Chinook Energy Inc. ("Chinook" or the "Company") (TSX:CKE) today announced the
results of its year-end reserve evaluations effective December 31, 2011 as
prepared by its independent evaluators. The Company has also provided certain
unaudited year end financial information and an update to previously provided
guidance for 2012 resulting from adjustments to the capital program in response
to natural gas prices and asset dispositions.
Chinook's audit of its 2011 annual consolidated financial statements is not yet
complete and accordingly all financial amounts referred to in this news release
are unaudited and represent management's estimates. Readers are advised that
these financial estimates are subject to audit and may be subject to change as a
result.
2011 Reserves Highlights
Three evaluators, which were largely responsible for the previous evaluations of
the same assets, have evaluated all of Chinook's crude oil, NGL and natural gas
reserves in accordance with National Instrument 51-101. Chinook's Reserves
Committee and Board of Directors have reviewed and approved the evaluations
prepared by the evaluators. Highlights of such evaluations are as follows:
-- Proved reserves totaled 32.2 million barrels of oil equivalent. The
proved reserve life index ("RLI") is 5.8 years using fourth quarter 2011
production.
-- Proved plus probable reserves totaled 55.8 million barrels of oil
equivalent. The proved plus probable RLI is 10 years using fourth
quarter 2011 production.
-- Proved plus Probable reserves are down 11% from 2010. Assets
representing 6.7% of the 2010 reserves were sold during the year and
Economic Factors and Technical Revisions represented a 5.8% decline from
2010 reserve levels. 2011 reserve additions from drilling exceeded
production by 15%.
-- The proved finding and development cost, as per NI 51-101 requirements,
was $54.45 per barrel of oil equivalent and the proved plus probable
finding and development cost, as per NI 51-101 requirements, was $54.53
per barrel of oil equivalent. The change in future development costs
("FDC") and revisions were included in the calculation and the effect of
acquisitions and divestitures was excluded.
-- The net asset value amounted to $773.5 million which results in the
estimated net asset value per basic share (214.2 million shares) at
December 31, 2011, being $3.61 per share based on the net present value
of proved and probable reserves, discounted at 10% after tax and after
deducting year end total net debt and adding an estimated value for
undeveloped land in Canada. On a before tax basis, with a similar 10%
discount rate, the net asset value is $1.1 billion or $5.03 per basic
share.
-- Commodity prices used in the independent evaluation were down
approximately 13% for natural gas which represents 49% of the corporate
reserve volumes and up approximately 11% for the slate of liquids which
represent 51% of the corporate reserve volumes.
-- The present value of reserves, and the NAV per share, was largely
unchanged from 2010 as the decrease in reserve volumes and natural gas
pricing attributable to the natural gas-weighted assets in Canada was
offset almost entirely by increased value in the Tunisian oil-weighted
assets.
-- Gross Discovered Petroleum Initially in Place ("DPIIP") associated with
the Bir Ben Tartar (TT) discovery on the Sud Remada permit in Tunisia,
after the addition of five development wells in 2011, is estimated to be
153.7 million barrels of oil. Proven and probable reserves net to the
Company of 3.4 million barrels of oil represents the Company's 46%
Contractor's share of the 7.3 million barrels of oil remaining
recoverable. Proven and probable reserves have been assigned to areas
representing 40% of the DPIIP up to a 13 percent recovery, or an average
of 5% recovery for the entire structure. An additional 2.0 million
barrels of oil of possible reserves and a Best Case Contingent Resource
of 6.8 million barrels net to the Company's interest is attributable to
the DPIIP area to which 2P reserves have not been assigned up to the
date of evaluation. Possible reserves are those additional reserves that
are less certain to be recovered than probable reserves. There is a 10%
probability that the quantities actually recovered will exceed the sum
of proved plus probable reserves. On this basis, 28% of the reserve and
resource potential recognized on the block is reflected in the Company's
NI 51-101 reserves and net asset value. The net present value after tax
discounted at 10% for the proved plus probable reserves is $139 million
or $41.00 per barrel.
-- The Company established a recycle ratio on a proven plus probable
reserve basis, before commodity price contracts, and using NI 51-101
finding and development costs, of 0.4 times in Canada and 0.8 times in
Tunisia.
-- Chinook has 28 gross sections of Bitumen rights in the Portage/Thornbury
area of NE Alberta proximal to pilot projects being initiated by other
operators. An initial evaluation of the Company's bitumen assets has
identified Best Case Company Share of Exploitable Bitumen in Place of
271 mboe and Best Case Contingent Resource of 102.6 mboe in the McMurray
and Grande Rapids Formations net to the Company's 74.55% working
interest.
2011 Operational Highlights and Unaudited Full Year Results
Chinook's average daily production for fiscal 2011 was 14,602 barrels of oil
equivalent per day. Production for the last half of 2011 was 14,780 barrels of
oil equivalent per day and for the fourth quarter was 15,118 barrels of oil
equivalent per day. Projected cash flow from operations (before changes in
non-cash working capital) for 2011 is estimated at $84.9 million or $0.40 per
weighted average basic common share outstanding (unaudited). Year end 2011 net
debt is $135 million.
