Elk Point Reports Increased Cash Flow and Earnings in
Second Quarter
CALGARY, ALBERTA--During the second quarter of 1999, Elk Point
focused on natural gas exploration and development primarily in
west central Alberta at Cherhill, Easyford and Pembina Berrymore.
The Company also drilled a successful relief well at East Lost
Hills in California and sidetracked the relief well as a
replacement well to evaluate the Temblor formation on the
prospect.
In the second quarter of 1999, cash flow per share increased to
$0.22 per share, up 47 percent from $0.15 per share in the first
quarter of 1999. Cash flow from operations totaled $8.0 million
($0.37 per share) in the first half of 1999, unchanged from $8.0
million ($0.37 per share) in the first half of 1998. Earnings were
$0.5 million in the first six months of 1999 compared to a loss of
$0.1 million for the same period in 1998. Cash flow and earnings
are expected to improve with higher natural gas and crude oil
prices over the remainder of the year.
OPERATIONAL OVERVIEW
Elk Point drilled 16 gross (9.0 net) wells during the first half
of 1999 of which 11 gross (5.3 net) were cased as gas wells, 3
gross (2.2 net) were cased as oil wells and 2 gross (1.5 net) were
dry and abandoned for an overall success rate of 83 percent.
Extremely wet conditions in the second quarter in west central
Alberta deferred a portion of our drilling program into the third
quarter. Subsequent to June 30, 1999, the Company drilled an
additional 2 gross (0.9 net) wells resulting in two cased gas
wells.
In the first half of 1999, natural gas sales averaged 28.4 million
cubic feet per day, down from 35.4 million cubic feet per day for
the same period in 1998. The Company had reduced gas sales due to
commencement of gas injection at Pembina in December 1998 upon
approval of Good Production Practice ("GPP") for the Pekisko C
Pool. Sales of crude oil and natural gas liquids were 1,870
barrels per day in the first half of 1999 compared to 2,317
barrels per day in the same period of 1998 reflecting reduced
spending on crude oil properties in 1998 which continued in the
first half of 1999 due to low crude oil prices.
The Company continued to evaluate its diversified inventory of
natural gas prospects in the second quarter of 1999. At Easyford,
we drilled a successful Pekisko gas well (40 percent working
interest) as a follow-up to the gas discovery we made on this
prospect in the first quarter. The Company has two additional
follow-up locations on this prospect (40 percent and 24 percent
working interests). These wells require sour gas processing
capacity for production. A sour gas processing and acid gas
injection project has been initiated by a third party operator and
a hearing is scheduled by the AEUB for late August to review the
project. The Company is seeking processing for its gas through
this regulatory process.
At Cherhill, the Company participated in a compression and
dehydration facility that has added 0.8 million cubic feet per day
net from two gas wells. Two additional wells are being completed
for potential tie-in to this facility in the third quarter. The
Company also recently drilled and cased potential gas wells at
Pembina East and Pembina Berrymore. These wells will be completed
and evaluated for tie-in during the third quarter.
At True Grit in the Powder River Basin of Wyoming, the Company
recently participated in a unitization of four drilling spacing
units. The Company has identified additional locations for
drilling later this year to delineate the True Grit Minnelusa C
oil pool subject to agreement of the participants in the unit. In
the Powder River Basin, Elk Point has eleven additional
exploration prospects identified by two-dimensional seismic.
Elk Point drilled an infill location at Elcott in southeastern
Saskatchewan in the second quarter, and the well was placed on
production in August at an initial rate of 50 barrels per day.
FINANCIAL
Gross petroleum and natural gas revenue in the first half of 1999
totaled $17.8 million compared to $19.1 million in the first half
of 1998. The Company received an average natural gas price of
$2.26 per thousand cubic feet in the first six months of 1999, up
22 percent from $1.86 per thousand cubic feet during the same
period of 1998. The Company realized an average oil and natural
gas liquids price of $18.23 per barrel in the first half of 1999,
up 6 percent from $17.18 per barrel in the first half of 1998. In
the second quarter of 1999, the Company received an average
natural gas price of $2.40 per thousand cubic feet compared to
$2.13 per thousand cubic feet in the first quarter of 1999.
Similarly, the price for crude oil and natural gas liquid sales
improved to $20.83 per barrel in the second quarter of 1999
compared to $15.76 per barrel in the first quarter of 1999. This
trend of higher prices is continuing in the third quarter and is
expected to continue into the fourth quarter which will positively
impact the Company's cash flow and earnings.
Operating expenses were $4.7 million ($5.52 per barrel of oil
equivalent) in the first half of 1999 compared to $5.0 million
($4.72 per barrel of oil equivalent) in the first half of 1998.
Per unit operating costs increased primarily as a result of
increased processing charges on natural gas production.
General and administrative expenses totaled $1.1 million in the
first six months of 1999 compared to $1.3 million for the same
period in 1998. Interest expense increased to $1.9 million during
the first half of 1999 from $1.3 million in the first half of 1998
as the Company drew on its revolving production loan to partially
finance its investment activities.
