FIELD ACTIVITIES TOP 20 LISTED / Canadian 88 Energy Corp. Announces
Record Exploration Success and Production Growth in First Quarter
of 1998
TSE, ASE, AMEX SYMBOL: EEE
MAY 29, 1998
CALGARY, ALBERTA--Canadian 88 Energy Corp. of Calgary, Alberta,
Canada announced today that it achieved record exploration success
and production growth in the first quarter of 1998. The first
quarter of 1998 was a very exciting time for Canadian 88 as the
Company worked toward its goal of building Canada's and North
America's premier natural gas exploration company.
Highlights of the First Quarter of 1998 - Record Exploration
Success and Production Growth
- During the first quarter of 1998 the Company continued to
develop the "Canadian 88 Advantage" and led the industry in the
application of large-scale high-resolution 3-D seismic programs
and deep foothills drilling. Our focused strategy of exploring
for deep liquids-rich natural gas prospects within the Foothills
Corridor of Alberta has resulted in the Company being involved in
three of the best deep basin natural gas plays in Western Canada.
These are located at Waterton, Caroline/Chedderville and Wildcat
Hills. Successful exploration and development results were also
reported in the Ricinus, Olds/Crossfield, Strachan and Lone Pine
Creek areas. On the regulatory side, approvals were received for
the Waterton pipeline and Alberta Energy and Utilities Board
(AEUB) hearings were held in respect of the Olds gas plant
expansion and for the Cremona/Lochend deep natural gas exploration
well. In addition, significant Crown and freehold land
acquisitions added to the Company's extensive exploration land
base in the Foothills Corridor.
- At Waterton, Canadian 88 has successfully drilled and completed
four deep Mississippian gas wells with deliverability expected to
average 15 mmcf/d per well. The Company currently has two
development wells drilling ahead (3-7-7-2 W5M and 16-13-7-3 W5M)
which should reach total depth during the second quarter of 1998.
These wells will also evaluate the Devonian formation which was
successfully encountered in Canadian 88's original discovery well
located at 4-18-7-2 W5M. A seventh and final well is currently
being licensed on the prospect. Total proven reserves attributable
to this play are expected to be between 300 and 500 bcf. Approval
for the pipeline to connect this field to the Shell Waterton Gas
Plant was granted by the AEUB on April 1, 1998. The 27 mile 10"
line should be completed in the third quarter of 1998 at an
estimated cost of $15 million. The pipeline will also allow
Canadian 88 to pursue other drilling opportunities in the area,
including the development of a new thrust sheet.
- A second high impact area for the Company is the
Caroline/Chedderville area of West Central Alberta where three
exciting exploration wells were drilled and operated by Canadian
88 in the first quarter of 1998. The first Canadian 88 operated
well at 3-16-37-7 W5M (71.46 percent WI) has been successfully
completed and the Company announced the well flow tested with an
A.O.F. of 30.2 mmcf/d of natural gas. The well will be placed on
production over the next 30 days at production rates of up to 10
mmcf per day and 150 barrels per day of natural gas liquids. The
second Canadian 88 operated well at 7-19-33-5 W5M (50 percent WI)
is drilling ahead immediately offsetting a 3200 acre drilling
license which sold for a record bonus of $8.25 million at the
March 5, 1998 Alberta Petroleum and Natural Gas Rights Sale. The
third Canadian 88 operated well (50 percent WI) is being drilled
to a total depth of 4,055 meters at 10-2-35-6 W5M. These wells are
part of a large multi-well deep drilling program Canadian 88
currently has underway in the Caroline/Chedderville area.
Significant reserve additions and new production are expected from
this area during the next twelve months.
- The third exciting deep natural gas play is at Wildcat Hills in
West Central Alberta where a new pool wildcat well was spudded at
Yara Creek. This well is evaluating the first of three large
foothills Mississipian thrust sheets the Company has identified
for drilling in the area during 1998. Reserve potential for these
thrust sheets range from 100 to 500 bcf apiece. Canadian 88 in
association with its Rocky Mountain Exploration (RMX) Fund has a
100 percent working interest in all three prospects. Canadian 88
paid $1.58 million in total bonus for 8,320 acres offsetting 5,760
acres purchased by Petro-Canada and Shell Canada for $1.26 million
in this area. Petro-Canada recently announced two natural gas
discoveries which they have called the best natural gas wells they
have ever drilled in Western Canada offsetting this play. Several
other thrust sheets have been identified in the area and a
large-scale high-resolution 3-D seismic survey covering
approximately 200 square miles is currently underway.