The Canadian business focused on crude oil project development in the core areas
of West Central Alberta and Grande Prairie and the sale of non-core assets to
improve the ratio of growth assets in the remaining domestic asset base and
improve the boe meterics. The Tunisian business focused on the conversion of
probable reserves to proven producing and an initial ramp up in production at
the Bir Ben Tartar discovery. Tunisian production grew 150% and 2011 was the
Company's most active year ever against a backdrop of the Arab spring
revolution, a year of civil unrest, and the introduction of a new political
system. The corporate drilling program consisted of 43 (26.84 net) wells of
which 34 were operated and 9 were non-operated wells. The results are outlined
in the table below:
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Wells Drilled
Year ended December 31, 2011 Tunisia Canada Total
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Gross Net Gross Net Gross Net
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Exploration
Oil 2.00 0.15 10 00 5.28 12.00 5.43
Gas - - 5.00 4.00 5.00 4.00
Dry - - - - - -
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2.00 0.15 15.00 9.28 17.00 9.43
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Development
Oil 6.00 5.16 15.00 8.52 21.00 13.68
Gas - - 5.00 3.73 5.00 3.73
Dry - - - - - -
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6.00 5.16 20.00 12.25 26.00 17.41
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Total 8.00 5.31 35.00 21.53 43.00 26.84
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Revised Guidance
As a result of the continuing downward pressure on the North American natural
gas price and the completion of two disposition transactions, it is appropriate
to revise the guidance for 2012 from the initial 2012 budget which was prepared
in November 2011.
On the basis of current natural gas prices not covering fixed and variable costs
and an adequate return on the depletion of certain assets, the Company has shut
in a large portion of its Northeast Alberta shallow dry natural gas production
which represents approximately 430 boe/d included in the initial 2012 forecast.
In addition, given current AECO spot prices, the natural gas price used in the
forecast has been adjusted from $3.74/mcf to $2.70/mcf.
Given the near term forecast for natural gas prices the Company has deferred
approximately $10 million worth of capital from the Canadian capital program
with an effect of eliminating approximately 225 boe/d of volumes previously
included in the 2012 forecast.
On February 15, 2012, Chinook closed the previously announced disposition of its
Manyberries property, located in southeastern Alberta, to the City of Medicine
Hat for consideration of approximately $36.2 million. Chinook has also reached
an agreement to sell a package of unit interests for $20 million, subject to
normal closing adjustments, with an expected closing date of March 15, 2012.
Chinook's current bank debt subsequent to the closing of the Manyberries
property disposition is $101 million. The Company intends to use the proceeds
from the disposition of the unit interests to further reduce debt such that it
expects debt to be approximately $80 million after the completion of the sale,
prior to factoring in Q1 2012 capital expenditures which are expected to exceed
quarterly cash flow by $15-20 million. The production adjustment to previous
2012 guidance as a result of these two 2012 transactions, and two transactions
that closed in December 2011 (after previous guidance was released) is an
average reduction of 830 boe/d.
The Company will also reduce the capital program in Tunisia by $15 million in an
attempt to better manage the balance sheet early in the year. This will be
accomplished with an expected one quarter delay in the commencement of the
central facility and pipeline projects but will not effect forecast production.
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($ millions) Revised Previous
Guidance(1) Guidance(2)
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Production (boe/d) 13,500-14,000 15,000-15,400
Cash flow $120 - 125 $135 - 140
Capital expenditures $165 $190
Net debt (year end 2012) $120 - 125 $180 - 190
Debt facility $182 $194
Net operating expenses ($/boe) $16.53 $17.50
G&A expense ($/boe) $2.80 $2.50
Cash flow per share (fully diluted) $0.54 $0.61
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Notes:
1. Revised guidance is based on: AECO gas price of $2.70/mcf; Edmonton
light oil price of $96.20/bbl (CDN); Brent oil price of $104.00/bbl
(CAD); 55% natural gas production; 45% liquids.
2. Previous guidance was based on: AECO gas price of $3.74/mcf; Edmonton
light oil price of $95.00/bbl (CDN); Brent oil price of $104.00/bbl
(CAD); 55% natural gas production; 45% liquids.
Asset sales and natural gas price related technical revisions were key
contributors to decreasing reserves in Canada. The increased value of the light
oil assets in Tunisia supported the Net Asset Value being unchanged from year
end 2010. Chinook's balance sheet is in very good shape and able to support the
forecast capital program of 1.3 times cash flow which will be focused on
developing Chinook's Brent priced oil production in Tunisia. In Canada, the
Company will continue to work to improve the netbacks of its domestic natural
gas weighted production, focus capital on oil prospects, and dispose of assets
as it has successfully done over the last 15 months.
2011 Independent Reserves Evaluation
The independent evaluators of the Company's year-end reserves are as
follows:
-- McDaniel & Associates Consultants Ltd. ("McDaniel") evaluated all of the
Canadian properties effective December 31, 2011 and report dated
February 27, 2012;
-- InSite Petroleum Consultants Ltd. ("InSite") evaluated all of the
Tunisia interests, except Cosmos effective December 31, 2011 and report
dated February 24, 2012; and
-- Sproule International Limited ("Sproule") evaluated Cosmos in Tunisia
effective December 31, 2011 and report dated January 30, 2012.
The independent reserve evaluations effective December 31, 2011 were prepared in
accordance with definitions, standards and procedures contained in the Canadian
Oil and Gas Evaluation Handbook ("COGE Handbook") and National Instrument 51-101
("NI 51-101"). The reserve evaluation was based on McDaniel forecast pricing and
foreign exchange rates at December 31, 2011.
