CALGARY, Nov. 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 nine month periods ended September 30, 2008.
Verenex is a Canada-based international exploration and production
company with a world-class discovered resource base and exploration portfolio
in the Ghadames Basin in Libya.
Third Quarter Highlights
- Announced on September 8, 2008 initiation of a review of strategic
options available to Verenex to maximize shareholder value, including
a potential corporate sale, and appointment of Standard Chartered
Bank and FirstEnergy Capital Corp. as financial advisors. The Company
has received approval of Libya National Oil Corporation ("NOC") to
disclose confidential technical data to a list of qualified
companies.
- Announced on November 3, 2008 an updated DeGolyer and MacNaughton
("D&M") assessment of oil and gas resources in Area 47, effective
September 30, 2008. In summary, the aggregate of D&M's best estimate
of gross contingent resources and risked mean estimate of gross
prospective resources, on an oil equivalent basis, has increased by
36% to approximately 2.15 billion barrels. The full range of D&M
estimates are as follows:
- Best estimate gross contingent resources of 352 million boe,
with low and high estimates of 181 million and 1.10 billion
boe, respectively;
- Best estimate gross prospective resources (unrisked) of
2.64 billion boe, with low, high and mean estimates of 1.26,
5.54 and 3.12 billion boe, respectively; and
- Geologic risk-adjusted mean estimate of gross prospective
resources approximately 1.80 billion boe.
- Announced on November 11, 2008, submission of a Final Appraisal
Report on the A1-47/02 Field to the Area 47 Management Committee. The
report provides the results of the three-well appraisal program on
the field, estimates of resources, expected reservoir performance and
preliminary costs and schedule for a 50,000 bopd (gross) Phase 1
development that also includes the nearby fields at B1, C1, D1 and
F1-47/02. The report recommends that the A1-47/02 Field be declared
commercial which would clear the way to establish a Joint Operating
Company with the NOC to develop the field, targeting first
production in early 2011.
- Announced the Company's ninth oil discovery in Area 47 at G1-47/02 in
Block 2. The well flowed at a maximum aggregate rate of 4,167 bopd
(gross) of light sweet crude oil and 2.0 mmcf/day (gross) of
associated natural gas from a 12 foot sandstone interval in the Lower
Acacus Formation.
- Drilled and cased the H1 and I1-47/02 new field wildcat ("NFW")
exploration wells in Block 2. Formation evaluation results indicated
the presence of hydrocarbons in the Lower Acacus and Memouniat
Formations in both wells. Testing is underway on the H1-47/02 well.
- Spudded the J1-47/02 NFW exploration well on November 7, 2008 in the
southern part of Block 2. The Company expects to spud the K1-47/02
NFW exploration well in the north western part of Block 2 within the
next few days. Both wells are programmed to drill through the Lower
Acacus Formation and into the Memouniat Formation.
- To date, 11 wells (nine exploration wells and two appraisal wells)
have been successfully flow tested at an aggregate rate of
approximately 98,000 bopd (gross) and have been suspended as
potential future oil production wells.
Area 47 Drilling & Testing Results
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Tested Tested
Maximum Maximum
Forma- Aggregate Aggregate
Total tions Oil Rate Gas Rate
Well Well Year Well Depth Tested (3.) (3.) Status
Name No. Spud Type(1.) (ft) (2.) (bopd) (mmscfpd) (4.)
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A1-47/02 1 2006 NFW 11,550 LA 12,500 2.9 Discovery
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B1-47/02 2 2007 NFW 11,030 LA, MA 23,800 12.6 Discovery
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C1-47/02 3 2007 NFW 9,900 LA, AO 23,570 10.4 Discovery
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D1-47/02 4 2007 NFW 9,720 LA, MA 7,742 13.7 Discovery
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E1-47/02 5 2007 NFW 9,639 LA 1,216 0.3 Discovery
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F1-47/02 6 2007 NFW 10,300 LA 7,215 5.9 Discovery
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A2-47/02 7 2007 Appraisal 10,400 LA 7,352 7.7 Intersected
WOC
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D2-47/02 8 2007 Appraisal 9,850 LA Trace - At WOC(5.)
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A3-47/02 9 2008 Appraisal 10,500 LA Trace - At WOC(5.)
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A1-47/04 10 2008 NFW 10,400 LA, MEM 6,603 8.6 Discovery
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A4-47/02 11 2008 Appraisal 10,380 LA, AO 2,490 2.1 Intersected
WOC
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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 LA, MEM 1,305 10.3 Discovery
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G1-47/02 14 2008 NFW 10,645 LA 4,167 2.0 Discovery
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H1-47/02 15 2008 NFW 10,475 - - - Testing
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I1-47/02 16 2008 NFW 10,925 - - - Awaiting
Testing
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J1-47/02 17 2008 NFW - - - - Drilling
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K1-47/02 18 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 inches on particular reservoir intervals.
