CALGARY, March 30 /PRNewswire-FirstCall/ -- GEOCAN Energy Inc. ("GEOCAN" or the "company") (TSX: GCA) announces financial and operating results for the year ended December 31, year 2006.
Cash flow from operating activities was $18.36 million or $0.33/share (diluted) as compared to $12.97 million or $0.34/share (diluted) in 2005. GEOCAN average number of common shares for the period 2006 was 56.5 million (diluted) as compared to 28.5 million (diluted) for 2005. The average share numbers primarily reflect the effect of the timing of the Assure Energy, Inc. acquisition and a subsequent bought deal private placement financing, both of which occurred in the latter part of 2005 and were previously announced by the company.
Cash flow for 2006 was a record for the company and an increase of 42% as compared to 2005. Average production for the year increased 41% to a record 3,077 boepd from 2,188 boepd in 2005. GEOCAN reached an exit production rate of 3,544 boepd while achieving record operating and corporate netbacks in 2006 in the process.
Earnings loss for 2006 was ($0.97 million) or ($0.02 /share) (diluted) as compared to earnings of $1.55 million or $0.05/share (diluted) in 2005. The earnings loss for 2006 resulted primarily from higher than anticipated depletion, depreciation and accretion ("DD&A") in 2006 due to lower than anticipated drilling success in replacing its proven reserves. Total proven plus probable reserves however, were up 312% due to a significant heavy oil discovery with high recovery potential. GEOCAN's first quarter 2007 drilling program improved the company's success rate with 11 wells drilled and all wells cased for production.
GEOCAN's most notable accomplishment of 2006 was the discovery of a significant heavy oil pool in the Lloydminster core area (100% working interest) that has potential for a major steam assisted gravity drainage ("SAGD") recovery program. With approximately 25 million probable recoverable barrels, as assessed by independent third-party engineers DeGolyer and MacNaughton Canada Limited, this project has the potential to be very significant for GEOCAN.
Finding development and acquisition ("FD&A") costs for proved reserves were $33.03/boe before future capital ($35.26/boe after future capital). FD&A costs for proved and probable reserves were $1.78/boe before future capital ($9.44/boe including future capital). The total proved plus probable FD&A calculation includes the probable reserves assigned to SAGD as well as SAGD capital of approximately $200 million.
The oil and gas industry experienced many challenges in 2006 and GEOCAN was not immune to them. Although the price of heavy oil, which represents 45% of GEOCAN's commodity mix, strengthened 23%, lower prices for natural gas, down 35%, had an impact on the company, as they did on the entire oil and gas industry. GEOCAN operates about 90% of its production which enabled the company to control costs resulting in year over year production and general and administration expenses remaining essentially flat on a per unit basis. This was in contrast to a general industry trend of higher per unit costs resulting from increased oilfield services and labour costs.
Highlights of 2006 include:
- The discovery of a significant heavy oil pool near Lloydminster added
24.8 million barrels of probable reserves.
- On the strength of this discovery GEOCAN's year-end independently
assessed proved and probable (P+P) reserves increased 312% to 32.5
million boe compared with 7.9 million boe at the end of 2005.
- Proved reserves were well balanced in 2006, with 28% allocated to
light and medium oil, 30% to natural gas and 42% to heavy oil.
- Average production rose 41% from 2,188 boepd in 2005 to 3,077 boepd
in 2006, as GEOCAN surpassed the one million boe annual production
threshold.
- The reserves replacement ratio was approximately 24 times, based on
additions to proved plus probable reserves of approximately 24.5
million boes. The company came close to replacing its one million boe
of production from proved additions with a proved reserves
replacement ratio of 0.83.
- Gross revenues reached $47.9 million, up 43% from $33.4 million in
2005.
- Cash flow rose 42% to a record $18.4 million in 2006 from $13 million
in 2005.
- Netbacks rose 15% in 2006 to $21.49/boe compared with $18.69/boe in
2005, driven by netbacks on heavy oil that were up 15% to $15.09/bbl
although netbacks on light/medium oil were down 11% to $35.42/bbl and
natural gas netbacks decreased 51% to $3.24/mcf driven by the 35%
drop in natural gas prices. The company's balanced commodity mix
served it well throughout the year, limiting the downward impact of
decreasing natural gas prices on cash flow.
- Despite increasing costs for oilfield services and labour, GEOCAN
kept cost increases to 5% for field operations and 7% for general and
administration, both on a boe basis, due to the fact that the company
operates approximately 90% of its production.