Reserves included herein are stated on a company gross basis (working interest
before deduction of royalties without including any royalty interests) unless
noted otherwise. This news release contains several cautionary statements that
are specifically required by NI 51-101 under the heading "Reader Advisory" and
throughout the release. In addition to the information contained in this news
release more detailed information will be included in Chinook's Annual
Information Form for the year ended December 31, 2011 ("AIF"), which will be
filed on SEDAR at www.sedar.com on or before March 30, 2012.
Reserves Breakdown (Company interest before royalties) (1)
(December 31, 2011, escalated price forecast)
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(mboe) 2011 2010
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Proved Producing
Canada 20,906 26,224
Tunisia 1,294 555
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Total proved producing 22,200 26,780
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Proved
Canada 25,227 31,283
Tunisia 6,940 6,133
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Total proved 32,167 37,416
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Proved Plus Probable Additional
Canada 38,995 45,803
Tunisia 16,816 16,655
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Total proved plus probable additional 55,811 62,459
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Note: (1) Columns may not add due to rounding.
Gross and Net Company Interest Reserves as at December 31, 2011
The following table summarizes the Company's gross and net interest reserve
volumes utilizing McDaniel's forecast pricing and cost estimates at December
31, 2011.
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Light and
medium oil Heavy oil Natural Gas
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Gross (1) Net (2) Gross (1) Net (2) Gross (1) Net (2)
Reserves category (mbbl) (mbbl) (mbbl) (mbbl) (mmcf) (mmcf)
----------------------------------------------------------------------------
Canada
Proved
Developed
producing 4,648 3,931 154 149 83,241 69,332
Developed non-
producing 780 663 40 37 11,277 9,493
Undeveloped 468 403 - - 5,010 3,970
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Total proved 5,895 4,997 194 186 99,527 82,796
Probable additional 2,962 2,404 66 63 56,405 45,768
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Total proved plus
probable 8,857 7,402 260 249 155,931 128,564
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Tunisia
Proved
Developed
producing 1,105 1,048 - - 1,131 1,029
Developed non-
producing 434 397 - - 2,274 2,074
Undeveloped 4,503 4,152 - - 1,358 1,322
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Total proved 6,042 5,596 - - 4,763 4,425
Probable additional 9,526 8,387 - - 2,727 2,387
----------------------------------------------------------------------------
Total proved plus
probable 15,568 13,983 - - 7,490 6,812
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Total company
Proved
Developed
producing 5,753 4,979 154 149 84,372 70,362
Developed non-
producing 1,213 1,060 40 37 13,550 11,567
Undeveloped 4,971 4,555 - - 6,368 5,292
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Total proved 11,937 10,594 194 186 104,290 87,221
Probable additional 12,488 10,791 66 63 59,132 48,155
----------------------------------------------------------------------------
Total proved plus
probable 24,425 21,385 260 249 163,421 135,376
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Natural gas Oil equivalent
liquids (6:1)
----------------------------------------------------------------------------
Gross(1) Net (2) Gross (1) Net (2)
Reserves category (mbbl) (mbbl) (mboe) (mboe)
----------------------------------------------------------------------------
Canada
Proved
Developed
producing 2,231 1,613 20,906 17,249
Developed non-
producing 181 134 2,880 2,417
Undeveloped 138 109 1,441 1,174
----------------------------------------------------------------------------
Total proved 2,550 1,857 25,227 20,840
Probable additional 1,340 965 13,769 11,060
----------------------------------------------------------------------------
Total proved plus
probable 3,890 2,821 38,995 31,900
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Tunisia
Proved
Developed
producing - - 1,294 1,219
Developed non-
producing - - 813 742
Undeveloped - - 4,834 4,456
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Total proved - - 6,940 6,417
Probable additional - - 9,876 8,701
----------------------------------------------------------------------------
Total proved plus
probable - - 16,816 15,118
----------------------------------------------------------------------------
Total company
Proved
Developed
producing 2,331 1,613 22,200 18,468
Developed non-
producing 181 134 3,692 3,159
Undeveloped 138 109 6,275 5,630
----------------------------------------------------------------------------
Total proved 2,550 1,857 32,167 27,257
Probable additional 1,340 965 23,644 19,761
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Total proved plus
probable 3,890 2,821 55,811 47,018
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Notes:
1. Gross reserves are the company's working interest reserves before
royalty deductions and do not include royalty interest volumes.
2. Net reserves are after royalty deductions and include royalty interest
volumes.
Gross Company Reserve Reconciliation for 2011 (1)
(Gross company interest reserves before deduction of royalties payable)
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6:1 Oil Equivalent (mboe)
Proved Plus
Total Proved Probable Probable
----------------------------------------------------------------------------
December 31, 2010 - opening
balance 37,415 25,044 62,459
Additions and extensions 2,840 3,272 6,112
Improved performance - - -
Discoveries 273 95 368
Acquisitions - - -
Dispositions (2,596) (1,605) (4,200)
Technical revisions 701 (3,145) (2,444)
Economic factors (1,141) (18) (1,159)
Production (5,324) - (5,324)
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December 31, 2011 - closing
balance 32,167 23,644 55,811
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Note: (1) Columns may not add due to rounding.
Consolidated
Net Present Value ("NPV") Summary (before tax) as at December 31, 2011
(December 31, 2011, escalated price forecast)
Benchmark oil and NGL prices used are adjusted for quality of oil or NGL
produced and for transportation costs. The calculated NPVs include a
deduction for estimated future well abandonment but does not include a
provision for interest, debt service charges and general and administrative
expenses. It should not be assumed that the NPV estimated represents the
fair market value of the reserves.
