Canadian Spirit Resources Inc. Announces 2010 Financial Results and Filing of Annual Disclosure Documents
28 April 2011 - 12:00PM
Marketwired Canada
Canadian Spirit Resources Inc. ("CSRI" or the "Corporation") (TSX VENTURE:SPI)
(PINK SHEETS:CSPUF) announces the release of its financial results and the
filing of the audited Financial Statements, Management Discussion and Analysis,
and Annual Information Form for the year ended December 31, 2010 (all amounts in
Canadian dollars).
OPERATIONAL HIGHLIGHTS
Montney Formation
-- Sproule Unconventional Limited ("Sproule") reconfirms a significant
Montney resource estimate
-- Gross Discovered and Undiscovered Natural Gas Initially-in-Place
("GIIP") of 2.65 trillion cubic feet ("Tcf") and 2.37 Tcf
respectively, an average 39% increase over 2009
(see table under Resource Assessment)
-- Approximately 900 horizontal wells estimated to be required for full
area development
-- A 10 mmcf/d sweet gas processing facility was constructed with gas sales
commencing in January 2011.
-- Three horizontal wells currently tied-in and producing 5 mmcf/d (gross).
-- Three additional horizontal wells to be fracture stimulated and tied-in
during the third quarter 2011.
-- CSRI's net acreage has grown to 22,000 acres (34.4 net sections).
Gething Formation
-- CSRI becomes operator and acquires 100% of pilot facilities.
-- Gas facility was shut-in due to low natural gas prices.
-- The Corporation is considering several options to further develop the
Gething Rights.
FINANCIAL HIGHLIGHTS
-- Capital expenditures of $19.5 million (net) in 2010 brought the
Corporation to the threshold of de- risking the Montney play and
commercial production.
-- CSRI's first public financing closed in December 2010 providing gross
proceeds of $26.2 million.
-- A private placement of Flow-Through Shares closed in June 2010 for gross
proceeds of $4.2 million.
-- The exercise of warrants and stock options during 2010 added $6.1
million to the Corporation's cash position.
-- Currently the Corporation has $18.6 million of net working capital
($0.25/share).
-- No debt.
Commenting on the Corporation's results and financial position, Don Gardner,
Chief Executive Officer stated "we are very pleased with the substantial
progress achieved in 2010 which led to the first production revenue and cash
from operations in the Corporation's history. We are confident that 2011 will
build on this success".
FINANCIAL REVIEW 2010
Selected Financial Data
For the years ended or as at December 31 2010 2009
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Total revenues $ 92,509 $ 45,809
Net loss and comprehensive loss (after income
taxes) $ (1,203,226) $ (2,015,498)
Net loss and comprehensive loss per share
(basic & diluted) $ (0.02) $ (0.04)
Total current assets $ 34,285,708 $ 9,903,175
Total assets $ 89,364,529 $ 45,155,123
Total current liabilities $ 13,284,179 $ 418,095
Total long term liabilities $ 445,066 $ 288,095
Net working capital $ 21,001,529 $ 9,485,080
Net capital expenditures $ 19,524,409 $ 539,548
Revenues during the year ended December 31, 2010 of $92,509 (2009: $45,809)
represent interest on cash deposits and other miscellaneous income. The
Corporation had no operating revenue in either 2009 or 2010.
The net loss and comprehensive loss decreased from $2.0 million in 2009 to $1.2
million in 2010 due primarily to a $993,821 recovery of future taxes recorded in
the fourth quarter 2010 related to the June private placement of 3,000,000
Flow-Through Shares at $1.50 per share for total gross proceeds of $4.2 million.
