Spartan Exploration Ltd. ("Spartan" or the "Company") (TSX:SPE), is pleased to
announce it has filed on SEDAR its audited financial statements and related
Management's Discussion and Analysis ("MD&A") for the year ended December 31,
2010 as well as its annual information form ("AIF") for the year ended December
31, 2010. Selected financial and operational information is outlined below and
should be read in conjunction with Spartan's audited financial statements, the
related MD&A and the AIF which are available for review at www.sedar.com.
-- Current production is between 2,300 - 2,500 boe/d (85% oil and liquids)
based on field estimates; Spartan currently has a total of 22 (15.9 net)
Cardium horizontal oil wells producing in Pembina. The success of the
Company's Cardium drilling program has resulted in significant per share
growth in production, reserves and cash flow;
-- Average 2010 fourth quarter production increased to 1,855 boe per day
(85% oil and liquids), representing a year over year increase of 384%
from average fourth quarter production of 383 boe per day for 2009; on a
per share basis, average fourth quarter production increased by 179%, as
compared to the fourth quarter of 2009 using basic weighted average
shares outstanding for each period;
-- Emphasizing the quality of the Corporation's production base and the
efficiency of our operations, Spartan achieved an operating netback of
$47.12 per boe and a corporate netback of $44.75 for the year ended
December 31, 2010; for the quarter ended December 31, 2010, Spartan
achieved an operating netback of $53.05 per boe and a corporate netback
of $52.14;
-- Cash flow from operations for the fourth quarter was $8.9 million, an
increase of 641% from cash flow of $1.2 million for the quarter ended
December 31, 2009; full year cash flow for 2010 was $15.2 million, an
increase of 469% over 2009 cash flow of $2.7 million;
-- On a per share basis, cash flow increased by 149% to $0.52 per share in
2010, as compared to $0.14 per share in 2009 using basic weighted
average shares outstanding during the year; over half of the full year
cash flow per share amount ($0.29) was realized in the fourth quarter as
the Corporation's production reached record levels;
-- The Company recorded its 12th straight quarter of positive earnings; net
earnings in the fourth quarter were $3.52 million, as compared to $0.24
million for the fourth quarter of 2009. Net earnings for the year ended
2010 were $4.55 million, an increase of 1009% from net earnings of $0.41
million for 2009;
-- Net capital expenditures were $57,722,932 million during 2010. The
majority of this capital (approximately 82%) was spent in the Company's
Pembina, Alberta core area. Spartan's 2010 capital program was funded
primarily through cash flow, capital raised on the issuance of new
equity and available credit facilities.
-- 2010 reserves breakdown is as follows:
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Percentage Percentage
Reserve Category MBOE Increase Increase
Over 2009 Per Share (1)
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Proved Developed Producing (PDP) 2,891.5 199% 101%
Total Proved 5,685.6 269% 147%
Proved plus Probable (P+P) 10,321.0 396% 230%
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1. Based upon basic average shares outstanding during the year
-- Spartan's 2010 capital program added reserves at a cost of $23.86
(Proved) and $17.25 (P+P) (includes all capital expenditures, the change
in future development capital and revisions); based upon an average
corporate netback of $44.75 per boe during 2010, this translates into a
recycle ratio of 1.9 for Proved reserves and 2.6 for P+P reserves;
-- Spartan's three year F&D cost is $23.89 (Proved) and $17.40 (P+P)
(includes all capital expenditures, the change in future development
capital, acquisitions and revisions);
-- The cost to add reserves per National Instrument 51-101, which excludes
the effect of acquisitions, dispositions and revisions, was $24.09 per
boe (Proved) and $17.56 (P+P) for 2010;
-- Spartan replaced reserves at the rate of 25.2 boe (P+P) for each 1.0 boe
produced during 2010;
-- Raised approx. $17.25mm in September 2010 at a price of at $2.85 per
share; and
-- Spartan's available line of credit has recently been increased to $55
million, giving the Company significant financial flexibility moving
forward for the remainder of the year.
