HOUSTON, TEXAS--(Marketwire - Nov. 14, 2008) - Caza Oil & Gas, Inc. ("Caza" or the "Company") (TSX:CAZ)(AIM:CAZA) is pleased to provide its unaudited financial and operational results for the three months ended September 30, 2008, along with an operational update on the Company's US-focused exploration, production and development activities in Texas, New Mexico and Louisiana.
Third Quarter 2008 Highlights
Operational:
- Sales volumes averaged 994 Mcfe/d (103% higher than volumes recorded for Q3 2007).
- Caza's realized price increased 64% to $9.90/Mcfe (Q3 2007 - $6.05/Mcfe).
- Caza has participated in the drilling of seven wells - six have successfully encountered hydrocarbons, two are currently in production and four are undergoing completion operations.
Financial:
- Total revenue of US$1,037,350 (Q3 2007 - US$385,719).
- Net loss of US$2,164,475 (Q3 2007 - net loss of US$673,096).
- Capital expenditures totaled US$6,691,112 (Q3 2007 - US$3,730,017).
- Cash and cash equivalents of $17,793,687 (Q3 2007 - $9,250,020)
Highlights-Unaudited
(in United States dollars)
Three Months Ending September 30, 2008 2007 % change
Financial (US$)
--------------
Gas and Condensate revenue 905,055 272,543 232
Net Income (loss) (2,164,475) (673,096) 222
Per share - basic and diluted (0.01) (0.01)
Capital expenditures (net) 6,691,112 3,730,017 79
Operational (US$)
----------------
Sales volumes
Natural gas (Mcf/d) 910 471 93
Natural gas liquids (bbls/d) 14 3 367
Combined (Mcfe/d) 994 489 103
Operating netbacks ($/Mcfe)
Average selling prices 9.90 6.05 64
Production expenses 0.77 3.00 -74
Severance Taxes 0.73 0.43 69
Transportation expenses 0.17 0.05 240
Operating netback 8.22 2.58 219
Share Data
Weighted average outstanding
(including exchangeables) 145,675,139 73,336,717 99
Equity outstanding - end of period
Common 119,319,000 49,940,000 139
Warrants 20,500,000 22,400,000 -8
Stock options 6,585,000 3,965,000 66
W. Michael Ford, Chief Executive Officer of the Company commented:
"In addition to the reported financial results for the third quarter of 2008, we are pleased to be able to announce continued success in our exploration and production activities as well. We are seeing positive production results from our recent drilling program and expect to see further reserve growth as a result.
We have sufficient cash resources to ensure continued drilling during this difficult economic climate, and we are well positioned to take advantage of anticipated lower drilling, producing and acreage costs. Therefore, we will be delaying projects where possible to benefit from the anticipated lower costs in the future."
Operational Update
Exploration and Production Activity:
Glass Ranch (Wolfberry) Property - Upton County, Texas, in addition to the previously announced successes on this property, the Glass Ranch A #3 well has successfully encountered hydrocarbons. The well reached a total depth of 10,425 feet on September 14, 2008. Electric logs indicated multiple potential pay sands in the Wolfcamp and Spraberry formations and completion operations have commenced.
Caza, as non-operator, currently has a 50.0% working interest and a corresponding 39.08% net revenue interest before payout of the well, which will change after payout to an estimated 47.41% working interest and an estimated 36.32% net revenue interest.
Caza is extremely pleased with the drilling success on the Glass Ranch Property. Initial results suggest the potential for an additional 14 well locations on 80 acre spacing. The first well stimulated was the Glass Ranch A #1 well, which is currently producing at a gross rate of 140 barrels of oil per day and is expected to continue to improve as fracture fluids are recovered. The Glass Ranch A #3 well has also been stimulated and is currently producing hydrocarbons along with fracture stimulation fluids. Caza expects this well to continue cleaning up and, along with the B #1 and B #3 wells, to perform similarly to the A #1 well.