At December 31, 2010, the Corporation had a net working capital balance of $21.0
million, consisting of cash in the amount of $33.9 million, accounts receivable
and prepaids of $0.4 million, and net of accounts payable and accrued trade
liabilities of $13.3 million. The accounts payable and accrued trade liabilities
balance at December 31, 2010 relates primarily to horizontal drilling and
completion activity in the Montney Project as well as facilities construction at
Farrell Creek in conjunction with the Corporation's joint venture partner,
Canbriam Energy BC Partnership ("Canbriam"). The Corporation has no bank
indebtedness and has no credit agreements to borrow money in place at this time.
Long-term financial liabilities of $445,066 as at December 31, 2010 represent
the present value of the asset retirement obligation associated with the
Corporation's land base and surface facilities, discounted from the total
estimated future liability of $2.2 million.
Capital Expenditures
For the years ended December 31 2010 2009
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Lease acquisitions and retentions $ 4,269,875 $ 88,981
Geological and geophysical 10,022 128,737
Expenditure (recovery) of drilling and
completion costs 14,768,028 (123,301)
Capitalized overhead 468,998 435,887
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Total net petroleum and natural gas 19,516,923 530,304
Computer and office equipment, furniture 7,486 9,244
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Total net capital expenditures $ 19,524,409 $ 539,548
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For the year ended December 31, 2010, gross capital expenditures including land
acquisitions totaled $19.5 million (2009: $0.7 million), compared to a budgeted
capital expenditure of $19.7 million (2009: $1.2 million). Offsetting the
Corporation's capital expenditures in 2009 were $0.2 million of reimbursements
of previously expended drilling and completion costs from a joint venture
partner in relation to the Gething operations at Farrell Creek. The recovery of
these expenditures was recorded as a reduction of capitalized drilling and
completion costs.
The Corporation's capital budget is reviewed and approved by the Board of
Directors on a quarterly basis. The Corporation's Board of Directors has
approved a revised total forecasted capital expenditure in 2011 of up to $16.2
million, including an estimated $0.5 million for capitalized overhead. The
capital budget for the first half of 2011 has been approved for a total of up to
$4.8 million, including $0.2 million for capitalized overhead.
Cash administration expenses (general and administration expenses excluding
stock-based compensation) for 2011 are expected to total $2.6 million (2010:
$2.1 million), before capitalization of exploration and development related
overhead. Revenue from interest on cash balances is budgeted at $0.1 million for
the 2011 year. The Corporation has budgeted for net cash flows from the Farrell
Creek Montney operations of $2.2 million during 2011.
The Corporation's current net working capital position of $18.6 million is
considered by management to be sufficient to cover its administrative costs and
its forecasted capital expenditures through to the second quarter 2012. The
capital required to complete the Corporation's share of the Montney joint
venture program for the remainder of 2011 plus the first half of 2012, including
horizontal drilling and completion activity together with related facilities
enhancements and well tie-ins, will either be drawn from existing cash resources
or generated internally from funds from operations and possible borrowings
against reserves.
RESOURCE ASSESSMENT
Sproule was engaged to prepare an independent resource assessment of the Montney
Formation on the Corporation's Farrell Creek lands in northeastern British
Columbia as at December 31, 2010 in accordance with National Instrument 51-101,
Standards of Disclosure for Oil and Gas Activities ("Sproule Report" - see News
Release dated April 7, 2011). The engagement was to assess the future
development and resource potential of the Montney Formation and did not include
the Doig and Doig phosphate intervals (fracture stimulated and tested by other
Farrell Creek operators) or the adsorbed gas component associated with any
formation. Further, the Sproule resource assessment did not include
approximately 5 adjacent sections of Montney rights acquired by CSRI after
December 31, 2010. CSRI currently holds 34.4 net sections (22,000 net acres) of
Montney rights in the Farrell Creek area.
The following table summarizes certain information contained in the 2009 and
2010 Sproule Reports.
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SUMMARY OF ANNUAL CHANGES
GROSS AND COMPANY GROSS
NATURAL GAS INITIALLY-IN-PLACE
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Company Gross
Gross GIIP GIIP
Resource Classification Bcf (Raw) Bcf (Sales)
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2009 2010 2009 2010
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DISCOVERED GIIP (1) 1,378 2,654 478 1,028
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UNDISCOVERED GIIP (2) 2,243 2,370 648 1,294
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NOTES:
(1) There is no certainty that it will be commercially viable to produce any
portion of this resource.