4. "Discovery" as classified by the NOC is based on "commercial
discovery" criteria under the 1955 Petroleum Law Regulations.
Although E1 discovered producible hydrocarbons, it is not as yet
classified as commercial discovery by NOC pending further appraisal
drilling.
5. Temporarily abandoned as potential future water injection wells.
Financial
- Funds flow from operations in the third quarter of 2008 was
($0.9) million compared to $1.1 million for the third quarter of
2007.
- Net income in the third quarter of 2008 was $0.3 million compared to
net loss of $11.7 million in the third quarter of 2007.
- Working capital surplus at September 30, 2008 was $46.4 million
compared to $95.4 million as at December 31, 2007, including cash
amounting to $55.5 million (December 31, 2007 - $122.5 million) net
of restricted cash amounting to $5.4 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 Nine Nine
Months Months Months Months
Ended Ended Ended Ended
September September September September
(unaudited) 30, 2008 30, 2007 30, 2008 30, 2007
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Financial (thousands of
Cdn $, except share and
per share amounts)
Petroleum and natural
gas revenues (net) 267 157 794 1,075
Funds flow from
operations(1) (874) 1,116 (2,028) 2,300
Net income/(loss) 315 (11,707) 64 (13,851)
Capital expenditures 16,640 20,446 53,245 44,111
Working capital surplus 46,362 110,820 46,362 110,820
Common shares outstanding
Basic 44,267,891 44,266,991 44,267,891 44,266,991
Diluted 50,090,407 49,661,391 50,090,407 49,661,391
Weighted average common
shares outstanding
Basic 44,267,891 37,971,861 44,267,891 37,968,971
Diluted 47,326,910 41,902,792 47,454,810 41,618,609
Share trading
High 9.94 17.43 11.24 17.43
Low 6.81 10.45 6.81 6.00
Close 8.10 10.80 8.10 10.80
Operations
Production
Crude oil (bbls/d) - - - 28
Natural gas liquids
(bbls/d) 10 13 11 14
Natural gas (mcf/d) 216 258 234 282
Boe/d (6:1)(x) 46 56 51 90
Average reference price
WTI (US$ per bbl) 117.98 75.38 113.29 66.23
Brent (US$ per bbl) 114.78 74.87 111.02 67.13
AECO (Cdn$ per mcf) 7.74 5.18 8.62 6.55
Average selling price
Crude oil (Cdn$ per bbl) - - - 62.61
Natural gas liquids
(Cdn$ per bbl) 90.36 60.43 78.18 53.97
Natural gas (Cdn$
per mcf) 9.19 3.57 8.53 5.29
Average Operating Netback
(Cdn$ per BOE at 6:1) 63.08 30.41 57.27 38.36
(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 third quarter of 2008, the Company invested approximately
$16.6 million. Libya accounted for essentially all of the investment activity
level with approximately $10.7 million in drilling, $3.9 million in testing
and completions, $0.2 million in geological and geophysical costs,
$1.0 million in capitalized General and Administration ("G&A") and office
costs and $0.8 million in pre-engineering facility costs.
Outlook
The Company will continue to advance its review of strategic options. No
decision on any particular alternative has been reached at this time and there
can be no assurance that the process will result in any change in the
Company's current plan to aggressively explore and develop Area 47 in Libya or
that the Company will pursue any particular transaction. Verenex does not
intend to make further announcements regarding the process unless and until
its board of directors has approved a specific transaction or other course of
action or otherwise deems disclosure of developments is appropriate.
The Company currently has two drilling rigs under long term contract
which enables the spudding of up to 11 wells during 2008. Nine wells have
spudded to date in 2008.
Flow testing of the H1-47/02 NFW exploration well in Block 2 in the
north-eastern part of Area 47 is underway and is expected to be completed by
mid-December utilizing the KCA DEUTAG Service Rig 32. Up to four zones are
expected to be tested in the Memouniat and Lower Acacus Formations.
Testing of the I1-47/02 NFW exploration well in the north western part of
Block 2 is expected to follow completion of the H1 well testing.
The Company will be working with the Area 47 Management Committee and the
NOC to advance resolution on a commerciality decision for the A1-47/02 field
and in the meantime will continue to advance pre-engineering work.
