CORP. / Startech Energy Inc. Cutting Back 1998 Expenditure Program
STARTECH ENERGY INC.
CALGARY, Jan. 23 /CNW/ - Startech Energy Inc. - TSE (''SEH''), announced
today that, as a result of the adverse conditions currently facing the
Canadian oil and gas industry, the Company is reducing its $53 million 1998
capital expenditure program to $30 million.
The significant drop in world crude oil prices and North American natural
gas prices, the general uncertainty surrounding the ongoing equity market
correction, and the continued devaluation of Asian currencies (and resultant
loss of demand for world oil), has resulted in an extremely large sell off of
Canadian oil and gas equity stocks.
Consequently, Startech does not believe that it is prudent to presume
that continued access to attractive equity capital markets is a realistic
expectation in the near to medium term. Management has therefore reduced 1998
capital spending to match expected 1998 cash flow using US$17.75 WTI per
barrel pricing.
In 1998, even with the above referenced reduction in capital
expenditures, Startech will still deliver 45% growth in average daily
production, 45% growth in cash flow (at US$17.75 WTI), and 12% growth in cash
flow per share over 1997.
As a result of reducing the Company's 1998 capital expenditure program,
Startech will now drill approximately 105 wells in 1998 - down from the
Company's original estimate of 175 wells. Startech's revised 1998 capital
expenditure program will now be focused on developmental drilling for light
oil and long life natural gas, together with approximately 8 high impact
exploration wells.
Accordingly, Startech has reduced the Company's 1998 average daily
production estimate by approximately 13% from 11,000 BOED to 9,600 BOED.
As a result, assuming crude oil prices of US$17.75 WTI per barrel in
1998, Startech's cash flow is now expected to be approximately $28.5 million -
as compared to the Company's original projection of $40.5 million. Cash flow
per share in 1998 is now expected to be approximately $1.58 basic, and $1.50
fully diluted, as compared to the Company's original projection of $2.14 basic
and $2.04 fully diluted. Startech has 18.2 million basic shares outstanding.
Pursuant to the Company's ongoing hedging strategy, Startech has locked
in approximately 50% of the Company's expected 1998 crude oil production at
US$19.60 WTI per barrel.
Startech currently has more than 325 development drilling locations in
the Company which will allow for low risk growth from development drilling
into the year 2000. Startech entered 1997 with 18.3 million barrels of
reserves. Startech now has more than 43 million barrels of reserves in the
Company (independently engineered) representing a 9 year proven, and an 11
year proven plus probable reserve life.
Startech's reserve and production mix is all light and medium gravity
crude oil and long life natural gas. The Company has no heavy oil.
In 1997, for a fifth consecutive year, Startech exceeded the Company's
reserve growth target (more than 95% growth over 1996), and met the Company's
production growth target (65% growth over 1996).
Startech exited 1997 with long term debt of $62 million. The Company
will incur an incremental $20 million of debt pursuant to the January 12, 1998
take-over of Laurasia Resources Limited. The Laurasia acquisition adds long
life, high net back reserves and significantly increases Startech's exposure
to natural gas reserves and production. In addition, Startech has identified
numerous development drilling locations on Laurasia lands for both natural gas
and crude oil.
Due to Startech's long reserve life, the Company's ongoing low risk
development drilling program, and management's track record of meeting reserve
and production growth estimates, Startech continues to have bank lines of Cdn.
$100 million.
Management believes that, in light of the adverse business conditions
presently facing the Canadian oil and gas industry, reducing 1998 capital
expenditures to match expected cash flow is essential to preserving
shareholder value.
Startech can and will adapt to this difficult business environment by
generating substantial growth in production, cash flow and cash flow per share
into the year 2000 by reinvesting internally generated cash flow into
development drilling projects and selected, high impact, exploration
opportunities.
In the event that the business environment for the Canadian oil and gas
industry improves, management will reassess the economic advisability and
merit of expanding Startech's capital expenditure program and growth estimates
in 1998 and beyond. |