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Discounted Discounted Discounted Discounted
($ thousands) Undiscounted at 5% at 10% at 15% at 20%
----------------------------------------------------------------------------
Proved producing 556,191 458,4356 393,751 347,502 312,702
Proved non-
producing 116,845 90,562 73,293 61,163 52,201
----------------------------------------------------------------------------
Total proved
developed 673,035 548,997 467,044 408,665 364,903
Proved
undeveloped 236,834 190,527 155,656 128,486 106,803
----------------------------------------------------------------------------
Total proved 909,869 739,524 622,700 537,151 471,706
Probable
additional 1,014,038 722,284 544,496 426,004 342,459
----------------------------------------------------------------------------
Total proved
plus probable 1,923,907 1,461,808 1,167,196 963,154 814,165
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Canada
Net Present Value Summary (before tax) as at December 31, 2011
(December 31, 2011, escalated price forecast)
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Discounted Discounted Discounted Discounted
($ thousands) Undiscounted at 5% at 10% at 15% at 20%
----------------------------------------------------------------------------
Proved producing 468,820 378,214 319,286 277,759 246,898
Proved non-
producing 67,193 50,613 40,369 33,448 28,450
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Total proved
developed 536,014 428,827 359,655 311,206 275,348
Proved
undeveloped 33,962 25,828 20,160 16,029 12,919
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Total proved 569,975 454,655 379,815 327,236 288,266
Probable
additional 359,780 223,928 155,167 115,201 89,687
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Total proved
plus probable 929,755 678,583 534,982 442,436 377,954
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Tunisia
Net Present Value Summary (before tax) as at December 31, 2011
(December 31, 2011, escalated price forecast)
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Discounted Discounted Discounted Discounted
($ thousands) Undiscounted at 5% at 10% at 15% at 20%
----------------------------------------------------------------------------
Proved producing 87,371 80,222 74,465 69,743 65,804
Proved non-
producing 49,651 39,949 32,924 27,715 23,752
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Total proved
developed 137,022 120,170 107,388 97,459 89,555
Proved
undeveloped 202,872 164,700 135,497 112,456 93,885
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Total proved 339,894 284,870 242,885 209,915 183,440
Probable
additional 654,259 498,355 389,329 310,803 252,772
----------------------------------------------------------------------------
Total proved
plus probable 994,153 783,225 632,214 520,718 436,211
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Consolidated
Net Present Value Summary (after tax) as at December 31, 2011
(December 31, 2011, escalated price forecast)
The after-tax NPV of Chinook's oil and natural gas properties reflects the
tax burden on the properties on a stand-alone basis and does not consider
the business-entity-level tax situation, or tax planning. It does not
provide an estimate of the value at the level of the business entity, which
may be significantly different. The financial statements and the
management's discussion and analysis ("MD&A") of Chinook should be consulted
for information at the level of the business entity.
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Discounted Discounted Discounted Discounted
($ thousands) Undiscounted at 5% at 10% at 15% at 20%
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Proved producing 543,337 447,679 384,494 339,356 305,401
Proved non-
producing 87,566 69,329 56,993 48,100 41,385
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Total proved
developed 630,902 517,007 441,487 387,456 346,787
Proved
undeveloped 163,670 130,458 105,073 85,118 69,118
----------------------------------------------------------------------------
Total proved 794,572 647,465 546,560 472,574 415,905
Probable
additional 601,009 421,960 316,340 247,324 199,212
----------------------------------------------------------------------------
Total proved
plus probable 1,395,581 1,069,425 862,899 719,897 615,117
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Canada
Net Present Value Summary (after tax) as at December 31, 2011
(December 31, 2011, escalated price forecast)
----------------------------------------------------------------------------
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Discounted Discounted Discounted Discounted
($ thousands) Undiscounted at 5% at 10% at 15% at 20%
----------------------------------------------------------------------------
Proved producing 468,820 378,214 319,286 277,759 246,898
Proved non-
producing 60,222 46,956 38,360 32,300 27,772
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Total proved
developed 529,042 425,170 357,646 310,059 274,670
Proved
undeveloped 25,419 20,171 16,317 13,362 11,032
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Total proved 554,461 445,340 373,963 323,421 285,702
Probable
additional 270,556 169,028 118,110 88,646 69,853
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Total proved
plus probable 825,018 614,368 492,074 412,066 355,555
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Tunisia
Net Present Value Summary (after tax) as at December 31, 2011
(December 31, 2011, escalated price forecast)
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Discounted Discounted Discounted Discounted
($ thousands) Undiscounted at 5% at 10% at 15% at 20%
----------------------------------------------------------------------------
Proved producing 74,516 69,465 65,208 61,597 58,503
Proved non-
producing 27,344 22,373 18,633 15,800 13,613
----------------------------------------------------------------------------
Total proved
developed 101,860 91,838 83,841 77,397 72,117
Proved
undeveloped 138,251 110,288 88,756 71,756 58,086
----------------------------------------------------------------------------
Total proved 240,111 202,125 172,596 149,153 130,203
Probable
additional 330,453 252,931 198,230 158,678 129,359
----------------------------------------------------------------------------
Total proved
plus probable 570,563 455,056 370,826 307,831 259,562
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McDaniel & Associates Consultants Ltd. Escalating Price Forecast as at
December 31, 2011 (1)
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Edmonton
WTI Light Henry Hub AECO
Crude Oil Brent Crude Oil Natural Gas Natural Gas
(US$/bbl) (US$/bbl) (Cdn$/bbl) (US$/mmbtu) (Cdn$/mmbtu)
----------------------------------------------------------------------------
2012 97.50 107.50 99.00 3.75 3.50
2013 97.50 102.60 99.00 4.50 4.20
2014 100.00 102.60 101.50 5.05 4.70
2015 100.80 103.50 102.30 5.50 5.10
2016 101.70 104.40 103.20 5.95 5.55
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99.50 104.12 101.00 4.95 4.61
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Edmonton
Condensate
and Natural US/Cdn
Gasoline Propane Butane Exchange
(Cdn$/bbl) (Cdn$/bbl) (Cdn$/bbl) (US$/Cdn)
----------------------------------------------------------------------------
2012 106.00 54.60 76.20 0.975
2013 104.10 56.40 79.80 0.975
2014 104.60 58.90 81.80 0.975
2015 105.50 60.40 82.40 0.975
2016 106.40 62.00 83.20 0.975
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105.32 58.46 80.68 0.975
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Note: (1) Prices escalate at two percent per year after 2016.