- Gross undeveloped land portfolio grew 60% to 322 gross sections (212
net) in 2006. Total gross land is currently 394 sections (260 net),
most of which are in gas and light oil prone areas, providing
prospects for drilling well into 2007 and beyond.
- GEOCAN acquired Columbus Exploration Ltd. in July 2006, adding
production, facilities and 21,142 gross acres (13,808 net) of
undeveloped land northwest of Edmonton.
- Capital expenditures were focused primarily on drilling 30 gross
(22.13 net) wells, completions and tie-ins for $29.2 million. The
company spent an additional $2.7 million to acquire 18,560 gross
(14,200 net) acres of undeveloped land at Crown sales in British
Columbia, Alberta and Saskatchewan. Seismic programs (2D and 3D) and
the acquisition of third party seismic required $2.4 million.
Comparative Financial Highlights
Year ended Year ended Percent
Dec 31, 2006 Dec 31, 2005 Change
------------ ------------ --------
Gross revenue $ 47,896,854 $ 33,381,746 43%
Net revenues $ 39,783,567 $ 27,772,725 43%
Production expenses $ 14,192,042 $ 9,999,149 42%
Per unit ($/boe) $ 13.19 $ 12.52 5%
Depletion and site
restoration expense $ 22,368,173 $ 10,809,221 107%
Per unit ($/boe) $ 20.79 $ 13.54 54%
General and administration
expense $ 3,959,704 $ 2,184,961 81%
Per unit ($/boe) $ 2.92 $ 2.74 7%
Cash flow $ 18,363,653 $ 12,972,434 42%
Per share (basic) $ 0.33 $ 0.40 -17%
Per share (diluted) $ 0.33 $ 0.34 -5%
After tax net (loss)
income $ (967,200) $ 1,552,666
Per share (basic) $ (0.02) $ 0.05
Capital expenditures $ 35,943,778 $ 19,905,887 81%
Total capital assets
(net of depletion) $147,281,432 $107,939,000 51%
Average production (boepd) 3,077 2,188 41%
Exit production (boepd) 3,544 3,414 4%
Average shares (basic)
for the period ended 55,544,073 25,531,448 118%
Production increases
Average production in 2006 rose 41% to 3,077 boepd, compared with 2,188 in 2005. By year end, production volumes reached a capability exit rate of 3,544 boepd, up 4% from the 3,414 boepd capability exit level in 2005.
GEOCAN committed to a more balanced commodity mix than it had a year ago, aiming for one third heavy oil, one third light/medium oil, and one third natural gas. At year end, the company's mix moved further in this direction with production distributed 45% to heavy oil (2005: 56%), 35% to natural gas (2005: 25%), and 20% to light/medium oil (2005: 19%). Management believes a balance of all three commodities allows the company to focus on exploration and development projects that are consistent with each commodity's price cycle.
Lloydminster discovery
GEOCAN discovered a significant heavy oil pool near Lloydminster that independent third party engineers DeGolyer and MacNaughton Canada Limited have estimated at 24.8 million barrels of probable reserves.
The pool, which was delineated with five vertical wells in 2006, is concentrated in less than one section of land, making development relatively straight forward. The reservoir is 3D seismically defined. It displays good characteristics for a SAGD program, and is in an area well served by pipelines and other infrastructure. The company holds 100% working interest in the discovery.
A pilot phase will likely be initiated to validate the geologic model and streamline any technical issues before proceeding to a full-scale enhanced recovery scheme. This pilot project would include two to three horizontal well pairs with surface facilities to handle the associated production volumes. This phase is expected to cost approximately $40 million. Preliminary estimates identifying potentially up to 15 well pairs could be necessary to fully develop the reserves in place. The full phase development including the initial pilot is anticipated to cost $200 million.
As the technical work on this project continues, it will provide GEOCAN the opportunity to continue to grow at a different level. Traditional junior oil and gas producers grow primarily through the drill bit and acquisitions. This strategy will continue at GEOCAN but more emphasis will be placed on the development of projects like this that converts known reserves into production and cash flow.
Reserves replacement
GEOCAN reached a major milestone in 2006, surpassing the 1,000,000 boe annual production threshold. The company's reserves replacement ratio was approximately 24 times based on its proved and probable reserves additions of 24.5 million boe. With 888,100 boe of this being proved reserves additions, GEOCAN came close to replacing its 1.08 million boe of production from proved additions alone. The company's proved reserves were allocated 28% to light and medium oil, 30% to natural gas and 42% to heavy oil in 2006.