The Wolfberry trend in the Permian Basin of West Texas has been widely successful and Caza continues to pursue additional acreage throughout this trend.
With the success of the Glass Ranch wells, and the Wolfberry play in general, Caza has recently acquired two year term leases on an additional 1,200 acres of prospective Wolfberry acreage in Upton County, Texas. Caza will refer to this area as the Windham (Wolfberry) Property. In addition, Caza has recently acquired three year term leases on 807 acres of prospective Wolfberry acreage in Crockett and Reagan Counties, Texas. The acreage comprises two properties: Sheep Mountain (Crockett) and Grierson (Reagan). Caza, as operator, has a 50% working interest in all three properties and is currently evaluating future work schedules.
Hite Offset Property - Development Update - Wharton County, Texas, the Dorothy Hite Gas Unit #3 (Wilcox) well ("DHGU #3") located in the Wharton West Wilcox Field has successfully encountered hydrocarbons and is now in production and flowing at a current, gross rate of 4.4 million cubic feet of gas per day through a 12/64 choke at 5,075 psi. The DHGU #3 is a development well drilled in the Dorothy Hite Gas Unit and is contiguous to Caza's Matthys-McMillan Gas Unit. Caza, as a non-operator, acquired its working interest in the DHGU #3 via farmout on a 1/3 for 1/4 promoted basis through the casing point. The DHGU #3 well has confirmed the extension of productive limits within the Wharton West Wilcox Field, which supports additional development drilling on Caza's HBP (held by production) acreage offsetting its Matthys-McMillan Gas Unit #1 well. Due to current market conditions and in order to conserve capital, Caza has not scheduled further development drilling at this time.
Caza, as non-operator, currently has a 4.51% working interest (which changed after casing point from a 6.02% working interest) and a corresponding 3.51% net revenue interest.
Aldwell Ranch Property - Sutton County, Texas, the FEM 14-12 well in the Sawyer (Canyon) Field has successfully encountered hydrocarbons. The well reached a total depth of 7,855 feet on August 27, 2008. Electric logs indicated multiple potential pay sands in the Canyon formation. The well has been fracture stimulated and is currently being evaluated while flowing back.
Caza, as non-operator, currently has a 48.44% working interest and a corresponding 36.33% net revenue interest in the FEM 14-12 well.
Southeast New Mexico Program - Lea County, New Mexico - Caza is delighted to announce that it has recently leased approximately 7,362 gross acres in three separate properties located in the developing Wolfcamp horizontal oil and gas play of Lea County, New Mexico. Caza continues to build its acreage position focusing its leasing efforts in the oil prone regions of the play. Caza refers to the three properties as Moore Cap (3,642 gross acres), Sombrero (1280 gross acres) and Bada-Bing (2,440 gross acres). Caza, as operator, has a 50% working interest in all three properties and is currently evaluating future work schedules. This acreage was acquired in conjunction with the exploration agreement between Caza and Wise Oil & Gas No. 8, Ltd., as announced in a release dated July 3, 2008.
South Louisiana - St. Landry Parish, Louisiana, the Thisco #3 well reached a total depth of 8,232 feet on October 17, 2008. Based on electric logs and sidewall core data the well was completed in the Frio formation and production testing commenced. Instantaneous flow rates up to 173 gross barrels of oil per day were seen during testing, and the well is currently being placed on production.
Caza, as non-operator, currently has a 22% working interest (which changed after casing point from a 44% working interest) and a corresponding 16.28% net revenue interest.
Outlook
Despite well publicized difficult market conditions, our belief is that the fundamentals of Caza's business are sound. We anticipate the current situation to result in markedly lower costs for drilling and producing operations. Accordingly, we are taking advantage of the flexibility afforded by our long term leases and delaying projects where possible to benefit from these anticipated, lower costs in the future.