- Other exploration successes were encountered at Lone Pine Creek
in West Central Alberta where Canadian 88 successfully drilled and
completed its 7-26-30-29 W4M (100 percent WI) Wabamun test well.
The well was drilled to a vertical depth of 2,533 meters (8,317
feet) with an 1,193 meter (3,914 foot) horizontal leg into the
Wabamun formation. Extensive testing of the well indicates that
the well should produce in excess of 9 mmcf/d of natural gas and
150 bbls/d per day of natural gas liquids. Operations are
underway to tie the well into Canadian 88's 100 percent owned Olds
gas plant where Canadian 88 has recently submitted an application
to expand the facilities' processing capacity to 140 mmcf/d from
its current throughput of 70 mmcf/d. Approximately 20 mmcf/d of
production in the Olds area is currently shut-in pending
completion of the expansion of the facility. In addition, in the
Ricinus/Bearberry area of West Central Alberta, Canadian 88 (50
percent WI) successfully drilled a new pool wildcat well at
2-6-34-8 W5M encountering significant natural gas pay in the
Viking formation. The well is located Northwest of the prolific
Bearberry gas field on the Company's extensive surrounding
exploration acreage. This well is the first of a multi-well
program planned for the Ricinus area by Canadian 88 targeting
recoverable reserves of 100 bcf for this prospect area.
- At Willesden Green in West Central Alberta, Canadian 88, RMX and
Western Geophysical Company shot 110 square miles of
high-resolution 3-D seismic. Canadian 88 has significant
landholdings in the area and in association with RMX will drill a
new deep pool test into the Leduc formation in the second quarter
of 1998. This will be the first well of a moderate risk
multi-well drilling program in the area in which the Company is
looking to establish recoverable reserves of 10 to 50 bcf per
well.
- Canadian 88 as operator, together with Canadian Occidental as 50
percent partner, recently completed ten days of regulatory
hearings on a proposed deep natural gas exploration well in the
Lochend area northwest of the City of Calgary. This well is
intended to further test a large deep gas prospect we have jointly
identified in the area. In addition, in the Northwest Territories,
competitors have recently drilled confidential status wells
offsetting Canadian 88's 215,390 acre exploration block. Canadian
88 is planning the first high impact exploration well in this
block for later in 1998 or 1999.
- On March 31, 1998 the Company signed an asset swap agreement,
effective January 1, 1998, with a senior producer wherein the
Company agreed to acquire $45 million of strategic assets and
infrastructure in West Central Alberta entirely within its core
areas of Caroline/Chedderville and Strachan/Ricinus. These assets
are currently producing in excess of 10 mmcf/d of natural gas and
200 boe/d of associated natural gas liquids. Consideration for the
transaction consisted of an exchange of $9 million of non-core
properties consisting predominately of 11,700 net acres of
undeveloped land and $36 million in cash. Prior to closing,
certain facilities were acquired by an unrelated party upon the
exercise of rights of first refusal at an estimated multiple of
18.5 times cash flow which had the effect of reducing the cash
element of the purchase to $17.9 million. The estimated net cash
flow from the remaining properties is approximately $7,000,000 per
year and it should be noted that no portion of the cost of this
acquisition or the production or revenue from these properties has
been included in the Company's first quarter results. The
acquisition includes 54 bcf of proven plus risked probable natural
gas reserves and 800,000 bbls of associated liquids as well as
27,200 net acres of high quality undeveloped lands where
significant drilling opportunities have been identified. On a cash
on cash basis this acquisition represents an addition to reserves
at $0.29 per mcfe or $2.90 per boe. Canadian 88 plans to drill
six wells on or near these lands during 1998 whereby production
should at least double or triple by year end.