Future Development Costs ("FDC")
NI 51-101 requires that future development costs be calculated including changes
in FDC. Changes in forecast FDC occur annually as a result of development
activities, acquisition and disposition activities and capital cost estimates
that reflect the independent evaluators' best estimate of what it will cost to
bring the proved undeveloped and probable reserves on production.
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($ millions)
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2011 2010
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Proved
Canada 27.4 37.4
Tunisia 158.6 131.1
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Total proved 186.0 168.6
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Proved Plus Probable
Canada 60.4 59.3
Tunisia 301.0 278.5
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Total proved plus probable 361.4 337.8
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Chinook's approved 2012 budget includes the drilling of 31 wells (20.5 net)
in Canada and 17 wells (10.6 net) in Tunisia.
NI 51-101 Finding and Development Costs ("F&D")
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Total Proved Finding and Development Cost($ Two year
thousands, except per unit amounts) 2011 2010 total
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Capital expenditures excluding acquisitions and
dispositions,abandonment and furniture and
fixtures (unaudited) 124,981 45,861 170,842
Net change from previously allocated future
development capital 20,471 19,107 39,578
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Total capital including the net change in future
capital 145,452 64,968 210,420
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Reserve additions excluding acquisitions and
dispositions (mboe) 2,671 2,404 5,075
Total proved finding and development costs (per
boe) 54.45 27.02 41.46
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Total Proved Plus Probable Finding and
Development Cost($ thousands, except per unit Two year
amounts) 2011 2010 total
----------------------------------------------------------------------------
Capital expenditures excluding acquisitions and
dispositions,abandonment and furniture and
fixtures (unaudited) 124,981 44,994 169,975
Net change from previously allocated future
development capital 31,893 30,026 61,919
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Total capital including the net change in future
capital 156,874 75,020 231,894
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Reserve additions excluding acquisitions and
dispositions(mboe) 2,877 4,090 6,967
Total proved plus probable finding and
development costs (per boe) 54.53 18.34 33.28
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Finding and Development Costs ("F&D")
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Total Proved Finding and Development Cost
Including FDC, excluding Acquisitions,
Dispositions, Revisions, and Economic Factors($ Two year
thousands, except per unit amounts) 2011 2010 total
----------------------------------------------------------------------------
Capital expenditures excluding acquisitions and
dispositionsabandonment and furniture and
fixtures (unaudited) (1) 124,981 59,139 184,120
Net change from previously allocated future
development capital 12,685 4,782 17,467
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Total capital including the net change in future
capital 137,666 63,921 201,587
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Reserve additions including acquisitions,
dispositions and revisions (mboe) 3,942 2,353 6,295
All-in total proved finding and development costs
(per boe) 34.92 27.17 32.02
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Note: (1) Excludes non-cash costs, including Asset Retirement Obligations.
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Total Proved Plus Probable Finding and
Development Cost Including FDC, excluding
Acquisitions, Dispositions, Revisions, and
Economic Factors($ thousands, except per unit Two year
amounts) 2011 2010 total
----------------------------------------------------------------------------
Capital expenditures excluding acquisitions and
dispositions,abandonment and furniture and
fixtures (unaudited) (1) 124,981 59,139 184,120
Net change from previously allocated future
development capital 39,390 9,232 48,622
----------------------------------------------------------------------------
Total capital including the net change in future
capital 164,371 68,371 232,742
----------------------------------------------------------------------------
Reserve additions including acquisitions,
dispositions and revisions (mboe) 6,480 3,654 10,134
All-in total proved plus probable finding and
development costs (per boe) 25.37 18.71 22.97
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----------------------------------------------------------------------------
Note: (1) Excludes non-cash costs, including Asset Retirement Obligations.
Total exploration and development costs incurred in the most recent financial
year and the change during that year in estimated future development costs,
generally will not reflect the total cost of reserve additions in that year.
Recycle Ratio
The recycle ratio is calculated as the fourth quarter netback per barrel divided
by the finding and development costs (excluding acquisitions and dispositions,
abandonment and furniture and fixtures). It is a measure of the profitability
and efficiency of the Company.