Caza's cash and cash equivalents balance as of September 30, 2008, was $17.8m. Our cash position along with long term leases and a diverse project portfolio will allow us the flexibility to modify our drilling program for 2009 to take advantage of anticipated, lower drilling costs, changing commodity prices and drilling success. Our recent exploration success should enable us to maintain a healthy cash balance during this difficult economic climate.
About Caza
Caza is engaged in the acquisition, exploration, development and production of hydrocarbons in the Texas Gulf Coast (on-shore), south Louisiana, southeast New Mexico and the Permian Basin of west Texas regions of the United States of America through its subsidiary, Caza Petroleum, Inc.
In accordance with AIM Rules - Guidance Note for Mining, Oil and Gas Companies, the information contained in this announcement has been reviewed and approved by Anthony B. Sam, Vice President Operations of Caza who is a Petroleum Engineer and a member of The Society of Petroleum Engineers.
ADVISORY REGARDING FORWARD-LOOKING STATEMENTS - In the interests of providing Caza shareholders and potential investors with information regarding Caza, including management's assessment of Caza's and its subsidiaries' future plans and operations, certain statements contained in this news release are forward-looking statements or information within the meaning of applicable securities legislation, collectively referred to herein as "forward-looking statements". Forward-looking statements in this news release include, but are not limited to: future economic and operating performance (including per share growth, cash flow and increase in net asset value); anticipated growth and success of resource plays and the expected characteristics of resource plays; free cash flow which may be generated in 2008 and beyond, and potential uses for such free cash flow; anticipated production and sales of oil, natural gas and NGLs in 2008; anticipated impact and success of Caza's price hedging strategy, if any; anticipated costs; anticipated prices for oil and natural gas; anticipated capital investment in 2008 and the allocation thereof; anticipated capital inflation; anticipated capital and operating cost efficiencies; anticipated growth in hydrocarbon production; forecast cash flow for 2008 and the anticipated ability to meet guidance targets. Statements regarding flow rates in this news release are current only as of the date hereof. Future flow rates may vary, perhaps materially, and the wells in question may prove to be technically or economically unviable. Any future flow rates will be subject to the risks and uncertainties set out in this news release.
Readers are cautioned not to place undue reliance on forward-looking statements, as there can be no assurance that the plans, intentions or expectations upon which they are based will occur. By their nature, forward-looking statements involve numerous assumptions, known and unknown risks and uncertainties, both general and specific, that contribute to the possibility that the predictions, forecasts, projections and other forward-looking statements will not occur, which may cause the company's actual performance and financial results in future periods to differ materially from any estimates or projections of future performance or results expressed or implied by such forward-looking statements. These risks and uncertainties include, among other things: volatility of and assumptions regarding oil and gas prices; assumptions based upon the company's current guidance; fluctuations in currency exchange and interest rates; product supply and demand; market competition; well flow rates and the hydrocarbons ultimately recoverable from wells, operating risks, water encroachment, risks inherent in the company's marketing operations, including credit risks; imprecision of reserve estimates and estimates of recoverable quantities of oil, natural gas and liquids from resource plays and other sources not currently classified as proved; the company's ability to replace and expand oil and gas reserves; the company's ability to generate sufficient cash flow from operations to meet its current and future obligations; the company's ability to access external sources of debt and equity capital; the timing and the costs of well and pipeline construction; the company's ability to secure adequate product transportation; changes in royalty, tax, environmental and other laws or regulations or the interpretations of such laws or regulations; the risk of terrorist threats; risks associated with future lawsuits and regulatory actions made against the company; and other risks and uncertainties described from time to time in the reports and filings made with securities regulatory authorities by Caza.
Although Caza believes that the expectations represented by such forward-looking statements are reasonable, there can be no assurance that such expectations will prove to be correct. Readers are cautioned that the foregoing list of important factors is not exhaustive. Furthermore, the forward-looking statements contained in this news release are made as of the date of this news release, and, except as required by law or regulation, Caza 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. The forward-looking statements contained in this news release are expressly qualified by this cautionary statement.
