Jimsy / Carmanah Resources
Carmanah is a distressed international oil play.
Shares of these type companies have been clobbered, more so with
Carmannah. Shares began a steep decline with disappointing
results in their Nutuna play. On top of this disappointment, the
company suffered delays in bringing new production on-board. Last,
their debt position based on results through September looks
terrible.
The situation has improved and looking forward, appears to justify
investment. Cash flow for the three months from July thru Sept.
was $1.1 million on average production of 2064 bbls/d. At the end
of September, they were producing 3884 bbls/d and operating costs
are significantly reduced. If this Indonesean production holds
over the coming 12 months, I'm looking for 12-month forward cash
flow in the neighborhood of $0.15 or a 2.5X cash flow to current
share price. I also see the debt ratio being reduced to a
respectable level ending next year.
The interesting element is their Onado play in Venezuela. The
market has yet to recognize or factor any success into the shares
of the company. I like their game plan in this play in terms of
economics.
The company has stated they will constrain investment in 1999 due
to the low oil pricing environment. That's okay with me. I would
prefer see the company focus on exploitation and development of
their properties. Gaining a joint venture partner in the Nutuna
play would be a big plus.
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BACKGROUNDER
Third Quarter Turnaround for Carmanah Resources 11/24/98
CALGARY, ALBERTA--Carmanah's operating and financial results
improved significantly during the third quarter of 1998.
Revenue increased 17 percent over 1997 despite 22 percent lower
oil prices. Crude oil production rose 45 percent to 2,064 net
barrels per day and reached 3,885 net barrels per day in the month
of September. Unit operating costs were lowered by one-third,
while per-barrel general and administrative costs declined 16
percent. Despite higher financial charges, cash flow rose 31
percent to $1.1 million ($0.03 per share).
Higher non-cash charges were recorded for the quarter reflecting
the significant capital program leading to new production at
Camar. As a result, a loss of $1.5 million ($0.04 per share) was
incurred; last year's loss was $393 thousand ($0.01 per share).
There were 38.6 million common shares outstanding in 1998,
compared to 27.3 million last year.
The third quarter results marked a significant turnaround for
Carmanah after two successive quarters of disappointing results
caused by delays and difficulties encountered in Indonesia earlier
this year. Unfortunately, the marked improvement in the reporting
period could not overcome the full-year impact of weak oil prices
and low first-half production awaiting new well tie-ins at Camar.
For the nine-month period, net crude oil production was 1,275
barrels per day compared to 1,399 barrels per day in 1997. With
crude oil prices 23 percent lower this year, revenue was $7.3
million compared to $10.2 million in 1997. Cash used in operations
improved to $697 thousand from $1.8 million at June 30, 1998.
Higher financial charges and an increased provision for depletion
and depreciation resulted in a loss of $5.8 million ($0.15 per
common share) through September 30, 1998; last year's loss was
$341 thousand ($0.01 per share).
Capital expenditures of $52.6 million were financed from the
proceeds of new equity earlier in the year and bank borrowings. At
September 30, bank debt was $20.5 million.
During 1998 Carmanah tied in the MPA-1, Camar-6 and CN-3 wells in
the Camar Field offshore Indonesia, leading to improved production
in the third quarter. Further investments were made at Langsa in
preparation for 1999 development of proven crude oil reserves as
industry conditions improve. Reactivation, workovers and new
drilling were initiated at Onado, Venezuela where Carmanah holds a
23.4 percent interest. The first new well in the Onado field was
spudded in August and is currently approaching prospective pay
zones in the Miocene Mercure Formation at around 15,000 feet with
a scheduled total depth of 16,320 feet. Success could materially
impact Carmanah's production base.
Subsequent to the reporting period, Carmanah increased its
interest in the Bawean Production Sharing Contract and Camar Field
to 100 percent, through the acquisition of the remaining 16
percent not presently held. This purchase was completed effective
September 1, 1998 on favorable terms and will enhance Carmanah's
production by close to 20 percent in the future.
At Northeast Natuna, Carmanah received a settlement payment of
$6.4 million in November from an affiliate of Exxon Corporation
that resulted from a decision, based on current industry
conditions, by Exxon to withdraw from the PSC. As a result,
Carmanah's interest in the block is restored to 90 percent and
while the minimum financial commitments of the PSC have been
fulfilled, efforts are being made to attract a new industry
partner to evaluate remaining high-potential prospects already
identified by earlier seismic programs.