Net capital expenditures totaled $5.6 million during the first
half of 1999. This is comprised of gross capital expenditures of
$9.6 million, net of proceeds on sale of petroleum and natural gas
properties of $4.0 million. Exploration expenditures amounted to
$3.6 million, development expenditures amounted to $2.0 million,
investments in production facilities amounted to $1.7 million,
land and seismic additions amounted to $2.1 million and
administrative asset expenditures amounted to $0.2 million. The
petroleum and natural gas properties sold in the first half of
1999 were primarily non-producing, undeveloped prospects
consistent with our goal to dispose of non-core assets which will
not contribute to our immediate growth plans.
DEBT REDUCTION PLAN
Management of the Company is committed to reducing debt with a
minor property disposition program, and a capital program funded
by cash flow and a flow-through share issue. At the end of the
second quarter, our net debt plus working capital was $71.0
million. Subsequent to June 30, 1999, the Company has completed
dispositions totaling $1.5 million, the largest component of which
is the disposition of our non-producing coal seam gas rights in
the Powder River Basin of Wyoming. The Company also raised $5.2
million net on July 16, 1999 through the issuance of 1,377,125
flow-through common shares.
OUTLOOK
Over the remainder of 1999, natural gas development activity will
be focused at Newton, Cherhill, Pembina East, Pembina Berrymore
and Easyford. This will be complemented by crude oil exploration
in the Powder River Basin where we use three-dimensional seismic
to lower exploration risk.
At East Lost Hills, we will continue to pursue the potential of
the Temblor formation which was demonstrated with the Bellevue #1
blowout. In the Greater San Joaquin Basin Joint Venture, further
high impact exploration commenced in June with a well at Cal
Canal. Seismic interpretation work is proceeding on the Lucky Dog
and Pyramid prospects to select the best exploration targets for
our continued exploration program in this area.
/T/
FINANCIAL AND OPERATING RESULTS
CONSOLIDATED BALANCE SHEETS
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June 30 December 31
1999 1998
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($000s) (unaudited) (audited)
Assets
Current assets
Accounts receivable $ 12,416 $ 16,331
Petroleum and natural gas properties 172,711 174,604
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$ 185,127 $ 190,935
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Liabilities and Shareholders' Equity
Current liabilities
Accounts payable and
accrued liabilities $ 16,754 $ 18,569
Bank operating line 1,643 -
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18,397 18,569
Long-term debt 65,000 71,217
Provision for site restoration 1,772 1,448
Deferred income taxes 1,634 1,914
Shareholders' equity
Share capital 102,780 102,725
Retained earnings (deficit) (4,456) (4,938)
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98,324 97,787
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$ 185,127 $ 190,935
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OPERATING RESULTS
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Six months ended June 30 1999 1998
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Natural gas (thousand cubic feet per day) 28,438 35,355
Average price
($Cdn per thousand cubic feet) $ 2.26 $ 1.86
Oil and NGLs (barrels per day) 1,870 2,317
Average price ($Cdn per barrel) $ 18.23 $ 17.18
Barrels of oil equivalent (per day) (10:1) 4,714 5,853
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CONSOLIDATED STATEMENTS OF EARNINGS (LOSS) AND
RETAINED EARNINGS (DEFICIT)
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Six months ended June 30 (unaudited) 1999 1998
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($000s, except per share amounts)
Revenues
Petroleum and natural gas $ 17,786 $ 19,137
Royalties, net of ARTC (1,817) (3,173)
Interest and other income - 66
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15,969 16,030
Expenses
Operating 4,708 4,997
General and administrative 1,085 1,310
Interest 1,938 1,332
Depletion, depreciation and amortization 7,801 8,005
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15,532 15,644
Earnings before income taxes 437 386
Income taxes
Current 235 352
Deferred (reduction) (280) 139
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(45) 491
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Earnings (loss) $ 482 $ (105)
Retained earnings (deficit),
beginning of period (4,938) 3,948
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Retained earnings (deficit),
end of period $ (4,456) $ 3,843
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Earnings per share,
basic and fully diluted $ 0.02 $ 0.00
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CONSOLIDATED STATEMENTS OF CHANGES IN CASH FLOWS
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Six months ended June 30 (unaudited) 1999 1998
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($000s, except per share amounts)
Cash provided by (used in)
Operations
Earnings (loss) $ 482 $ (105)
Items not affecting cash
Depletion, depreciation and
amortization 7,801 8,005
Deferred income taxes (reduction) (280) 139
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Funds from operations 8,003 8,039
Change in non-cash working capital 2,100 (10,697)
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10,103 (2,658)
Financing
Long-term debt (6,217) 30,768
Issue of common shares for cash 55 23
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(6,162) 30,791
Investments
Additions to petroleum and
natural gas properties (9,577) (28,133)
Proceeds on sale of petroleum and
natural gas properties 3,993 -
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(5,584) (28,133)
Decrease in cash position during period (1,643) -
Cash position, beginning of period - -
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Cash position, end of period $ (1,643) $ -
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Funds from operations per share, basic $ 0.37 $ 0.37
Funds from operations per share,
fully diluted $ 0.35 $ 0.35
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Cash position is defined as cash less bank operating line.
FOR FURTHER INFORMATION PLEASE CONTACT:
Elk Point Resources Inc.
Mr. Aidan M. Walsh
President and Chief Executive Officer
(403) 264-1358
(403) 261-8702 (FAX) |