(2) There is no certainty that any portion of this resource will be
discovered. If discovered, there is no certainty that it will be
commercially viable to produce any portion of the resource.
OPERATIONS REVIEW 2010
Montney Joint Venture
On March 19, 2008, the Corporation announced a joint venture and farmout
agreement for the Deep Rights with Canbriam, to evaluate certain of the
Corporation's lands for Montney and other deep formation plays covering
approximately 34,000 gross acres. Through the joint venture, Canbriam committed
to an initial expenditure of up to $28.6 million for exploration of the Deep
Rights including the
drilling of at least two vertical wells into the Montney Formation in exchange
for a 65% working interest. Canbriam also had the option to increase its working
interest in the Deep Rights from 65% to 70% in return for increasing its gross
capital commitment to $50.0 million. Canbriam has now fulfilled their $28.6
million initial funding commitment and in October 2010, advised that they would
not exercise the option to increase their working interest. CSRI is now
responsible for funding its 35% working interest of the Montney program.
Since conducting evaluation tests on two vertical Montney wells on the eastern
block of Farrell Creek in late 2008, Canbriam focused its operations on the
western portion of the Farrell Creek lands in close proximity to the Spectra
Energy sales pipeline. Following a successful vertical well test into the lower
portion of the Montney Formation at the b-17-I location, the joint venture
drilled a horizontal well into the lower Montney at the c-A48-I location. This
was the first known horizontal well targeting the lower Montney in the Farrell
Creek area and the results significantly exceeded CSRI's expectations.
The c-A48-I well was stimulated in 8 stages of the lower portion of the Montney
Formation. The initial production flow-tested at a rate of approximately 1
mmcf/d per stage. The positive results of this well are significant as it may be
an indicator that the lower Montney Formation has the potential to increase
ultimate resource estimates and to increase the total productivity of the play.
The joint venture also drilled and cased three upper Montney horizontal wells on
the western block of the Montney lands at c-18-I/94-B-1, c-A18-I/94-B-1,
c-45-I/94-B-1 and re-entered the b-17-I/94-B-1 well to drill a short horizontal
leg in the lower Montney.
At the end of October 2010, Canbriam carried out a production test on the c-18-I
well with initial flow rates of up to 4.7 mmcf/d with 8 stages being stimulated.
The b-17-I re-entry horizontal well was fracture stimulated in 5 stages in the
lower Montney in December with initial production in excess of 3.5 mmcf/d.
The joint venture recently drilled and cased a horizontal well in the upper
Montney at the c-B18-I/94-B-1 location. This is the fourth horizontal well in
the upper Montney Formation and the sixth well in the west block of lands.
Construction of the joint venture's gas processing facility with an initial
capacity of 10 mmcf/d gross (3.5 mmcf/d net), and tie-in to the Spectra Energy
sales pipeline, was completed in January 2011. Commissioning of the facility
occurred in late January 2011 with gas sales commencing on January 28th. The
wells currently tied-in to the facility are the c-A48-I and b-17-I lower Montney
horizontal wells and the c-18-I upper Montney horizontal well. Initial gas sales
from these three wells were in excess of 10 mmcf/d gross (3.5 mmcf/d net).
Subsequently, over the last three months, gas sales have declined to 5 mmcf/d
gross (1.75 mmcf/d net) and appear to have stabilized. Subject to the
availability of fracture crews and equipment, it is anticipated that the
c-A18-I, c-B18-I, and c-45-I wells will be fracture stimulated and tied-in to
the facility during the third quarter of 2011.