Carmanah anticipates a constrained capital budget in 1999 awaiting
improved industry conditions. An emphasis will be placed on
developing long-life reserves at Onado next year, while seeking
either industry partners or the availability of alternative
funding sources to exploit its undeveloped proven reserves in
Indonesia.
While the outlook for junior international oil producers is
challenging, Carmanah believes it has the wherewithal and
flexibility to survive the current downturn and participate in the
eventual recovery of crude oil markets.
SUMMARY FINANCIAL AND OPERATING RESULTS
(Three months ended September 30, 1998)
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Percent
1998 1997 change
------ ------ -------
Financial Results
Revenue, $000 4,026 3,454 17
Cash flow, $000 1,119 856 31
Per common share, $ 0.03 0.03 0
Net Earnings (Loss),
$000 (1,527) (393) (289)
Per common share, $ (0.04) (0.01) (300)
Weighted average
shares outstanding, MM 38.6 27.3 41
Operating Results, Camar
Production, BOPD 2,064 1,420 45
Sales price, $/Bbl 20.10 25.71 (22)
(Nine months ended September 30, 1998)
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Percent
1998 1997 change
----- ----- -------
Financial Results
Revenue, $000 7,327 10,166 (28)
Cash flow, $000 (697) 2,484 (128)
Per common share, $ (0.02) 0.09 (122)
Net Earnings (Loss),
$000 (5,783) (341) (1596)
Per common share, $ (0.15) (0.01) (1400)
Operating Results, Camar
Production, BOPD 1,275 1,399 (9)
Sales price, $/Bbl 20.09 26.13 (23)
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Carmanah Resources Updates Venezuelan Drilling at Onado 12-30-98
CALGARY, ALBERTA--Carmanah Resources Ltd. ("CKM" - TSE) is pleased
to update shareholders and the investment community on the status
of the ONV 78 well drilling in the Onado Field in Monagas
Province, Venezuela. Carmanah holds a 23.4 percent working
interest in the Onado Area, which is operated by CGC, an
Argentinean company, pursuant to an Operating Agreement with
PDVSA, the Venezuelan state oil company.
The well has been drilling for several months and encountered the
expected pay zone on target. Significant anticipated shows of
natural gas and crude oil were encountered in the upper portion of
the pay section below 15,000 feet. Subsequently and prior to the
top of the U3-U5 portion of the target zone, a lost circulation
zone was encountered within the pay section. Despite a revised
casing program to deal with a shallower overpressured zone which
had necessitated higher mud weights in previous wells (30 plus)
drilled by PDVSA in the 1970's and 1980's, leading to formation
damage and lower productivity than should occur, the operator CGC
had to increase mud weight and introduce lost circulation material
into the wellbore. As this was expected to result in similar
damage to the formation as had happened in the PDVSA wells, a
decision was made to run 7 5/8 inch liner to a depth above all pay
zones. Subsequently a minimally deviated (2 degree or 3 degree)
sidetrack was agreed. The liner has now been set and drilling
operations are again underway with a light oil-based 8.7 pound
mud, essentially underbalanced.
After encountering the pay zones previously penetrated, a coring
program is scheduled for the U3-U5 zones, which are the primary
target above the projected total depth. This should now be
reached in the second or third week of January. After logging,
the well will be cased and the rig released. A service rig will
then be available to complete the well for production around
February 1, 1999. Targeted productivity is 3,000 BOPD of medium
gravity 24 degree API crude, which can be transported and sold
immediately through existing facilities and pipelines.
As the well is being drilled under a turnkey contract with the rig
owner, minimal incremental cost will be incurred in this
procedure. Total cost of the well is budgeted at US $10.5 million
completed.
A follow-up well is budgeted by the Onado joint venture and it is
being reassessed in light of current oil prices. It is possible
the second well could be deferred, subject to an assessment of the
results of ONV 78 and discussions with the rig owner by the
operator, having regard as well to changes in the oil price which
might occur between now and the scheduled spud date of the second
new well at Onado.
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