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following interim Management's Discussion and Analysis ("MD&A") of the financial results for Caza Oil & Gas, Inc. ("Caza" or the "Company") should be read in conjunction with the unaudited consolidated interim financial statements as at and for the three and nine month periods ended September 30, 2008, the annual information form, the audited consolidated financial statements and corresponding MD&A for the year ended December 31, 2007. Additional information relating to the Company can be found on SEDAR at www.sedar.com. All figures herein have been prepared in accordance with Canadian Generally Accepted Accounting Principles ("GAAP") unless otherwise stated. This MD&A is dated November 10, 2008.
Forward Looking Information
In addition to historical information, the MD&A contains forward-looking statements that are generally identifiable as any statements that express, or involve discussions as to, expectations, beliefs, plans, objectives, assumptions or future events of performance (often, but not always, through the use of words or phrases such as "will", "may", "will likely result", "expected", "is anticipated", "believes", "estimated", "intends", "plans", "projection" and "outlook"), are not historical facts and may be forward-looking and may involve estimates, assumptions and uncertainties which could cause actual results or outcomes to differ materially from those expressed in such forward-looking statements.
These statements are based on certain factors and assumptions regarding the results of operations, the performance of projected activities and business opportunities. Specifically, we have used historical knowledge and current industry trends to project budgeted expenditures for 2008 and into 2009. While we consider these assumptions to be reasonable based on information currently available to us, they may prove to be incorrect.
Actual results achieved during the forecast period will vary from the information provided herein as a result of numerous known and unknown risks and uncertainties and other factors. Such factors include, but are not limited to: risks associated with the Company's stage of development; competitive conditions; share price volatility; risks associated with crude oil and natural gas exploration and development; risks related to the inherent uncertainty of reserves and resources estimates; possible imperfections in title to properties; the volatility of crude oil and natural gas prices and markets; environmental regulation and associated risks; loss of key personnel; operating and insurance risks; the inability to add reserves; risks associated with industry conditions; the ability to obtain additional financing on acceptable terms if at all; non operator activities; the inability of investors in certain jurisdictions to bring actions to enforce judgments; equipment unavailability; potential conflicts of interest; risks related to operations through subsidiaries; risks related to foreign operations; currency exchange rate risks and other factors, many of which are beyond the control of the Company. Accordingly, there is no representation by Caza that actual results achieved during the forecast period will be the same in whole or in part as that forecast. Further, Caza undertakes no obligation to update or revise any forward-looking statement or statements to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events, except as required by applicable securities laws.
Financial outlook information contained in this MD&A about prospective results of operations, financial position or cash flows is based on assumptions about future events, including economic conditions and proposed courses of action, based on management's assessment of the relevant information currently available. Readers are cautioned that such financial outlook information contained in this MD&A should not be used for purposes other than for which it is disclosed herein.
Non-GAAP Measures
The financial data presented herein has been prepared in accordance with GAAP. The Company has also used certain measures of financial reporting that are commonly used as benchmarks within the oil and natural gas production industry in the following MD&A discussion. The measures are widely accepted measures of performance and value within the industry, and are used by investors and analysts to compare and evaluate oil and natural gas exploration and producing entities. Most notably, these measures include "operating netback" and "funds flow from (used in) operations". Operating netback is a benchmark used in the crude oil and natural gas industry to measure the contribution of oil and natural gas sales and is calculated by deducting royalties and operating expenses from revenues. Funds flow from (used in) operations is cash flow from operating activities before changes in non-cash working capital, and is used to analyze operations, performance and liquidity. These measures are not defined under GAAP and should not be considered in isolation or as an alternative to conventional GAAP measures. These measures and their underlying calculations are not necessarily comparable or calculated in an identical manner to a similarly titled measure of another entity. When these measures are used, they are defined as "non GAAP" and should be given careful consideration by the reader.
