CORP / Carmanah Announces Year-End 1998 Reserves, Plans For Ceiling
Test Writedown
TSE SYMBOL: CKM
JANUARY 26, 1999
CALGARY, ALBERTA--Carmanah Resources Ltd. ("CKM" - TSE) announced
today that it has received its year-end 1998 estimate of proven
and probable crude oil and natural gas reserves as contained in a
report prepared by McDaniel & Associates Consultants Limited
("McDaniel"), independent petroleum consultants of Calgary,
Canada.
McDaniel estimates Carmanah's remaining proved reserves in
Indonesia and Venezuela to be 16.4 million barrels of crude oil
and 26.7 Bcf of natural gas, while proved and probable reserves
are estimated to be 26.2 million barrels of crude oil and 35.0 Bcf
of natural gas. All estimated volumes are NET after deduction of
royalties and/or participation rights of Pertamina or PDVSA, the
Indonesian and Venezuelan state oil companies, respectively, and
estimated present worth is calculated after deduction of forecast
operating costs, royalties, ad valorem taxes and capital
requirements to realize the production forecasts contained in the
McDaniel Report. The McDaniel Report assumes an average price for
WTI during 1999 of US$14.50 per barrel, which is in excess of
current price levels for WTI which were at $12.69 as at Friday,
January 22, 1999. Also, oil prices and operating costs are
escalated at rates of approximately 5 percent and 2 percent,
respectively, per annum, over the economic life of the evaluated
properties. It further contemplates a total of US$80.4 million
will be invested in the properties over their life (including
US$15.6 million in 1999) to realize the production levels and
resultant values forecast therein for proved reserves. There is
no assurance given current industry conditions that these
assumptions will obtain.
Carmanah's total net proved oil reserves declined by 2.2 million
barrels during 1998 after provision for production, drilling
results during 1998 and disappointing workover results at Onado,
as well as provision for the no-cost EPIC back-in for a 10 percent
working interest at Onado pursuant to the terms of the 3rd Round
of Awards in Venezuela. A full reserve continuity table will be
provided in the Company's 1998 Annual Report, expected to be
mailed to shareholders in early May, 1999.
Carmanah's net proved plus probable crude oil reserves declined by
3.1 million barrels or approximately 10 percent, reflecting
aforementioned factors and a lower price profile in the January 1,
1999 McDaniel Report compared to a year ago, resulting in some
reserve reduction due to economic limits, especially at the Camar
field ("Camar") where many operating costs are fixed in nature.
Carmanah's net proved natural gas reserves increased by 4.6 Bcf to
26.7 Bcf at Camar in Indonesia while proved and probable natural
gas reserves increased by 5.8 Bcf to 35.0 Bcf. The increase
reflects the high GOR at MPA-1, drilled in the Camar field during
1998, and the impact of the purchase of Stirling's 16 percent
working interest in the Bawean PSC which contains Camar. The
purchase also offset negative revisions for Camar's crude oil
reserve estimates.
As at January 1, 1999, McDaniel estimates the present worth of
Carmanah's NET proven and risked (50 percent) probable reserves to
be $128.8 million using a 10 percent discount rate and $99.5
million using a 15 percent discount rate. This equates to $3.08
of value per common share at 10 percent and $2.38 of value per
common share at 15 percent, based on 41.8 million common shares
outstanding as at December 31, 1998. Values are calculated using
McDaniel's escalated prices and costs, before income tax and
before deducting long-term debt which was $20.7 million ($0.50 per
common share) at year-end 1998. In these calculations, no value
has been assigned to undeveloped acreage or identified drillable
structures at Bawean, Langsa or Natuna in Indonesia or Onado in
Venezuela. Carmanah's undeveloped acreage totals approximately
1.5 million net acres in these four regions. Carmanah has no
outstanding preferred shares or convertible instruments, with the
only potential dilutive instruments being 2.8 million outstanding
options held by employees and directors pursuant to the Company's
Stock Option Plan. These options are anti-dilutive in any event.