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Total Proved Consolidated Canada Tunisia
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Operating netback before commodity price
contracts ($/boe) (unaudited) (1) 23.15 15.69 83.92
51-101 F&D costs ($/boe) (unaudited) 54.45 55.01 53.77
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Recycle ratio 0.4x 0.3x 1.6x
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Total Proved Plus Probable Consolidated Canada Tunisia
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Operating netback before commodity price
contracts ($/boe) (unaudited) (1) 23.15 15.69 83.92
51-101 F&D costs ($/boe) (unaudited) 54.53 41.80 107.10
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Recycle ratio 0.4x 0.4x 0.8x
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Note: (1) Operating netback is calculated by deducting royalties and
production expenses from revenue.
Corporate Net Asset Value
The Company's net asset value as of December 31, 2011, is detailed in the
following table. This net asset value determination is a "point-in-time"
measurement and does not take into account the possibility of Chinook being able
to recognize additional reserves through successful future capital investment in
its existing properties beyond those included in the 2011 year-end reserve
reports.
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December 31, 2011 Before Tax NPV 5% Before Tax NPV 10%
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($ thousands) $/share ($ thousands) $/share
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Proved plus probable reserves
NPV(1,2) 1,461,807 6.82 1,167,195 5.45
Undeveloped acreage(3) 45,484 0.21 45,484 0.21
Net debt(4) (134,931) (0.63) (134,931) (0.63)
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Net asset value (basic)(5) 1,372,361 6.41 1,077,749 5.03
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December 31, 2011 Before Tax NPV 15%
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($ thousands) $/share
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Proved plus probable reserves
NPV(1,2) 963,155 4.50
Undeveloped acreage(3) 45,484 0.21
Net debt(4) (134,931) (0.63)
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Net asset value (basic)(5) 873,708 4.08
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December 31, 2011 After Tax NPV 5% After Tax NPV 10%
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($ thousands) $/share ($ thousands) $/share
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Proved plus probable reserves
NPV(1,2) 1,069,425 4.99 862,900 4.03
Undeveloped acreage(3) 45,484 0.21 45,484 0.21
Net debt(4) (134,931) (0.63) (134,931) (0.63)
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Net asset value (basic)(5) 979,979 4.58 773,453 3.61
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December 31, 2011 After Tax NPV 15%
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($ thousands) $/share
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Proved plus probable reserves
NPV(1,2) 719,897 3.36
Undeveloped acreage(3) 45,484 0.21
Net debt(4) (134,931) (0.63)
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Net asset value (basic)(5) 630,451 2.91
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Notes:
1. Evaluated by independent reserve evaluators as at December 31, 2011. Net
present value of future net revenue does not represent the fair market
value of the reserves.
2. Net present values for before and after tax are based on McDaniel's
December 31, 2011 escalated price forecast.
3. Undeveloped land value has been calculated based on internal estimates
of $100/acre for all Canadian lands.
4. Net debt as at December 31, 2011, including working capital deficit
(estimated and unaudited).
5. Basic shares at December 31, 2011 total 214,187,681 common shares.
Chinook's audited consolidated financial statements and its annual information
form for the year ended December 31, 2011, which will include more detailed
reserves information, are expected to be filed on SEDAR (www.sedar.com) on or
about March 22, 2012.
Bir Ben Tartar - Discovered Petroleum Initially-in-Place
Insite assigned 153.7 million barrels of Discovered Petroleum Initially-In-Place
to the Bir Ben Tartar (TT) discovery.
DPIIP is the quantity of petroleum that is estimated, as of a given date, to be
contained in known accumulations prior to production. The recoverable portion of
DPIIP is divided into commercial (reserves), and sub-commercial (Contingent
Resources); the remainder is by definition unrecoverable. Contingent Resources
are 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.
Contingencies in respect of the Bir Ben Tartar (TT) discovery that prevent such
Contingent Resources to be classified as reserves include the lack of a
reasonable expectation that all internal and external approvals will be
forthcoming to fully develop the asset, further reservoir studies, delineation
drilling, facility design, preparation of firm development plans and regulatory
applications. Other commercial considerations that may preclude the
classification of contingent resources as reserves include factors such as
legal, environmental, political and regulatory matters or a lack of markets.
Estimates of DPIIP and Contingent Resources described herein are estimates only;
the actual resources may be higher or lower than those calculated in Insite's
report. There is no certainty that it will be commercially viable to produce any
portion of the resources described herein.
The most significant positive and negative factors with respect to the
Contingent Resource estimates in respect of the Bir Ben Tartar (TT) discovery
relate to fact that the field is currently at an evaluation/delineation stage.
The table below summarizes the DPIIP, Reserves, Cumulative Production,
Contingent Resources and portion of the unrecoverable portion of DPIIP
associated with the Bir Ben Tartar (TT) discovery.
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Category MBbls
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DPIIP 157,300
Gross Proved + Probable Reserves 3,360.8
Cumulative Production 458.8
Contingent Resource (Best Estimate) 6,800.6
Unrecoverable DPIIP 128,900
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Alberta Oil Sands - Exploitable Bitumen in Place
The table below reflects the Company's Contingent Bitumen Resources as of
December 31, 2011, as evaluated by McDaniel reflected the Company's 74.55%
working interest in its oil sands leases in the Portage and Thornbury areas of
Alberta.
Actual resources may be greater than or less than the estimates provided herein.