During the past year, other operators' drilling and development activity has
significantly de-risked the Montney Formation adjacent to the western portion of
the Corporation's Farrell Creek lands. Talisman Energy Inc. ("Talisman") moved
its adjacent Montney shale play into commercial production and expects to be
producing 100-120 mmcf/d on average in 2011. Talisman also announced that the
capacity of their Farrell Creek Gas Plant will be increased from 120 mmcf/d to
180 mmcf/d during 2011. Talisman recently announced a strategic partnership with
Sasol Limited ("Sasol") which is expected to accelerate the projected
multi-billion dollar development of their Farrell Creek play. Total
consideration from Sasol was $2.1 billion (combined, via two separate deals) for
a 50% working interest in both of Talisman's Farrell Creek and Cypress A plays.
These transactions are comprised of an initial 25% cash payment plus a 75%
capital carry on Talisman's future expenditures. The partnership will also be
examining alternative marketing options including the economic feasibility of
constructing a gas-to-liquids ("GTL") project in western Canada using Sasol's
GTL technology.
Gething Joint Venture
On July 17, 2008 the Corporation announced that it had entered into a joint
venture with Shell to advance the development of the identified unconventional
natural gas resource in the Gething Formation on a combined total of
approximately 150 contiguous sections or 96,000 acres located in the Farrell
Creek area. Shell's $50.0 million initial capital commitment included the
acquisition of additional land, the drilling of five vertical wells and the
construction of facilities to tie-in the Pilot Project. The pilot facility is
scalable and currently has a capacity of up to 1.1 mmcf/d. Seven Gething wells
were tied into the pilot facility and the facility produced its first gas in
June 2009.
Pursuant to the joint venture agreement, Shell could elect to move to the
development stage of the Gething joint venture which would include the pooling
of the Shell and CSRI lands and an additional capital investment by Shell. On
June 18, 2010, Shell elected not to continue to the development stage and as a
result shut-in the gas facility in early July 2010. As per the joint venture
agreement, the Corporation is now the operator of the Gething project and will
retain 100% working interest in its 59 sections (37,760 acres) of Shallow
Rights, the gas facility, the additional wells and the related infrastructure at
no additional cost. The pilot facility has been properly suspended and
winterized. Over the course of the joint venture, Shell invested approximately
$32.0 million in development and infrastructure. As a result, CSRI was able to
increase its understanding of the Gething Formation and expects to benefit from
the future use of the facilities and infrastructure constructed at no cost to
the Corporation. The gas facility is expandable and may be used for other
purposes in the immediate area. CSRI holds a right-of-first-refusal on Shell's
surrounding 95 sections of Gething lands. The Corporation is currently
minimizing its expenditures on the Gething project and is considering several
options that include a possible spin-out of this asset and seeking a new joint
venture partner to further develop the Gething Rights.
Additional Information:
The Corporation's financial statements, management's discussion and analysis of
operations and financial condition and annual information form ("AIF") have been
filed on the System for Electronic Document Analysis and Retrieval ("SEDAR") and
can be viewed at www.sedar.com or through the Corporation's website at
www.csri.ca.
The AIF includes supplemental disclosure pursuant to National Instrument 51-101,
Forms 51-101F1 and 51-101F3 including Other Oil and Gas Information.
CSRI is a natural resources company focusing on the identification and
development of opportunities in the unconventional gas sector of the energy
industry.
On behalf of the Board of Directors,
CANADIAN SPIRIT RESOURCES INC.
"Don Gardner"
Chief Executive Officer & Secretary
The corporate information contained in this news release may contain
forward-looking forecast information. The reader is cautioned that assumptions
used in the preparation of such information, although considered reasonably
accurate by CSRI at the time of preparation, may prove to be incorrect. The
actual results achieved during the forecast period will vary from the
information provided herein and the variations may be material. Consequently
there is no representation by CSRI that actual results achieved during the
forecast period will be the same in whole or in part as those forecast.
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