Simultaneously, Carmanah announces that it expects to take a $77
million ceiling test writedown as at December 31, 1998, reducing
the book value of its common shares to an estimated $37 million,
or $0.89 per common share outstanding. The writedown is
calculated in accordance with prevailing CICA guidelines based on
year-end prices and is subject to final year-end review by the
Audit Committee and independent auditors. It includes provision
in the fourth quarter of 1998 for depreciation, depletion and
amortization (unit of production method) and a writeoff of $3.1
million of deferred financing fees largely related to the
arrangement of long-term credit facility with CIBC and its
merchant bank affiliate. Remaining financing fees will be
amortized over the residual life of the Company's debt facility.
Carmanah also announces that on January 19, 1999, it reached an
agreement with its lenders whereby Carmanah has agreed to reduce
its credit facility to $22 million from year-end 1998 levels of
$50 million. Carmanah will also temporarily reduce its senior
debt immediately by $6.5 million (the Esso Natuna settlement
payment received by Carmanah in October, 1998) and be permitted to
redraw up to the amount of its revised credit facility to pay
outstanding trade creditors in Indonesia and to access sufficient
funds to meet budgeted cash calls at Onado in Venezuela. Carmanah
can thus continue its operations in an unfettered manner. There
may be a redetermination of Carmanah's borrowing base on March 15,
1999 which could result in the need to repay a portion of the debt
prior to March 31, 1999. Carmanah now estimates it will reduce
its long-term debt to $12.5 million, based on calculations made
prior to the receipt of McDaniel's January 1, 1999 Reserve Report
and the results of the ONV-78 oil well at Onado and prior to
taking into account the full extent of the declines at MPA-1 in
the Camar field due to reservoir conditions at that well.
Carmanah's current net production at Camar is approximately 1,731
barrels of oil per day out of gross field production of
approximately 1,945 BOPD. With current world oil prices for WTI
at approximately US$12.69 per barrel, this level of production at
Camar generates positive net operating income but further declines
in either price or volume would result in shutting-in Camar at
economic limit. In the interim, Carmanah has reduced its cost
structure and is attempting to further reduce daily operating
costs to levels well below current per diem charges. Carmanah has
also reached agreements with its three major trade creditors to
repay outstanding amounts over an extended period. These actions
are designed to maintain Carmanah's corporate liquidity at
adequate levels until prices improve, new production is onstream
at Onado, and progress with its 10,000 BOPD Langsa project in
Indonesia occurs.
To be in a position to permanently repay as much as $8.2 million
of long-term debt by March 31, 1999, Carmanah has embarked on an
asset sale/rationalization program in Indonesia, including
attracting new capital and partners to all three Indonesian
properties (Bawean/Camar PSC, Langsa TAC, Northeast Natuna PSC) in
which Carmanah holds 100 percent, 80 percent and 90 percent,
respectively, through its wholly-owned GFB subsidiaries.
Discussions in respect of all three properties are well advanced.
Carmanah's management and Board of Directors will review all
proposals with a view to optimizing shareholder returns, while
being mindful of agreements with lenders and creditors. Carmanah
will report to its shareholders on a timely basis when
negotiations are concluded and result in an enforceable agreement
without financing conditions. Carmanah cannot provide its
shareholders assurances that it will receive and only accept
offers for its Indonesian assets which approximate the values
established in the McDaniel Report, due to the state of the
industry, current Indonesian political and economic conditions and
the currently estimated requirement to reduce long-term debt to
$12.5 million. Accordingly, Carmanah may accept less than
McDaniel valuations if a cash offer is received for a property
which enables the Company to fulfil the conditions negotiated in
these agreements on a timely basis.
From October until now, Carmanah has been able to identify and
resolve most of the outstanding issues over which it has control.
With the operator at Onado now in agreement with Carmanah to defer
drilling of the second well until results from ONV-78 are in hand,
Carmanah's capital outlays going forward are expected to be
minimal. As such, if lower costs at Camar can be achieved,
Camar's economic life and positive cash contribution can be
extended, assuming stable production rates of 2,000+/- BOPD and no
worsening of world oil prices, until new sources of revenue are
secured.
Carmanah is a Calgary-based international oil and gas company with
three operated concessions in Indonesia and one non-operated
concession at Onado onshore Venezuela in which a 23.4 percent
working interest is held. Carmanah also is continuing to review
new production purchase opportunities in Europe and the United
Kingdom and other stable regions throughout the world. Its common
shares are listed for trading on the Toronto Stock Exchange under
the symbol CKM. Offices are located in Calgary and Jakarta. |