Focus areas
Overall, GEOCAN concentrated its 2006 capital program in its high-working-interest core areas of northeast British Columbia, west central Alberta, and Lloydminster, Saskatchewan. Exploration drilling accounted for 47% of drilling, higher than ever before. This trend is expected to continue in 2007. As a result, GEOCAN exited 2006 with greater prospects. Also, for the first time, the company's new technical team will be generating all the company's plays in 2007 and beyond.
In the Lloydminster core area the company drilled 14 (100% working interest) wells including those on the SAGD property: 13 wells were cased, one was abandoned.
Outside the Lloydminster core area, the company collaborated with a major integrated oil and gas producer in the Peace River area of northern Alberta, carrying out a 3D seismic program on Crown land in this region. This resulted in the acquisition of a further 12 sections of Crown land in 2006, bringing the total contiguous land base there to 22 sections. This is consistent with the company's strategy of developing an inventory of high-impact natural gas and light oil plays in central and northwestern Alberta and northeastern British Columbia.
The company readied itself for drilling in northeast British Columbia this past winter and as a result drilled three wells there in the first quarter 2007.
Overall, GEOCAN's portfolio of gross undeveloped land grew 60% in 2006 to 322 gross sections (212 net). Total gross land is currently 394 sections (260 net), a sizable asset. Most of this land is in gas and light oil prone areas, providing GEOCAN with a portfolio of drilling prospects well into 2007 and beyond.
Drilling activities
GEOCAN drilled 30 gross wells in 2006, casing 83% of the wells (12 natural gas wells, 13 oil wells), compared with 23 wells drilled and an 86% casing rate in 2005. The company had five new pool discoveries in 2006. Of the five wells abandoned, one non-operated well - the Raven well near Caroline - received considerable press coverage. Raven represented only approximately 10% of GEOCAN's capital budget for 2006 and the fact that GEOCAN was a partner on this opportunity is a testament to the size and sustainability of GEOCAN today. Going forward, the company plans to continually allocate 10% to 15% of its annual capital budget to various higher impact opportunities.
Acquisitions
The acquisition of Columbus Exploration Ltd. in July 2006 added to GEOCAN's natural gas weighting and brought with it 21,142 gross acres (13,808 net) of undeveloped land. These assets fit well with the company's current operations, giving it a stronger presence in the region north and west of Edmonton.
Revenues and prices
Gross revenues reached $47.9 million, up 43% from $33.4 million in 2005 although commodity prices generally declined in 2006. Natural gas prices were down 35% year over year to $6.59/mcf and light/medium oil prices were down 8% to $55.31/bbl. However, heavy oil prices rose 23% to $41.92/bbl.
Controlling costs
The past year saw costs rise for oilfield services and labour. GEOCAN's operatorship of 90% of its properties enabled the company to keep field operating cost increases to 5% and general and administrative cost increases to 7% as measured on a boe basis.
Cash flow
GEOCAN generated a record cash flow of $18.4 million, up 42% from $13 million in 2005. Cash flow was somewhat hampered by the lower prices but also due to 370 boepd of behind pipe and deferred production at year end that did not get to market. Cash flow per share (diluted) declined $0.01 cents to $0.33 cents when compared with $0.34 cents per share (diluted) in 2005, reflecting two developments in late 2005 - the share issuance related to the acquisition of Assure Energy, Inc. and a subsequent bought deal private placement financing, both of which occurred in the latter part of 2005. Finally, GEOCAN posted record operating ($21.49/boe) and corporate ($16.88/boe) netbacks in 2006 in a challenging industry environment.
Earnings
From an earnings perspective, simply replacing production with proved reserves additions (both integral components of the DD&A calculation) during a downward price trend, resulted in a larger than anticipated DD&A charge at year end. As a result GEOCAN posted negative earnings of $(967,200) or $(0.02)/share (diluted) in 2006 after a significant future tax recovery.
Fourth Quarter 2006 Highlights
- Fourth quarter revenues were $10.5 million, down 11% from $11.8
million in the fourth quarter 2005 and 22% from third quarter 2006
revenues of $13.6 million.
- Heavy oil prices averaged $38.00/bbl (2005 - $34.14/bbl),
light/medium oil averaged $49.10/bbl (2005 - $50.66/bbl) and natural
gas averaged $6.82/mcf (2005 - $10.78/mcf).
- Fourth quarter average production was essentially flat at 2,816 boepd
compared with 2,808 boepd in the fourth quarter 2005, reflecting a
number of operational issues during October/November in the Tomahawk
area of west central Alberta and in northeast British Columbia. Heavy
oil production averaged 1,306 boepd, light /medium averaged 644 boepd
and natural gas averaged 5,199 mcf/day.
- The company drilled seven of its 30 wells during the fourth quarter
and five of these seven wells were tied in and producing by year end.
