EARNINGS / Merit Energy Ltd. Drilling Success and Production
Increases Highlight Strong Growth in Third Quarter
CALGARY, Nov. 25 /CNW/ -
Merits
- Merit embarked on an ambitious drilling program in the third quarter
and was rewarded with an exceptional 93 percent success rate. The
drilling program consisted of 58 wells of which 54 were cased as gas
wells while four were abandoned. With the success of this program
Merit is poised to capitalize on strong gas prices throughout the
fourth quarter when production from these wells will come onstream.
Merit's current sales rate is approximately 9200 barrels of oil
equivalent per day with a production profile of 80 percent natural gas
and 20 percent crude oil and natural gas liquids.
- Merit closed a strategic acquisition in the Superba area of East
Central Alberta during the third quarter. The acquisition provided the
company with existing production, a strong facility position,
additional infrastructure and roughly 20 sections of undeveloped land
for future exploration. As a result of the additional production and
infrastructure enhancements net production in the area was immediately
increased by greater than one million cubic feet per day.
- During the quarter Merit announced the promotion of Ilene Schmaltz to
Vice President, Marketing. Ilene has over 20 years of oil and gas
marketing experience and is a valuable addition to the senior
management of the Company.
Subsequent Events
- In early November Merit issued two million flow-through common shares
at a price of $5.00 per share providing total proceeds of $10 million.
The flow-through shares were issued primarily to institutional
investors and proceeds will be spent on exploration drilling and
seismic in 1998 and 1999.
- In October Merit entered into a major Farmin in our East Central Core
Area. The Farmin provides exploration opportunities on an additional
120,000 undeveloped acres within a 53 township area.
- Drilling in early October continued its successful trend with the
completion of a discovery well in Southern Alberta. Merit holds a 100
percent working interest in the well which is a multi-zone producer and
is capable of producing greater than six million cubic feet per day.
- Currently 80 percent of Merit's natural gas production is tied to
Alberta pricing. With no downstream pipeline transportation
commitments, Merit is in a position to take advantage of very strong
Alberta based pricing. To date Merit has locked-in 30 percent of its
exposure to Alberta pricing for winter with a minimum price of $2.80
per thousand cubic feet and 25 percent for summer with a minimum price
of $2.40 per thousand cubic feet.
Production
- Merit exited the third quarter at a rate of 7,500 barrels of oil
equivalent per day, consisting of 59.4 million cubic feet per day of
natural gas production and 1,565 barrels of crude oil and natural gas
liquids production. On a total production basis this represents an
increase of 99 percent over the 1997 third quarter exit rate of 3,761
barrels of oil equivalent per day, which consisted of 28.1 million
cubic feet per day of natural gas production and 951 barrels per day of
crude oil and natural gas liquids production.
- In the third quarter of 1998 sales averaged a rate of 7,003 barrels of
oil equivalent per day. Third quarter average natural gas sales of 52.9
million cubic feet per day represented an increase of 177 percent from
19.1 million cubic feet per day in the third quarter of 1997. Crude oil
and liquids sales for the third quarter were 1,713 barrels per day, up
136 percent from 725 barrels per day in the third quarter of 1997.
- Merit achieved an average sales rate of 6,420 barrels of oil equivalent
per day in the nine-month period representing an increase of 156
percent over average sales of 2,506 barrels of oil equivalent per day
in 1997. Nine-month average natural gas sales of 48.0 million cubic
feet per day represented an increase of 154 percent compared to the
18.9 million cubic feet per day averaged in the same period last year.
On the crude oil and natural gas liquids side, Merit recorded average
sales of 1,619 barrels per day in the nine month period, a 162 percent
increase over 1997 production of 618 barrels per day.
Financial
- Revenue over the nine months ending September 30, 1998, increased 140%
to $29 million compared to $12.1 million in the corresponding period in
1997. Funds from operations increased 68% to $11.4 million ($0.38 per
share) from $6.8 million in the nine months of 1997($0.34 per share).
- Merit returned to a positive net income position in the third quarter
recording net income of $57,153. For the nine-month period net income
totaled $31,063 ($0.00 per share) compared to $2,906,124 one year ago.
Further gains in net income have been impacted by continued low oil
prices that averaged $12.51 for the nine-month period.
- Net capital expenditures amounted to $80.5 million in the nine months,
compared to $55.6 million in the same reporting period of 1997.
Forty-one million was spent on acquisitions and the balance on the
drilling and exploitation programs. The capital program has been
financed through cash flow, bank debt and equity.
Exploration
- Merit drilled 134 gross (126.9 net) wells in the first nine months of
1998 with an overall drilling success rate of 80 percent. In the third
quarter Merit continued its strategy of focusing on gas opportunities
and drilled 58 gross (55.7 net) wells resulting in 54 gas wells and 4
dry holes providing a success rate of 93 percent on a gross basis.
- In Southwestern Saskatchewan Merit continued to develop its Rangeview
gas play drilling 15 successful gas wells. A new gas plant was
completed in the third quarter and early in the fourth quarter
additional compression was installed at an existing plant. Production
from this area is approaching 8 million cubic feet per day.
- In Alberta Merit focused its exploration efforts on multi-zone wells
targeting deeper formations within the Mannville where reserves are
larger and production rates are higher than the upper cretaceous
formations. This strategy has proved very successful particularly in
the Acadia/Bindloss area.
Third Quarter Financial Results
($ thousands, except per share information)
Nine Months Ended Three Months Ended
September 30 September 30
1998 1997 1998 1997
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Oil and gas revenue 28,989 12,071 10,610 4,073
Sales price
Natural gas ($/mcf) 1.79 1.64 1.74 1.53
Crude oil ($/bbl) 12.51 21.33 13.66 20.93
Funds from operations 11,398 6,832 3,524 2,292
Per common share 0.38 0.34 0.12 0.11
Net earnings 31.1 2,906 57.2 1,212
Per common share 0.00 0.15 0.00 0.06
Capital expenditures 80,493 55,579 20,463 8,470
Long term debt, net of working
capital 75,635 17,039 75,635 17,039
Third Quarter Operating Results
Nine Months Ended Three Months Ended
September 30 September 30
1998 1997 1998 1997
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Sales Volumes
Natural gas (mcf/d) 48,013 18,877 52,895 19,053
Oil and liquids (bbls/d) 1,619 618 1,713 725
Total Boe/d 6,420 2,506 7,003 2,630
1998 Drilling Activity
Nine Months Ended Three Months Ended
September 30 September 30
Gross Net Gross Net
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Crude oil wells 8 7.7 0 0
Natural gas wells 98 95.4 54 53
Service wells 1 0.5 0 0
D&A wells 27 23.3 4 2.7
Total Wells 134 126.9 58 55.7
Exploratory Wells 75 20
Success rate 80% 93%
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