HIGHLIGHTS
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Three Months Ended Year Ended
December 31, December 31,
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2010 2009 2010 2009
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Financial
Total revenue $ 11,639,065 $ 2,336,272 $ 22,304,068 $ 5,009,557
Net earnings $ 3,523,564 $ 240,880 $ 4,549,728 $ 410,859
per share -
basic $ 0.12 $ 0.01 $ 0.16 $ 0.02
per share -
diluted $ 0.11 $ 0.01 $ 0.13 $ 0.02
Cash flow from
operations (1) $ 8,862,656 $ 1,195,696 $ 15,170,671 $ 2,664,499
per share -
basic $ 0.29 $ 0.06 $ 0.52 $ 0.14
per share -
diluted $ 0.26 $ 0.05 $ 0.45 $ 0.11
Capital
expenditures $ 26,781,039 $ 1,861,372 $ 57,722,932 $12,358,260
Working capital
surplus
(deficit) $ (15,367,161) $(3,567,456) $(15,367,161) $(3,567,456)
Weighted average
shares
outstanding (2)
Basic 33,670,800 19,376,251 28,909,713 19,376,251
Diluted 38,851,120 23,291,001 33,718,478 23,291,001
Operating
Oil equivalent
(6:1)
Barrels of oil
equivalent
(000's) 170,679 35,239 339,861 86,433
Barrels of oil
equivalent
per day 1,855 383 931 237
Average
selling price
($CDN per
boe) $ 68.11 $ 66.30 $ 65.54 $ 57.65
Royalties $ 7.58 10.13 $ 7.75 5.55
Transportation
costs (per
boe) $ 0.67 $ 1.59 $ 1.37 $ 1.67
Operating
costs (per
boe) $ 6.89 $ 9.09 $ 9.39 $ 9.45
G&A (cash -
per boe) $ 0.91 $ 10.30 $ 2.37 $ 9.78
Oil production
Barrels 137,396 28,476 275,248 73,346
(000's)
Barrels per 1,493 307 754 237
day
Average $ 76.42 $ 73.95 $ 73.23 $ 62.43
selling price
($CDN per
barrel)
Gas production
Thousand cubic 151,599 28,079 301,729 56,389
feet (000's)
Thousand cubic 1,648 337 827 154
feet per day
Average $ 4.39 $ 5.66 $ 4.36 $ 4.42
selling price
($CDN per
mcf)
NGL production
Barrels 8,016 2,121 14,325 3,771
(000's)
Barrels per 87 19.53 39 10.25
day
Average $ 57.41 $ 46.42 $ 56.08 $ 41.27
selling price
($CDN per
barrel)
(1) Cash flow from operations is a non-GAAP measurement. See MD&A.
(2) Excludes 842,250 common shares issued to employees on March 1, 2008 in
exchange for promissory notes. In accordance with Canadian Institute of
Chartered Accountants ("CICA") Handbook Emerging Issues Committee ("EIC") -
132, "Share Purchase Financing", the Company was required to treat such
shares as stock options. See Note 9 to the December 31, 2010 audited
financial statements.
2010 IN REVIEW
2010 was a break out year for Spartan. On the back of a successful Cardium
drilling program in Pembina, the Company was able to increase average production
in 2010 by 293% to 931 boe/d (85% oil and liquids). Much of our production gains
were realized in the second half of the year, and the Company finished 2010 on a
strong note, with fourth quarter average production of 1,855 boe/d (85% oil and
liquids). Spartan drilled a total of 18 (13.8 net) Cardium wells during 2010
with a 100% success rate. First month production rates for these wells ranged
from 161 boe/d to 553 boe/d, with an average of 300 boe/d. Our drilling success
translated into a significant increase in our reserve bookings. Total proved
reserves increased during 2010 by 269% to 5.7 million boe and total proved plus
probable reserves increased by 396% to 10.3 million boe. Although our reserve
report recognizes the resource potential in our land base, booked undrilled
locations in Pembina account for less than one-quarter of what we believe is our
large and growing inventory of horizontal drilling locations.
Continued strength in commodity prices helped to propel cash flow and earnings
to record levels. WTI crude pricing averaged US $79.48 /bbl during the full year
ended December 31, 2010 and US $85.16 during the fourth quarter. Spartan's
operating netback was $53.05 in the fourth quarter and our corporate netback was
$52.14. On total revenue of $22.3 million, Spartan recorded cash flow of $15.2
million, with $8.9 million of that coming in the fourth quarter. Cash flow
represented 76% of total revenue in the fourth quarter and 68% for the full year
ended December 31, 2010. The fourth quarter of 2010 represented Spartan's
twelfth consecutive quarter of positive earnings. Net earnings for the year
ended December 31, 2010 were $4.5 million, with $3.5 million of that coming in
the fourth quarter.
