1-47/02 NFW exploration well in Block 2 by late September
utilizing the Ensign 28 drilling rig. The H1 well is located approximately
18 kilometres northeast from the Verenex D1-47/02 oil discovery, with a target
depth of 10,500 feet.
The I1-47/02 NFW exploration well is expected to spud in late August with
the KCA DEUTAG T-19 drilling rig. The I1 well is located in Block 2
approximately 6.5 kilometres south of the AGOCO G1-NC02 oil discovery and
22 kilometres northwest from the Verenex D1-47/02 oil discovery. This will be
the first well to be drilled in the Central 3D seismic survey area. The target
depth is 10,850 into the Memouniat Formation. Drilling and formation
evaluation results are expected by mid-October.
The Company is targeting to complete the full interpretation of the 2008
2D seismic program by the end of the third quarter of 2008. The prospect and
lead inventory in Area 47 is being updated to incorporate results from the
2007 3D and 2008 2D seismic surveys to guide the drilling program and future
updates of the resource assessment for Area 47.
The southern part of Area 47 is contemplated as the core for an initial
production phase of up to 50,000 bopd (gross) targeted for first oil
production in early 2010. The DM assessment confirms sufficient gross
contingent resources (best estimate 396 million boe) to underpin this initial
production phase. Excellent potential exists to grow production above this
floor given the assessment of gross geologic risk-adjusted mean prospective
resources (1.2 billion boe).
Pre-engineering design and cost and schedule estimates are being prepared
for the proposed gathering lines, oil and gas export pipelines and processing
facilities associated with this development. This work is expected to be
completed by the end of August. The reservoir engineering and other subsurface
work to define the producing well completions and depletion mechanism,
including enhanced oil recovery, is well advanced and is also expected to be
completed by the end of August. All of this work will be incorporated into a
commerciality application planned for submission to the Area 47 Management
Committee and the NOC by the end of the third quarter of 2008.
The maximum combined measured flow rates in each of the tested wells in
Libya contained in this press release are not necessarily indicative of the
ultimate production rate and may be lower in any commercial development, which
will be determined from reservoir engineering studies that constitute part of
the appraisal and development planning activities currently underway.
This press release contains estimates of the Company's resources. The
estimates were prepared by DM pursuant to Canadian Securities National
Instrument 51-101 Standards of Disclosure for Oil and Gas Activities. The
contingent resources are defined as those quantities of petroleum estimated,
as of a given date, to be potentially recoverable from known accumulations
using established technology or technology under development, but which are
not currently considered to be commercially recoverable due to one or more
contingencies. There is no certainty that it will be commercially viable to
produce any portion of the contingent resources. The prospective resources are
defined as those quantities of petroleum estimated, as of a given date, to be
potentially recoverable from undiscovered accumulations by application of
future development projects. Prospective resources have both an associated
chance of discovery and a chance of development. There is no certainty that
any portion of the prospective resources will be discovered. If discovered,
there is no certainty that it will be commercially viable to produce any
portion of the prospective resources. The Company's material change report
filed on SEDAR at www.sedar.com and dated August 5, 2008 contains additional
detail on the resource estimate ranges and includes the risks and level of
uncertainty associated with the recovery of the resources, the significant
positive and negative factors relevant to the estimates and, in respect of the
contingent resources, the specific contingencies which prevent the
classification of the resources as reserves.
This press release also contains forward-looking financial and
operational information, including but not limited to seismic and drilling
operations, proposed budgets, earnings, funds flow, production and capital
investment projections. These projections are based on current expectations
and are subject to a number of risks and uncertainties that could materially
affect the results. These risks include, but are not limited to, risks
associated with the oil and gas industry (e.g. financing; 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 estimates and projections in relation to production, costs and
expenses; health, safety and environmental risks; and, the uncertainty of
resource estimates), drilling equipment availability and efficiency, the
ability to attract and retain key personnel, the risk of commodity price and
foreign exchange rate fluctuations, the uncertainty associated with dealing
with governments and obtaining regulatory approvals and the risk associated
with international activity. Due to the risks, uncertainties and assumptions
inherent in forward-looking statements, prospective investors in the company's
securities should not place undue reliance on these forward-looking
statements.
Barrels of oil equivalent ("boe") may be misleading, particularly if used
in isolation. A boe conversion ratio of 6,000 cubic feet to one barrel is
based on an energy equivalency conversion method primarily applicable at the
burner tip and does not represent a value equivalency at the wellhead.
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following is management's discussion and analysis (MD&A), dated,
August 12, 2008, of the Company's operating and financial results for the
three and six months ended June 30, 2008. The financial data has been prepared
in Canadian dollars in accordance with Canadian Generally Accepted Accounting
Principles ("GAAP") applied consistently with prior periods. This discussion
should be read in conjunction with the Company's interim unaudited
consolidated financial statements for the three and six months ended June
30, 2008 and the audited consolidated financial statements for the year ended
December 31, 2007, together with the accompanying notes as contained in the
Company's 2007 Annual Report.
Additional information relating to the Company is available on SEDAR at
www.sedar.com.