Note Regarding Boe and Mcfe
In this MD&A, barrels of oil equivalent ("Boes") are derived by converting gas to oil in the ratio of six thousand cubic feet ("Mcf") of gas to one barrel ("bbl") of oil (6 Mcf: 1 bbl) and one thousand cubic feet of gas equivalent ("Mcfes") are derived by converting oil to gas in the ratio of one bbl of oil to six Mcf (1 bbl: 6 Mcf). Boes and Mcfes may be misleading, particularly if used in isolation. A Boe conversion of 6 Mcf of natural gas to 1 bbl of oil, or a Mcfe conversion ratio of 1 bbl of oil to 6 Mcf of natural gas is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the well head.
Currency
References to "dollars" and "$" are of U.S. dollars and references to "CDN$" are to Canadian dollars.
Operating Netback Summary
The following table reconciles the Company's operating netback which is a non-GAAP measure:
Three Months ended Nine Months ended
September 30, September 30,
(on a Mcfe basis) 2008 2007 2008 2007
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Oil and natural gas
revenue $ 9.90 $ 6.05 $ 10.02 $ 6.84
Production expense (0.77) (3.00) (0.74) (1.81)
Severance expense (0.73) (0.43) (0.71) (0.54)
Transportation expense (0.17) (0.05) (0.14) (0.02)
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Operating netback
(non-GAAP) 8.22 2.58 8.43 4.47
FINANCIAL AND OPERATING RESULTS
Petroleum and Production Revenue
Three Months ended Nine Months ended
September 30, September 30,
2008 2007 2008 2007
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Natural gas
Production (Mcf) 83,727 43,295 257,655 109,660
Revenue ($) 772,393 252,231 2,483,020 732,698
Price ($/Mcf) 9.23 5.83 9.64 6.68
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Natural gas liquids
Production (bbls) 1,289 286 2,013 725
Revenue ($/bbl) 132,662 20,311 218,683 47,005
Price ($/bbl) 102.89 71.00 108.66 64.86
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Combined
Production (Mcfe) 91,463 45,012 269,731 114,008
Revenue ($) 905,055 272,542 2,701,703 779,703
Price ($/Mcfe) 9.90 6.05 10.02 6.84
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Mcfe/d 994 489 984 418
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Boe/d 166 82 164 70
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Natural gas and natural gas liquids revenues increased 232% to $905,055 for the three-month period ended September 30, 2008 from $272,543 for the three-month period ended September 30, 2007. Caza production volumes increased 103% to 91,463 Mcfe for the three-month period ended September 30, 2008 up from 45,012 Mcfe for the comparative period. This represents an average daily production rate increase of 103% for the three months ended September 30, 2008 of 994 Mcfe/d as compared to 489 Mcfe/d for the comparative period. The average natural gas price received by Caza increased 64% to $9.90 per Mcfe during the three-month period ended September 30, 2008 from $6.05 per Mcfe during the comparative period. The increase in revenues and production volumes for the three and nine month period ended September 30, 2008 is a result of four wells coming on line late in the third quarter of 2007 and an increase in the North American spot price of natural gas received in the respective 2008 periods. Our future revenue and production volumes will be directly affected by North American natural gas prices, existing wells performance, drilling success and the timing of the tie-in of wells into gathering systems. Presently the Company has not hedged any of its production and does not have any commodity price management programs in place.
Production Expenses
Three Months ended Nine Months ended
September 30, September 30,
2008 2007 2008 2007
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Severance tax ($) 67,074 19,274 190,857 61,784
Transportation ($) 15,489 2,084 37,672 2,084
Production ($) 70,766 134,951 199,764 205,998
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Severance, transportation
and production ($) 153,329 156,310 428,293 269,867
Severance, transportation
and production ($/Mcfe) 1.68 3.47 1.59 2.37
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Severance tax is a tax imposed by states on natural resources such as crude oil, natural gas and condensate extracted from the ground. The tax is calculated by applying a rate to the dollar amount of production from the property or a set dollar amount applied to the volumes produced from the property. The increase in severance taxes and transportation expenses are a result of increases in production volumes in the 2008 three and nine month periods as compared to the respective periods in 2007.