- Canadian 88 is currently levered 96 percent to natural gas and
natural gas liquids on a reserve basis. Average daily production
increased 18 percent to 106.5 mmcfe/d as production increased for
both natural gas and liquids by 12 percent and 35 percent to
average 74.2 mmcf/d and 3,232 boe/d respectively. These gains
arose without the benefit of the production from the recently
acquired Caroline/Chedderville and Strachan/Ricinus lands (12
mmcfe/day) or the significant production gains which will occur
when Waterton comes onstream and the Olds gas plant expansion is
completed.
Financial
- Capital expenditures during the first quarter of 1998 increased
to a record level of $49.4 million, up $17.1 million or 53 percent
from first quarter 1997 expenditures of $32.3 million.
Expenditures were as follows: $25.9 million to exploration and
development activities (1997 - $21.7 million); $12.0 million to
plants, facilities and pipelines (1997 - $5.6 million); and $11.5
million toward strategic land acquisitions (1997 - $ 5.0 million).
- Average daily production increased 18 percent during the first
quarter of 1998 to record levels of 106.5 mmcfe/d compared to 90.4
mmcfe/d in 1997. Average natural gas production increased 12
percent to a record level of 74.2 mmcf/d from 66.5 mmcf/d in 1997.
Production of NGL's and oil increased 35 percent to 3,232 boe/d
from 2,394 boe/d in 1997.
- Average natural gas prices decreased 17 percent to $1.96 per mcf
from $2.37 during the first quarter of 1997. Unseasonably warm
weather in North America in the first quarter of 1998 resulted in
lower prices. The average price for ngl's and oil of $18.57 was
down 31 percent from $26.88 in 1997. This decline was a result of
lower commodity prices experienced in the industry.
- As a result of lower commodity prices, cash flow of $8.5 million
was down 19 percent from $10.5 million in 1997. Correspondingly,
earnings were $2.4 million, down from $11.1 million in 1997.
Included in the 1997 earnings was a non-recurring gain after taxes
of $7.0 million. Furthermore, as a result of lower commodity
prices, revenue decreased 7 percent in the first quarter to $19.0
million from $20.5 million in 1997. In addition, interest expense
during the quarter increased to $1.3 million reflecting the
Company's higher debt level during the first quarter of 1998
versus no debt in the first quarter of 1997.
- Canadian 88's strong balance sheet and predominately gas
oriented reserve base is capable of supporting credit facilities
in excess of $200 million. On April 7,1998 the Company increased
its revolving line of credit to $180 million through a banking
syndicate lead by Chase Manhattan Bank of Canada.
- On April 7, 1998 the common shares of Canadian 88 commenced
trading on the American Stock Exchange. As approximately 25
percent of the Company's shares are held by U.S. based entities,
this listing should further assist Canadian 88 in expanding its
exposure to the U.S. capital markets.
- On April 28, 1998 Canadian 88 completed an equity issue of
5,000,000 common shares at a price of $7.40 per share for gross
proceeds of $37 million, pursuant to an underwriting agreement
entered into on April 3, 1998. On April 6,1998 Canadian 88
committed to issue 1,290,323 flow-through common shares to a
single purchaser on a private placement basis at a price of $7.75
per share for gross proceeds of $10 million. Proceeds from these
issues will be used for Canadian 88's capital expenditure program
which has been expanded to $175 million in 1998.
OUTLOOK
In summary, the new deep basin natural gas plays being developed
by Canadian 88 in the Foothills Corridor of Alberta in the
Waterton, Caroline/Chedderville and Wildcat Hills areas in
combination with other expansion activities underway have
positioned Canadian 88 for major growth in the years to come. By
maintaining our focused deep basin strategy and capitalizing on
our strengths in 3-D seismic and deep foothills drilling we have
demonstrated our ability to successfully grow through the drillbit
and consistently add shareholder value. We continue to expand our
high quality inventory of undeveloped land and drilling prospects,
which currently exceed 300 locations on over 475,000 highly
focused acres with an average working interest of over 90 percent.