Contingent Resources can be sub-classified into economic and uneconomic factors
based on a number of assumptions such as capital costs, timing, price forecasts
and other considerations. Currently sub-classification of these estimates has
not been completed pending a determination of the above parameters. The
contingencies which currently prevent the classification of the Contingent
Resources disclosed in the tables below as reserves consist of: further
reservoir studies, delineation drilling, facility design, preparation of firm
development plans, regulatory applications and corporate approvals. There is no
certainty that it will be commercially viable for the Corporation to produce any
portion of the Contingent Resources on any of its properties. The most
significant positive and negative factors with respect to the Contingent
Resource estimates relates to the fact that property is currently at an
evaluation/delineation stage.
The information provided hereunder for Thornbury is based on an evaluation
conducted by McDaniel effective December 31, 2011. The information provided
hereunder for Portage is based on an evaluation conducted by McDaniel effective
June 1, 2010. McDaniel carried out the evaluations in accordance with standards
established by the Canadian Securities Administrators in NI 51-101.
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Contingent Resources - Thornbury Oil Sands
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Volumes (mboe) Gross Net
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High 74,738 61,044
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Best 46,285 39,674
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Low 30,835 27,490
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Contingent Resources - Portage Oil Sands
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Volumes (mboe) Gross Net
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High 90,173 73,251
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Best 56,333 48,379
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Low 40,609 36,449
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Contingent Resources - Portage & Thornbury Oil Sands
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Volumes (mboe) Gross Net
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High 164,911 134,295
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Best 102,618 88,053
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Low 71,444 63,939
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Note: (1) See "Definitions of Oil and Gas Resources and Reserves" herein.
(2) Net volumes are defined as gross volumes, less royalty deductions
payable.
(3) There is no certainty that it will be commercially viable to
produce any portion of the resources.
About Chinook Energy Inc.
Chinook is a Calgary-based public oil and gas exploration and development
company that combines high quality natural gas-weighted assets in Western Canada
with an exciting high growth oil business onshore and offshore Tunisia in North
Africa.
Definitions of Oil and Gas Resources and Reserves
Reserves are estimated remaining quantities of oil and natural gas and related
substance anticipated to be recoverable from known accumulations, as of a given
date, based on the analysis of drilling, geological, geophysical and engineering
data; the use of established technology, and specified economic conditions,
which are generally accepted as being reasonable. Reserves are classified
according to the degree of certainty associated with the estimates as follows:
Proved Reserves are those reserves that can be estimated with a high degree of
certainty to be recoverable. It is likely that the actual remaining quantities
recovered will exceed the estimated proved reserves.
Probable Reserves are those additional reserves that are less certain to be
recovered than proved reserves. It is equally likely that the actual remaining
quantities recovered will be greater or less than the sum of the estimated
proved plus probable reserves.
Possible Reserves are those additional reserves that are less certain to be
recovered than probable reserves. It is unlikely that the actual remaining
quantities recovered will exceed the sum of the estimated proved plus probable
plus possible reserves. There is 10% probability that the quantities recovered
will exceed the sum of proved and probable reserves.
Resources encompasses all petroleum quantities that originally existed on or
within the earth's crust in naturally occurring accumulations, including
Discovered and Undiscovered (recoverable and unrecoverable) plus quantities
already produced. "Total resources" is equivalent to "Total Petroleum
Initially-In-Place". Resources are classified in the following categories:
Discovered Petroleum Initially-In-Place ("DPIIP") is that quantity of petroleum
that is estimated, as of a given date, to be contained in known accumulations
prior to production. The recoverable portion of discovered petroleum
initially-in-place includes production, reserves, and contingent resources; the
remainder is unrecoverable.
Contingent Resources are 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.
Unrecoverable is that portion of DPIIP and UPIIP quantities which is estimated,
as of a given date, not to be recoverable by future development projects. A
portion of these quantities may become recoverable in the future as commercial
circumstances change or technological developments occur; the remaining portion
may never be recovered due to the physical/chemical constraints represented by
subsurface interaction of fluids and reservoir rocks.
Uncertainty Ranges are described by the COGE Handbook as low, best, and high
estimates for reserves and resources as follows:
Low Estimate: This is considered to be a conservative estimate of the quantity
that will actually be recovered. It is likely that the actual remaining
quantities recovered will exceed the low estimate. If probabilistic methods are
used, there should be at least a 90 percent probability (P90) that the
quantities actually recovered will equal or exceed the low estimate.
Best Estimate: This is considered to be the best estimate of the quantity that
will actually be recovered. It is equally likely that the actual remaining
quantities recovered will be greater or less than the best estimate. If
probabilistic methods are used, there should be at least a 50 percent
probability (P50) that the quantities actually recovered will equal or exceed
the best estimate.
High Estimate: This is considered to be an optimistic estimate of the quantity
that will actually be recovered. It is unlikely that the actual remaining
quantities will exceed the high estimate. If probabilistic methods are used,
there should be at least a 10 percent probability (P10) that the quantities
actually recovered will equal or exceed the high estimate.