2011 OUTLOOK
Spartan currently has a total of 22 (15.9 net) Cardium horizontal oil wells
producing in Pembina. Current production is between 2,300 - 2,500 boe/d (85% oil
and liquids) based on field estimates. Individual well results in Pembina have
continued to meet or exceed our expectations. Detailed results for wells that
have a minimum of thirty days of production are as follows:
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Spartan Average Daily
Production(1), (2)
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Producing Days Hi Low AverageNumber of Wells
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(boe/d) (boe/d) (boe/d) (gross/net)
30 days 589 161 316 18 / 14.3
60 days 259 108 184 13 / 10.67
90 days 202 83 151 11 / 9.67
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1. Producing day average.
2. After recovery of all frac fluids, except for 3 (1 net) wells which were
completed with water fracs. Oil produced during the initial flowback
from these latter wells is sales oil and is included in the volumes
reported.
Building on the success we have enjoyed through 2010, the focus of Spartan's
2011 capital program will remain on the Cardium (approx. 85% - 90%) with
selective deployment of capital in southeast and southwest Saskatchewan. Spartan
expects to drill up to 32 (19 net) Cardium horizontal wells in the Pembina area
during 2011. To date, Spartan has drilled 10 (5.2 net) Cardium horizontal wells
in 2011 with a 100% success rate.
Spartan's stated strategy with respect to its Saskatchewan lands has been to
allow industry competitors to de-risk Spartan's lands as much as possible. Much
of Spartan's lands in both southeast and southwest Saskatchewan are located in
areas which are the subject of intense activity by other oil and gas companies.
In many cases, competitors are drilling within a mile or two of Company lands.
In southwest Saskatchewan, Spartan anticipates drilling 2 (2 net) Upper
Shaunavon horizontals during 2011. In southeast Saskatchewan, Spartan expects to
be active in its Viewfield core area for Bakken and at its Torquay prospect
which is prospective for both Bakken and Mississippian targets. Final well count
will depend upon the overall size of the Company's 2011 capital program. At
Torquay, our partner is funding 100% of the exploratory phase of the project
which includes the recently completed 3-D seismic and the first Midale well
which we expect to spud prior to the end of the first quarter.
We entered 2011 with significant financial flexibility, buoyed by strong
commodity prices and a recent increase in our available line of credit to $55
million. This balance sheet will ensure that we can continue to deliver above
average returns to our shareholders and will permit us to take advantage of
opportunities that arise from time to time.
We appreciate the support that our shareholders have shown us and remain
committed to building share value growth for our investors.
Respectfully submitted on behalf of the Board of Directors,
Richard (Rick) McHardy, President & CEO
READER ADVISORY
This press release contains certain forward-looking statements (forecasts) under
applicable securities laws relating to future events or future performance.
Forward-looking statements are necessarily based upon assumptions and judgements
with respect to the future including, but not limited to, the outlook for
commodity markets and capital markets, the performance of producing wells and
reservoirs, well development and operating performance, general economic and
business conditions, weather, the regulatory and legal environment and other
risks associated with oil and gas operations. In some cases, forward-looking
statements can be identified by terminology such as "may", "will", "should",
"expect", "projects", "plans", "anticipates" and similar expressions. These
statements represent management's expectations or beliefs concerning, among
other things, future operating results and various components thereof affecting
the economic performance of Spartan. Undue reliance should not be placed on
these forward-looking statements which are based upon management's assumptions
and are subject to known and unknown risks and uncertainties, including the
business risks discussed above, which may cause actual performance and financial
results in future periods to differ materially from any projections of future
performance or results expressed or implied by such forward-looking statements.
Accordingly, readers are cautioned that events or circumstances could cause
results to differ materially from those predicted.
