EARNINGS / Elk Point Exploration Continues Focus on Natural Gas in
Third Quarter
CALGARY, ALBERTA--The third quarter of 1998 was highlighted by a
91 percent drilling success rate. The Company focused on
exploiting its natural gas asset base and on obtaining approvals
for a pressure maintenance scheme for the Pembina Pekisko C Pool.
Drilling and development activities were centered on natural gas
prospects in the west central and Peace River Arch areas of
Alberta.
In the third quarter of 1998, Elk Point drilled 24 gross (16.2
net) wells of which 17 gross (12.2 net) were cased as gas wells, 3
gross (2.5 net) were cased as oil wells and 4 gross (1.5 net)
wells were dry and abandoned. Among these successful wells were
three gas wells at Newton, two gas wells at Saddle Hills and
single gas wells at Spirit River, Voyager, Apetowun, Ferrier,
Greencourt and Halkirk. Three wells were tied-in at Newton in
September and October adding 2.0 million cubic feet per day net.
Two additional wells at Saddle Hills were tied-in during October
adding 0.9 million cubic feet per day net gas production. Also at
Saddle Hills, a 50 percent working interest gas well was pooled
under a production sharing agreement into a third party plant
yielding net sales of approximately 1.0 million cubic feet per day
effective August 1, 1998.
In late October 1998, the Alberta Energy and Utilities Board
("AEUB") completed its review of an application from Elk Point to
implement a partial pressure maintenance scheme in the Pembina
Pekisko C pool. The AEUB has ruled that GPP will become effective
at the Pembina Pekisko C pool upon written notification from Elk
Point that a partial pressure maintenance scheme is fully
operational. The Company will have facilities in place by
December 1998 to implement partial pressure maintenance consisting
of both water and gas injection on the Pembina Pekisko C pool.
Under this new production scenario, Elk Point's net production
will increase by approximately 475 barrels per day of oil and 650
thousand cubic feet per day of gas.
Elk Point's third quarter drilling included successful light oil
wells at Elcott and Souris River in southeastern Saskatchewan. A
non-operated well at Cherry in southeastern Alberta was cased for
oil subsequent to the third quarter. The Company will drill one
exploration test for oil at True Grit in Wyoming during the fourth
quarter of this year, a high impact prospect for which the Company
has both two-dimensional and three-dimensional seismic data.
Except for the latter prospect, oil exploration and development
drilling has been deferred for the remainder of the year. When
crude oil prices stabilize at a higher level, oil development
activities can be reinitiated to capitalize on Elk Point's
substantial inventory of oil prospects.
OPERATIONAL OVERVIEW
In the first nine months of 1998, Elk Point boosted its natural
gas and crude oil production by 51 percent to 5,684 barrels of oil
equivalent per day compared to 3,756 barrels of oil equivalent per
day during the same period in 1997. Natural gas sales averaged
34.2 million cubic feet per day, a 55 percent increase from 22.1
million cubic feet per day during the same period in 1997. Crude
oil and natural gas liquids production averaged 2,265 barrels per
day, up 46 percent from 1997 production of 1,548 barrels per day
for the same period. Both natural gas and crude oil volumes were
negatively impacted during the third quarter of 1998 by the expiry
of Interim GPP at the Pembina Pekisko C Pool which resulted in a
reduction of net gas production by approximately 5.5 million cubic
feet per day and net oil production by 250 barrels per day
effective July 31, 1998.
Elk Point drilled 72 gross (44.1 net) wells during the first nine
months of 1998 of which 28 gross (20.1 net) were cased as gas
wells, 26 gross (13.1 net) were cased as oil wells, 1 gross (1.0
net) was cased as a service well and 17 gross (9.9 net) wells were
dry and abandoned for an overall success rate of 78 percent.
In the first nine months of this year the Company expanded its
undeveloped land by 43,000 net acres to 269,000 net acres, mainly
on gas prospects in west central Alberta.
FINANCIAL OVERVIEW
The Company's gross revenue increased 32 percent during the first
nine months of 1998 to $28.1 million from $21.3 million in the
first nine months of 1997 reflecting the growth in the Company's
production. Cash flow from operations increased 5 percent in this
period to $12.0 million from $11.4 million in the same period of
1997. The Company's production growth of 51 percent in the first
nine months of 1998 was more than offset by the 28 percent decline
in oil prices reducing cash flow per share by 23 percent to $0.55
per share from $0.71 per share in the same period of 1997.