In this regard, Canadian 88 has firmly established itself as a
dominant player in the Foothills Corridor where it is estimated 47
percent of Western Canada's remaining undiscovered natural gas
reserves, which are estimated to be 122 TCF of marketable gas,
remain to be found. The current climate of low oil prices has
created opportunities for a well financed company like Canadian 88
to expand our inventory of prospects as land prices have decreased
by approximately 30 percent and companies that are not as well
financed are forced to sell or farmout high quality prospects. By
developing the "Canadian 88 Advantage", Canadian 88 continues its
leading position as a low cost explorer and its 1997 finding and
onstream cost for proven reserves of $0.34 per mcfe was recently
ranked the lowest in the Canadian industry in a Peters & Co.
Limited study. Canadian 88 has budgeted $175 million of capital
spending in Western Canada to take advantage of these
opportunities as they present themselves. The opportunities for
natural gas levered companies like Canadian 88 have never been
better and we look forward to the challenge of the future which
should ensure that 1998 will be another record year.
The attached following summarizes Canadian 88's first quarter 1998
financial and operating statistics.
Certain statements in this release contain forward-looking
statements including outlook on prices, expectations of future
production, business plans for drilling and exploration and
expectations of capital expenditures. Information concerning
reserves contained in this report may also be deemed to be
forward-looking statements as such estimates involve the implied
assessment that the resources described can be profitably produced
in future. These statements are based on current expectations
that involve a number of risks and uncertainties which could cause
actual results to differ from those anticipated by the Company.
These risks include, but are not limited to: the background risks
of the oil and gas industry (e.g., operational risks in
development, exploration and production; potential delays or
changes in plans with respect to exploration or development
projects or capital expenditures; the uncertainty of reserve
estimates, the uncertainty of estimates and projections relating
to production, costs and expenses, and health, safety and
environmental risks), and uncertainties resulting from potential
delays or changes in plans with respect to exploration or
development projects or capital expenditures. Additional
information on these and other factors which could affect the
Company's operation or financial results are including in the
Company's Annual Report under the headings "Management's
Discussion and Analysis - Business Risk and Uncertainties" and in
the Company's other reports on file with Canadian securities
regulatory authorities and the U.S. Securities and Exchange
Commission.
Canadian 88 Energy Corp. (EEE) is an independent public oil and
gas company with its head office in Calgary, Alberta, Canada.
The shares of Canadian 88 Energy Corp. are traded on the Toronto,
Alberta and American Stock Exchanges.
/T/
CANADIAN 88 ENERGY CORP.
FIRST QUARTER 1998 FINANCIAL AND OPERATING STATISTICS
Three Months Ended
March 31
------------------
Percent
1997 1998 Change
---- ---- ------
Financial:
(000's except per share amount)
Production Revenues $20,512 $18,997 - 7
Cash Flow from Operations $10,505 $ 8,478 -19
Net Earnings $11,089 $ 2,327 -79
Per Common Share:
Cash Flow from Operations $ 0.12 $ 0.09 -25
Net Earnings $ 0.12 $ 0.02 -83
Average Common Shares (000's) 89,269 93,221 4
Operations:
Production Volumes:
Total (mmcfe/d) 90.4 106.5 18
Natural gas (mmcf/d) 66.5 74.2 12
NGL (bbls/d) 2,138 2,481 16
Oil (bbls/d) 256 751 193
Sulphur (lt/d) 297 425 43
Sales Prices:
Oil($/bbl) $28.81 $20.13 -30
NGL ($/bbl) $26.65 $18.10 -32
Natural Gas ($/mcf) $ 2.37 $ 1.96 -17
Sulphur ($/lt) $ 0.00 $ 1.00 -
Capital Expenditures (000's):
Exploration & Development $21,723 $25,917 19
Plants, Facilities and
Pipelines 5,559 12,029 116
Land & Lease 5,059 11,464 127
--------- -------
$32,341 $49,410 53
-------- -------
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Percent
Average
Working
Gross Net Interest
----- ---- --------
Drilling Results
Gas 15 13.2 88.1
Oil 1 1.0 100.0
Dry and Abandoned 3 3.0 100.0
------ ----- --------
19 17.2 90.5
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/T/
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