Forward-Looking Information
This report contains forward-looking financial and operational
information, including but not limited to seismic and drilling operations,
proposed budgets, earnings, funds flow, production and capital investment
projections. These projections are based on current expectations and are
subject to a number of risks and uncertainties that could materially affect
the results. These risks include, but are not limited to, risks associated
with the oil and gas industry (e.g. financing; 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 estimates and projections in relation to production, costs and
expenses; and, health, safety and environmental risks), drilling equipment
availability and efficiency, the ability to attract and retain key personnel,
the risk of commodity price and foreign exchange rate fluctuations, the
uncertainty associated with dealing with governments and obtaining regulatory
approvals and the risk associated with international activity. Due to the
risks, uncertainties and assumptions inherent in forward-looking statements,
prospective investors in the company's securities should not place undue
reliance on these forward-looking statements.
Non-GAAP Measures
Included in this report are references to terms commonly used in the oil
and gas industry, such as funds flow and funds flow per share which is
expressed before changes in non-cash working capital and are used by the
Company to analyze operating performance, leverage and liquidity. These terms
are not defined by GAAP. Consequently, these are referred to as non-GAAP
measures.
Operating Results
Asset Valuation
The Company performs a review for asset impairment as required by the
Full Cost Accounting Guideline, AcG-16. Any impairment in value is dependent
upon an independent reservoir engineer's assessment of the deliverability and
reserves associated with certain wells and the outlook for world prices for
oil and natural gas.
Revenues
Production in the second quarter was entirely attributable to the
Bottrel, Alberta gross overriding royalty (the "Bottrel GORR"). Total Company
oil and gas production was 49 barrels of oil equivalent per day ("boepd") in
the second quarter of 2008 resulting in oil and gas revenues of $0.3 million,
net of royalties, compared to 90 boepd and revenues of $0.4 million in the
second quarter of 2007 and 57 boepd and revenues of $0.2 million in the first
quarter of 2008. The decrease from the second quarter of 2007 is due to the
sale of the Company's participating interest in the Marvilliers Permit,
including the St. Lazare 2H well, and in two drilling spacing units in the
Parentis Concession, including the Parentis 222H well, located in France in
May 2007, which contributed 29 boepd of production in 2007.
During the second quarter of 2008 the Bottrel GORR provided production of
approximately 49 boepd and revenues of $0.3 million compared to 61 boepd and
$0.3 million for the same period in 2007 and 57 boepd and $0.2 million of
royalty income during the first quarter of 2008. The decrease in production
compared to the second quarter of 2007 relates to natural production declines
in the producing wells together with a reduction in the number of producing
wells from 15 to 12. The decrease in production compared to the first quarter
of 2008 relates to natural production declines in the producing wells together
with a reduction in the number of producing wells from 15 to 12.
There were no unusual cyclical or seasonal factors impacting the
Company's production in 2008.
Average realized prices for the second quarter of 2008 were: oil $nil
(2007 - $66.10); natural gas $10.17 per mcf (2007 - $7.04); and NGL
$74.91 per bbl (2007 - $56.90). These compare to prices of $6.51 per mcf for
natural gas and $71.12 per bbl for NGL during the first quarter of 2008.
Interest of $0.4 million was earned in the second quarter of 2008
(2007 - $0.4 million) compared to $0.8 million for the first quarter of 2008
on cash balances invested in excess of expenditure requirements. The decrease
versus the first quarter of 2008 is due to the decreased cash position and
lower interest rates during the second quarter of 2008.
Foreign exchange loss for the second quarter of 2008 amounted to
$0.9 million as compared to $1.7 million for the second quarter in 2007.
Foreign exchange gain for the six months ended June 2008 amounted to
$1.5 million compared to a loss of $1.7 million for the six months ended June
2007. The loss compared to the first quarter of 2008 is due to the
strengthening of the US dollar versus the Canadian dollar over the period.
Stock Compensation
For the three and six months ended June 30, 2008, non-cash stock
compensation expense related to stock options, performance warrants and Stock
Appreciation Rights ("SAR's") was $1.0 million and $1.7 million
(2007 - $0.5 million and $1.0 million) . The increase in costs compared to
2007 is primarily related to the issuance of additional stock options during
2007 and the issuance of Performance Share Units ("PSU's") during the first
quarter of 2008.
General and Administration ("G&A")
The Company capitalized $1.3 million and $3.1 million of general and
administrative costs relating to exploration and development activities for
the three and six months ended June 30, 2008 (2007 - $1.0 million and
$2.1 million). The net G&A amounts that are expensed represent salaries,
employee benefits, office costs, legal and related party services not directly
attributable to ongoing exploration and development capital projects. The
higher net G&A in 2008 in comparison with 2007 is due to the timing of
expenditures and the application of an overhead recovery against these costs.
The overhead recovery is capped at US $1 million annually.
Effects of Exchange Rate Fluctuations
The Company's operations are conducted primarily in jurisdictions where
the United States dollar (US$) and the European Euro ((euro)) are the business
currencies. The majority of the Company's costs, assets and liabilities during
the quarter ended June 30, 2008 were denominated in US$.