One exploration well was drilled at Soda Lake, Saskatchewan, four
heavy oil development wells were drilled in the Lloydminster core
area and one natural gas development well was drilled at Buick Creek
in northeast British Columbia. One location at Lloydminster was
abandoned.
- Royalty expense was $2.5 million in the quarter compared with $2.1
million in fourth quarter 2005 and $1.9 million in the third quarter
2006. The fourth quarter total reflects a true-up between estimate
and actual for royalty amounts.
- Operating costs (before transportation expense) were $3.9 million
($14.41/boe) in the fourth quarter, reflecting significant facilities
work performed at Northminster North, Tomahawk and newly acquired
assets in central Alberta. This compares with $3.7 million
($12.25/boe) in the third-quarter 2006 and $3.2 million ($12.29/boe)
in the fourth quarter last year.
- Fourth quarter non-capitalized general and administrative expense was
$562,778 ($2.10/boe) compared with $705,457 ($2.73/boe) in the
comparable quarter of 2005. Costs reflect the full absorption of the
Columbus acquisition, year-end reporting requirements, an upgrade to
the company's accounting, land and field level production reporting
systems, as well as the hiring of full-time field operations staff
late in the year.
- The fourth quarter was burdened by year-end charges for a non-
recurring federal corporate tax charge, the annual Saskatchewan
resource surcharge and a true-up between estimate and actual for
royalty amounts. Normalized fourth-quarter cash flow was $3.3 million
(2005 - $4.9 million).
- Capital expenditures in the fourth-quarter were $9.6 million,
resulting in the drilling of five heavy oil wells and two gas wells,
the acquisition of 39,680 gross (13,920 net) acres of land and the
investment in 6.71 square miles of proprietary and trade 3D seismic
as well as 47.9 miles of proprietary and trade 2D seismic. All but
one of the wells drilled in the quarter were cased. This program was
financed by funds generated from operations and the company's
revolving bank facility.
Outlook
- GEOCAN has now completed its 2007 first quarter drilling program and
has cased all 11 wells drilled. Five of these wells are currently on
production. In addition two more are anticipated to be on production
by the end of the second quarter. The company will elaborate on this
through an operational update in mid-April.
- Six of the company's 2006 successfully cased wells are being
completed or are awaiting completion when natural gas prices improve.
- At GEOCAN's Lloydminster heavy oil discovery, work is underway to
develop a strategy to optimize development of the resource. A pilot
phase will likely be needed to validate the geologic model and
streamline any technical issues before proceeding to a full-scale
enhanced recovery scheme.
- Key priorities for the year ahead will be to tie-in existing
discoveries, ensure environmental and safe operations, advance
engineering work on the Lloydminster SAGD opportunity, and build a
sufficient cash reserve to meet unanticipated issues throughout the
balance of the year.
- The company will monitor its capital and operating expenditures to
ensure prudent, profitable and cost effective deployment of its cash
flow. The company plans minimal capital expenditures throughout
breakup and the second quarter. For the balance of the year the
company will focus on high-priority opportunities as it works to
reduce its leveraged balance sheet.
A growing talent pool
GEOCAN nearly doubled the number of employees from 13 to 25 while keeping G&A expenditures in check, increasing only 7% on a boe basis. This growth allowed for less reliance on third-party consultants and increased the company's independence in planning and execution. GEOCAN now has seven engineering staff, six geoscientists, three land staff, seven accounting staff, and two office staff.