The increase in severance taxes and the transportation expense is consistent with the increase in revenues and production volumes. Severance taxes and transportation expenses totaled $82,563 ($0.90/Mcfe) for the three-month period ended September 30, 2008, as compared to $21,358 ($0.47/Mcfe) in the comparative period.
Production expenses for the three-month period ended September 30, 2008 were $70,766 compared to $134,951 for the comparative period. Caza's average lifting cost for the three-month period ended September 30, 2008 was $0.77 per Mcfe versus $3.00 per Mcfe for the comparative period. The decrease in per unit production expense was attributable to the drilling of additional wells in the latter half of 2007 and to date in 2008 along with increased production rates.
Depletion, Depreciation and Accretion
Depletion, depreciation, amortization and accretion expense for the first nine months of 2008 increased to $323,608 ($3.54/Mcfe) from $104,269 ($2.32/Mcfe) in the comparative period.
Three Months ended Nine Months ended
September 30, September 30,
2008 2007 2008 2007
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Depletion and
depreciation ($) 320,042 103,433 991,152 212,120
Accretion ($) 3,566 836 10,698 2,507
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Depletion, depletion and
accretion ($) 323,608 104,269 1,001,850 214,626
Depletion, depletion and
accretion ($/Mcfe) 3.54 2.32 3.71 1.88
The increased expense resulted from drilling costs associated with the drilling of 3 gross (1.26 net) wells in the latter half of 2007 and 11 gross (4.56 net) to date in 2008 along with increased production rates in the 2008 periods.
Costs of unproved properties of $20,019,239 were excluded from depletable costs in accordance with Canadian Institute of Chartered Accountants ("CICA") Accounting Guideline 16. A proportionate amount of the carrying value will be transferred to the depletable pool as reserves are proven through the execution of Caza's exploration program.
Accretion expense is the increase in the present value of the asset retirement obligation for the current period and the amount of this expense will increase commensurate with the asset retirement obligation as new wells are drilled or acquired through acquisitions.
General and Administrative Expenses
Three Months ended Nine Months ended
September 30, September 30,
2008 2007 2008 2007
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General and
administrative ($) 1,889,194 1,146,919 4,606,074 2,406,718
General and
administrative
recovery ($) (31,857) (41,504) (148,921) (87,426)
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Net general and
administrative ($) 1,857,337 1,105,415 4,457,153 2,319,292
General and
administrative ($/Mcfe) 20.66 25.48 17.08 21.11
Net general and
administrative ($/Mcfe) 20.31 24.56 16.52 20.34
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On a Mcfe basis the net general and administrative expenses decreased 17% and 19% for the respective three and nine month periods ended September 30, 2008. Stock-based compensation expense in the amount of $149,215 (2007 - $64,175) is included in general and administrative expenses for the three month period ended September 30, 2008 and $401,441 (2007 - $304,287) for the nine month period ended September 30, 2008. Increased salaries, wages and consulting fees as a result of increases in staff numbers along with increased professional service expenses were the primary factors responsible for the increase in total general and administrative expenses when compared to the respective comparative periods. During the nine month period ended September 30, 2008, Caza capitalized general and administrative expenses relating to exploration and development activities of $909,416, of which $166,865 related to capitalized stock-based compensation.
Income Taxes
Presently the Company does not expect to pay current taxes into the foreseeable future based on existing tax pools, planned capital activities, dispositions and current forecasts of taxable income. However, the Company's tax horizon will ultimately depend on several factors including commodity prices, property dispositions, future production, corporate expenses, and capital expenditures to be incurred in future reporting periods. During the current quarter the Company wrote-off $850,560 of previously recognized future tax assets due to the criteria for recognition no longer being met.