In the interest of providing Spartan shareholders and potential investors with
information regarding the Company, including management's assessment of
Spartan's future plans and operation, certain statements throughout this press
release constitute forward looking statements. All forward-looking statements
are based on the Company's beliefs and assumptions based on information
available at the time the assumption was made. The use of any of the words
"anticipate", "continue", "estimate", "expect", "may", "will", "project",
"should", "believe" and similar expressions are intended to identify forward
looking statements. By its nature, such forward-looking information involves
known and unknown risks, uncertainties and other factors that may cause actual
results or events to differ materially from those anticipated in such forward
looking statements. Spartan believes the expectations reflected in those forward
looking statements are reasonable but no assurance can be given that these
expectations will prove to be correct and such forward looking statements
contained throughout this press release should not be unduly relied upon. These
statements speak only as of the date specified in the statements.
In particular, this press release may contain forward looking statements
pertaining to the following:
-- the performance characteristics of the Company's oil and natural gas
properties;
-- oil and natural gas production levels;
-- capital expenditure programs;
-- the quantity of the Company's oil and natural gas reserves and
anticipated future cash flows from such reserves;
-- projections of commodity prices and costs;
-- supply and demand for oil and natural gas;
-- expectations regarding the ability to raise capital and to continually
add to reserves through acquisitions and development; and
-- treatment under governmental regulatory regimes.
The material assumptions in making these forward-looking statements include
certain assumptions disclosed in the Company's most recent management's
discussion and analysis included in the material available on this press
release.
The Company's actual results could differ materially from those anticipated in
the forward looking statements contained throughout this press release as a
result of the material risk factors set forth below, and elsewhere in this press
release:
-- volatility in market prices for oil and natural gas;
-- liabilities inherent in oil and natural gas operations;
-- uncertainties associated with estimating oil and natural gas reserves;
-- competition for, among other things, capital, acquisitions of reserves,
undeveloped lands and skilled personnel;
-- incorrect assessments of the value of acquisitions and exploration and
development programs;
-- geological, technical, drilling and processing problems;
-- fluctuations in foreign exchange or interest rates and stock market
volatility;
-- failure to realize the anticipated benefits of acquisitions;
-- general business and market conditions; and
-- changes in income tax laws or changes in tax laws and incentive programs
relating to the oil and gas industry.
These factors should not be construed as exhaustive. Unless required by law,
Spartan does not undertake any obligation to publicly update or revise any
forward looking statements, whether as a result of new information, future
events or otherwise.
Barrels of oil equivalent (boe) may be misleading, particularly if used in
isolation. A boe conversion ratio of six thousand cubic feet (mcf) of natural
gas to one barrel (bbl) of oil is based on an energy conversion method primarily
applicable at the burner tip and is not intended to represent a value
equivalency at the wellhead. All boe conversions in this press release are
derived by converting natural gas to oil in the ratio of six thousand cubic feet
of natural gas to one barrel of oil. Certain financial amounts are presented on
a per boe basis, such measurements may not be consistent with those used by
other companies.
Readers are further cautioned that the preparation of financial statements in
accordance with Canadian generally accepted accounting principles ("GAAP")
requires management to make certain judgements and estimates that affect the
reported amounts of assets, liabilities, revenues and expenses. Estimating
reserves is also critical to several accounting estimates and requires judgments
and decisions based upon available geological, geophysical, engineering and
economic data. These estimates may change, having either a negative or positive
effect on net earnings as further information becomes available, and as the
economic environment changes.
Cash flow from operations and operating netbacks are not recognized measures
under GAAP. Management of Spartan believe that in addition to net income, cash
flow from operations and operating netbacks are useful supplemental measures as
they demonstrate an ability to generate the cash necessary to repay debt or fund
future growth through capital investment. Readers are cautioned, however, that
these measures should not be construed as an alternative to net income
determined in accordance with GAAP as an indication of Spartan's performance.
Spartan's method of calculating these measures may differ from other companies
and, accordingly, they may not be comparable to measures used by other
companies. For these purposes, Spartan defines cash flow from operations as cash
provided by operations before changes in non-cash operating working capital and
defines operating netbacks as revenue less royalties and operating expenses.
Readers are also cautioned that this press release may contain the term reserve
life index, which is not a recognized measure under GAAP. Management believes
that this measure is a useful supplemental measure of the length of time the
reserves would be produced over at the rate used in the calculation. Readers are
cautioned, however, that this measure should not be construed as an alternative
to other terms determined in accordance with GAAP as a measure of performance.
The method of calculating this measure may differ from other companies, and
accordingly, they may not be comparable to measures used by other companies.
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