CONSOLIDATED BALANCE SHEET AS AT:
December 31, December 31,
2006 2005
Assets
Current
Accounts receivable $ 14,300,804 $ 10,181,438
Prepaid expenses 1,402,637 763,289
-------------------------------
15,703,441 10,944,727
Property and equipment 147,281,432 107,639,000
Investment 968,266 968,266
Goodwill 2,653,902 2,653,902
-------------------------------
$ 166,607,041 $ 122,205,895
Liabilities
Current
Bank indebtedness $ 3,637,022 $ 650,856
Accounts payable 17,754,660 14,078,650
Cumulative dividend payable 194,216 70,286
Bank debt 48,075,537 10,900,000
Long-term debt - current portion - 1,190,221
-------------------------------
69,661,435 26,890,013
Asset retirement obligation 6,950,116 5,926,421
Long-term debt - 2,206,559
Future income taxes 17,117,673 16,663,800
Preferred shares 2,739,676 2,739,676
-------------------------------
96,468,900 54,426,469
Shareholders' Equity
Share capital 67,918,997 64,763,778
Share purchase warrants 1,513,400 2,094,819
Contributed surplus 1,532,404 657,476
(Deficit)/Retained earnings (826,660) 263,353
-------------------------------
70,138,141 67,779,426
-------------------------------
$ 166,607,041 $ 122,205,895
CONSOLIDATED STATEMENT OF OPERATIONS AND (DEFICIT)
RETAINED EARNINGS AS AT:
for the year ended
December 31, December 31,
2006 2005
Revenue:
Revenues $ 47,896,854 $ 33,381,746
Less: Royalties (net of ARTC) (8,113,287) (5,609,021)
-------------------------------
39,783,567 27,772,725
Expenses:
Operating 14,192,042 9,999,149
Transportation 1,720,381 821,363
General and administration 3,959,704 2,606,298
Interest and bank charges 1,805,266 836,816
Cumulative dividend on preferred shares 123,930 70,286
Depletion, depreciation and accretion 22,368,173 10,809,221
-------------------------------
44,169,496 25,143,133
(Loss)/Income before income taxes (4,385,929) 2,629,592
Provision for income taxes (recovery)
Current taxes 544,975 396,510
Future (3,963,704) 680,416
-------------------------------
(3,418,729) 1,076,926
Income/(loss) for the period (967,200) 1,552,666
Retained earnings (deficit), beginning
of period 263,352 (1,284,114)
Acquisition of shares in excess of
assigned value (122,812) (5,199)
-------------------------------
(Deficit) Retained earnings, end of
period $ (826,660) $ 268,552
(Loss)/Income per share
Basic $ (0.02) $ 0.05
Diluted $ (0.02) $ 0.05
CONSOLIDATED STATEMENT OF CASH FLOWS
for the year ended December 31, December 31,
2006 2005
Operating activities:
Net income (loss) for the period $ (967,200) $ 1,552,666
Adjustments for non-cash items:
Equity share of earnings of investment
Depletion, depreciation and accretion 22,368,173 10,809,221
Unrealized financial risk mgmt.
liability - (561,492)
Stock based compensation 812,547 421,337
Foreign exchange gain (10,093) -
Future income tax (recovery) (3,963,704) 680,416
Cumulative dividend on preferred
shares 123,930 70,286
-------------------------------
$ 18,363,653 $ 12,972,434
Asset retirement obligation settled (511,728) (244,102)
Other income on disposal of asset (987,748) (1,031,688)
Change in non-cash working capital (756,912) (1,268,890)
-------------------------------
16,107,265 10,427,754
Investing
Capital asset expenditures $ (35,943,778) $ (19,905,887)
Acquisition of Columbus Exploration (15,726,254) -
Transaction costs of acquisition (1,656,745) (5,448,240)
Proceeds on disposition of capital assets - 1,031,688
Change in non-cash working capital 201,864 (2,086,746)
-------------------------------
$ (53,124,913) $ (26,409,185)
Financing:
Issuance of common shares $ 2,634,624 $ 20,595,730
Repayment of third-party loan (1,500,000)
Repurchase of common shares (361,048) -
Proceeds of debt 35,154,686 (11,755,216)
Repayment of debt (3,396,780) -
-------------------------------
$ 34,031,482 $ 7,340,514
Decrease in cash (2,986,166) (8,640,917)
(bank indebtedness) beginning of period (650,856) (2,079,767)
-------------------------------
(bank indebtedness) end of period $ (3,637,022) $ (10,720,684)
Supplemental information
Interest paid $ 1,805,266 $ 378,260
Taxes paid $ 544,975 $ -
The company notes that this news release contains selected financial and other information from its 2006 annual report, which is available at SEDAR (http://www.sedar.com/) and the company's web site (http://www.geocan.com/). This information should be read in conjunction with the December 31, 2006 and 2005 audited consolidated financial statements of the company, the attached notes and the management's discussion and analysis relating thereto, all of which are available on SEDAR and contained in the 2006 annual report.
Advisory -- Forward-looking Information
This press release may include certain forward-looking statements. These statements involve known and unknown risks, uncertainties, and other factors that may cause actual results or events to differ materially from those anticipated in the forward-looking statements. However, while management believes these forward-looking statements to be reasonable, the reader cannot be assured that these expectations will prove to be correct. The reader should not unduly rely on these forward-looking statements as these statements speak only as of the date of March 30, 2006. Additional information about the company can be found on http://www.sedar.com/.
Barrel of oil equivalent (BOE) may be misleading, particularly if used in isolation. A BOE conversion ratio for natural gas of 1 bbl : 6 mcf. This is based on an energy equivalency conversion method particularly applicable at the burner tip and does not represent a value equivalency at the wellhead.