The Company has completed a review of its 2008 capital investment
program. As a result, the capital program has been decreased to approximately
US $146 million (gross) (Cdn $77 million net to Verenex) from its approved
budget of US $157 million (gross) (Cdn $79 million). The decrease is a result
of advancing the 2008 2D seismic acquisition program into late 2007 and
spudding 11 wells compared to the original plan of 12 wells in 2008 due
primarily to drilling delays on the H1 and I1-47/02 wells. These reductions
were partially offset by the impact of the weaker Canadian dollar.
Verenex is currently seeking to put in place an interim financing
arrangement. The Company has been in discussions with several banks and is
intending to issue a request for proposals by the middle of November. The
facility could be used to complement the Company's current cash position to
fund ongoing exploration, appraisal and development activities.
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 DeGolyer & MacNaughton 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 November 3, 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,
November 12, 2008, of the Company's operating and financial results for the
three and nine months ended September 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 nine months ended
September 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; 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.
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 third quarter was entirely attributable to the Bottrel,
Alberta gross overriding royalty (the "Bottrel GORR"). Total Company oil and
gas production was 46 barrels of oil equivalent per day ("boepd") in the third
quarter of 2008 resulting in oil and gas revenues of $0.3 million, net of
royalties, compared to 56 boepd and revenues of $0.2 million in the third
quarter of 2007 and 49 boepd and revenues of $0.3 million in the second
quarter of 2008. The decrease in production compared to the second quarter of
2008 relates to natural production declines in the producing wells. The
decline as compared to the third quarter of 2007 is due to a reduction in the
number of producing wells from 15 to 12. The year-to-date decrease from 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 28 boepd of production in the nine months ended
September 30, 2007.
There were no unusual cyclical or seasonal factors impacting the
Company's production in 2008.
Average realized prices for the third quarter of 2008 were: oil $nil
(2007 - $nil); natural gas $9.19 per mcf (2007 - $3.57); and NGL $90.36 per
bbl (2007 - $60.43). These compare to prices of $10.17 per mcf for natural gas
and $74.91 per bbl for NGL during the second quarter of 2008.
Interest of $0.3 million was earned in the third quarter of 2008 (2007 -
$1.0 million) compared to $0.4 million for the second quarter of 2008 on cash
balances invested in excess of expenditure requirements. The decrease versus
the second quarter of 2008 is due to the decreased cash position and lower
interest rates during the third quarter of 2008.
Foreign exchange gain for the third quarter of 2008 amounted to
$2.0 million as compared to a loss of $1.5 million for the third quarter in
2007. Foreign exchange gain for the nine months ended September 2008 amounted
to $3.5 million compared to a loss of $3.2 million for the nine months ended
September 2007. The gain compared to the second 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 nine months ended September 30, 2008, non-cash stock
compensation expense related to stock options, performance warrants and Stock
Appreciation Rights ("SAR's") was $0.4 million and $1.9 million (2007 -
$0.6 million and $1.6 million). For the three and nine months ended
September 30, 2008, non-cash stock compensation expense related to Performance
Share Units ("PSU's") was $0.2 million and $0.5 million (2007 - nil and nil).
The year-to-date increase in costs compared to 2007 is primarily related to
the issuance of additional stock options and PSU's during 2008.
General and Administration ("G&A")
The Company capitalized $1.1 million and $4.2 million of general and
administrative costs relating to exploration and development activities for
the three and nine months ended September 30, 2008 (2007 - $0.9 million and
$3.0 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 September 30, 2008 were denominated in US$. As the Canadian
dollar fluctuates during the period, foreign exchange gains and losses are
reflected in both the earnings and funds flow amounts.
Depletion and Depreciation
Depletion and depreciation, of $0.2 million and $0.6 million for the
three and nine months ended September 30, 2008 (2007 - $0.2 million and
$0.9 million) relates to the depletion of the Canadian assets. Depletion and
depreciation for the three and nine months of 2007 included depletion on the
France assets, which were sold effective May 30, 2007. In addition, an
impairment write-down on the Orca 1 exploration well in France was made during
the third quarter of 2007 in the amount of $10.0 million.
Related Party Transactions
Vermilion REP SAS ("VREP") is a 100% owned subsidiary of Vermilion Energy
Trust ("VET"), which is a significant shareholder in Verenex. VREP, as
contract operator in France, has paid for various expenditures on behalf of
Verenex. These transactions were measured at the exchange amount being the
consideration established and agreed to by the related parties. These
transactions were undertaken under the same terms and conditions as
transactions with non-related parties. Amounts due to related parties are
comprised of an amount due to VREP of $9 thousand (December 31, 2007 -
$1.1 million).