Earnings were also negatively impacted by the drop in crude oil
prices resulting in earnings of $0.3 million ($0.01 per share) in
the first nine months of 1998 compared to earnings of $1.4 million
($0.09 per share) in the first nine months of 1997.
Capital expenditures totaled $39.5 million during the first nine
months of 1998 compared to expenditures in the same period of 1997
of $35.5 million on the addition of petroleum and natural gas
properties and $52.7 million on the acquisition of Truax Resources
Corporation. In 1998, exploration expenditures amounted to $12.2
million, development expenditures amounted to $15.4 million,
investments in production facilities amounted to $6.3 million,
land additions amounted to $4.6 million, seismic additions
amounted to $0.9 million and fixed asset additions amounted to
$0.1 million.
OUTLOOK
Elk Point is continuing to aggressively develop its natural gas
prospect inventory to position itself for renewed growth in 1999
and to capitalize on the strengthening of natural gas prices in
late 1998 and in 1999. The Company is focusing its efforts on gas
exploration and development in the west central and Peace River
Arch areas of Alberta which are characterized by medium depth,
multi-zone prospects with significant production and reserve
potential. Elk Point's operatorship and ownership of significant
natural gas infrastructures in these core areas allow the Company
to develop reserves efficiently with timely and cost effective
tie-ins.
Drilling activity in the fourth quarter is planned at Ferrier,
West Corbett, Pemburton Hill, Greencourt, Spirit River, Newton and
True Grit. Drilling operations are continuing on the Company's
high impact exploration test in the San Joaquin Basin of
California.
In December 1998, the implementation of a partial pressure
maintenance scheme and GPP will commence at the Pembina Pekisko C
Pool boosting Elk Point's production and cash flow from this
property.
The pricing outlook for natural gas in Alberta remains positive as
increased pipeline take away capacity is expected to be in place
in December 1998. Elk Point has considerable leverage to natural
gas in both its current production base and its planned
exploration and development programs. The Company is well
positioned to take advantage of the stronger gas prices with a
large exposure to Alberta spot prices and higher prices locked in
through the Company's hedging program.
SUMMARY RESULTS
--------------------------------------------------------------
Nine months ended Percent
September 30 (unaudited) 1998 1997 Change
--------------------------------------------------------------
FINANCIAL ($000s, except
share and per share amounts)
Cash flow from operations $ 12,005 $ 11,415 +5
Basic per share $ 0.55 $ 0.71 -23
Fully diluted per share $ 0.53 $ 0.68 -22
Earnings $ 275 $ 1,444 -81
Basic and fully diluted
per share $ 0.01 $ 0.09 -89
Common shares (000s)(weighted
average for period) 21,675 16,086 +35
Capital expenditures, net $ 39,487 $ 88,270 -55
--------------------------------------------------------------
OPERATING
Natural gas (thousand cubic
feet per day) 34,190 22,079 +55
Average price ($Cdn per
thousand cubic feet) $ 1.87 $ 1.85 +1
Oil and NGLs (barrels per day) 2,265 1,548 +46
Average price ($Cdn per
barrel) $ 17.16 $ 23.99 -28
Barrels of oil equivalent
(per day) 5,684 3,756 +51
--------------------------------------------------------------
BALANCE SHEET ($000's)
Working capital (deficit) $ (1,801) $ (2,770)
Petroleum and natural gas
properties $ 191,012 $ 142,525
Long-term debt $ 73,117 $ 24,750
Shareholders' equity $ 106,948 $ 105,760
--------------------------------------------------------------
INCOME STATEMENT ($000's)
Gross petroleum and natural
gas revenue $ 28,072 $ 21,296
Royalties expense, net $ 4,226 $ 2,582
Other income $ 124 $ 44
Operating expense $ 7,281 $ 5,056
General and administrative
expense $ 1,943 $ 1,302
Interest expense $ 2,293 $ 709
Depletion, depreciation and
amortization expense $ 11,648 $ 8,941
Income taxes, current $ 448 $ 276
Income taxes, deferred $ 82 $ 1,030
-------------------------------------------------------------- |