Reader Advisory
Forward-Looking Statements
In the interest of providing shareholders and potential investors with
information regarding Chinook, including management's assessment of the future
plans and operations of Chinook, certain statements contained in this news
release constitute forward-looking statements or information (collectively
"forward-looking statements") within the meaning of applicable securities
legislation. Forward-looking statements are typically identified by words such
as "anticipate", "continue", "estimate", "expect", "forecast", "may", "will",
"project", "could", "plan", "intend", "should", "believe", "outlook",
"potential", "target" and similar words suggesting future events or future
performance. In addition, statements relating to "reserves" are deemed to be
forward-looking statements as they involve the implied assessment, based on
certain estimates and assumptions, that the reserves described exist in the
quantities predicted or estimated and can be profitably produced in the future.
In particular, this news release contains, without limitation, forward-looking
statements pertaining to: the recognition of significant additional reserves
under the heading "2011 Independent Reserve Evaluation"; the volumes and
estimated value of Chinook's oil and natural gas reserves; the life of Chinook's
reserves; the volume and product mix of Chinook's oil and natural gas
production; future oil and natural gas prices and Chinook's commodity risk
management program; future results from operations and operating metrics; and
future development, exploration, acquisition and development activities
(including drilling plans) and related production expectations as well as
management's future expectations set out under the heading "Revised Guidance".
With respect to the forward-looking statements contained in this news release,
Chinook has made assumptions regarding, among other things: that Chinook will
continue to conduct its operations in a manner consistent with past operations,
the ability of Chinook to continue to operate in Tunisia with limited logistical
security and operational issues, future capital expenditure levels, future oil
and natural gas prices, future oil and natural gas production levels, Chinook's
ability to obtain equipment in a timely manner to carry out development
activities, the impact of increasing competition, the ability of Chinook to add
production and reserves through development and exploitation activities, certain
commodity price and other cost assumptions, the continued availability of
adequate debt and equity financing and cash flow to fund its planned
expenditures. Although Chinook believes that the expectations reflected in the
forward-looking statements contained in this news release, and the assumptions
on which such forward-looking statements are made, are reasonable, there can be
no assurance that such expectations will prove to be correct. Readers are
cautioned not to place undue reliance on forward-looking statements included in
this news release, as there can be no assurance that the plans, intentions or
expectations upon which the forward-looking statements are based will occur. By
their nature, forward-looking statements involve numerous assumptions, known and
unknown risks and uncertainties that contribute to the possibility that
predictions, forecasts, projections and other forward-looking statements will
not occur, which may cause Chinook'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, without limitation, political and
security risk associated with Chinook's Tunisian operations, risks associated
with oil and gas exploration, development, exploitation, production, marketing
and transportation, loss of markets, volatility of commodity prices, currency
fluctuations, imprecision of reserve and resource estimates, the continued
impact of shut-in production, environmental risks, competition from other
producers, inability to retain drilling rigs and other services, capital
expenditure costs, including drilling, completion and facilities costs,
unexpected decline rates in wells, delays in projects and/or operations
resulting from surface conditions, wells not performing as expected, delays
resulting from or inability to obtain the required regulatory approvals and
ability to access sufficient capital from internal and external sources.
As a consequence, actual results may differ materially from those anticipated in
the forward-looking statements. Readers are cautioned that the forgoing list of
factors is not exhaustive. Additional information on these and other factors
that could effect Chinook's operations and financial results are included in
reports on file with Canadian securities regulatory authorities and may be
accessed through the SEDAR website (www.sedar.com) and at Chinook's website
(www.chinookenergyinc.com). Furthermore, the forward-looking statements
contained in this news release are made as at the date of this news release and
Chinook does not undertake any obligation to update publicly or to revise any of
the forward-looking statements, whether as a result of new information, future
events or otherwise, except as may be required by applicable securities laws.
Barrels of Oil Equivalent
Barrels of oil equivalent (boe) is calculated using the conversion factor of 6
mcf (thousand cubic feet) of natural gas being equivalent to one barrel of oil.
Boes may be misleading, particularly if used in isolation. A boe conversion
ratio of 6 mcf:1 bbl (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. Given that the value ratio based on the current
price of crude oil as compared to natural gas is significantly different from
the energy equivalency of 6:1, utilizing a conversion on a 6:1 basis may be
misleading as an indication of value.
Reserve Life Index
The reader is also cautioned that this news release contains the term reserve
life index ("RLI"), 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 IFRS as a measure of
performance. Chinook's method of calculating this measure may differ from other
companies, and accordingly, they may not be comparable to measures used by other
companies.
Operating Netback
The reader is also cautioned that this news release contains the term operating
netback, which is not a recognized measure under GAAP and is calculated as a
period's sales of petroleum and natural gas, net of royalties less net
production and operating expenses as divided by the period's sales volumes.
Management uses this measure to assist them in understanding Chinook's
profitability relative to current commodity prices and it provides an analysis
tool to benchmark changes in operational performance against prior periods and
to peers on a comparable basis. Readers are cautioned, however, that this
measure should not be construed as an alternative to other terms such as net
income determined in accordance with IFRS as a measure of performance. Chinook's
method of calculating this measure may differ from other companies, and
accordingly, they may not be comparable to measures used by other companies.
Cash flow from operations
The reader is also cautioned that this news release contains the term cash flow
from operations, which is not a recognized measure under GAAP and is calculated
from cash flow from continuing operations adjusted for changes in non-cash
working capital. Management believes that cash flow is a key measure to assess
the ability of Chinook to finance capital expenditures and debt repayments.
Readers are cautioned, however, that this measure should not be construed as an
alternative to other terms such as cash flow from operating activities, net
income or other measures of financial performance calculated in accordance with
IFRS. Chinook's 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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