Eastshore Energy Ltd. ("Eastshore" or the "Corporation" - TSX Venture: EST.A; EST.B) is pleased to announce the financial and operational results for the third quarter of 2006.
<<
HIGHLIGHTS
- Closed an equity financing for $10.6 million
- Drilled the sixth successful well in Hanlan, 4 wells are now on
production
- Received GPP status at Niton 12-20
- Cash flow of $1.7 million, an increase of 72% from the second quarter
- Third quarter production averaged 559 boe/d, an increase of 33% from
the second quarter
- Production is currently averaging between 650-700 boe/d
OPERATIONAL AND FINANCIAL SUMMARY
-------------------------------------------------------------------------
Three months ended Nine months ended
June 30, September 30,
2006 2005 2006 2005
Unaudited Unaudited
Financial
($000's except per share)
Oil and gas revenues $ 2,837 $ 1,687 $ 7,720 $ 5,518
Funds from operations $ 1,681 $ 1,035 $ 4,078 $ 3,127
Funds from operations
per share (diluted) $ 0.05 $ 0.03 $ 0.12 $ 0.11
Net income (loss) $ (110) $ 65 $ 154 $ (1,674)
Income (loss) per share
(diluted) $ 0.00 $ 0.00 $ 0.00 $ (0.06)
Working capital $ 6,612 $ 3,762 $ 6,612 $ 3,762
Capital expenditures $ 1,710 $ 2,120 $ 6,199 $ 14,891
Operating (Units as noted)
Production volumes
Natural gas (mcf/day) 1,774 1,309 1,496 1,707
Natural gas liquids
(bbls/day) 93 44 70 60
Oil (bbls/day) 170 35 180 42
BOEPD 559 297 499 387
Average price realizations
Natural gas ($/mcf) $ 6.39 $ 10.13 $ 7.09 $ 8.40
Natural gas liquids ($/bbl) $ 63.89 $ 51.47 $ 60.21 $ 47.54
Oil ($/bbl) $ 78.66 $ 75.85 $ 74.15 $ 66.54
Combined ($/boe) $ 54.90 $ 61.17 $ 56.40 $ 51.73
-------------------------------------------------------------------------
>>
TO OUR SHAREHOLDERS
Production
Eastshore's production in the third quarter averaged 559 boe/d, a 56% increase over the second quarter and a year over year increase of 88% over the third quarter of 2005. Our product stream during the third quarter was approximately 47% light oil and natural gas liquids and 53% sweet gas. First production from the Hanlan gas discovery was tied in by late June which, although lower than expected due to facilities and operational constraints, was instrumental in bringing our production through the 500 boe/d mark.
Our application for Good Production Practice ("GPP") on our high rate, light gravity oil discovery at Niton was approved by the end of the third quarter. With higher production from this well, Eastshore's overall production rate increased to about 700 boe/d in the fourth quarter of 2006.
Financial
Eastshore's third quarter production yielded cash flow of $1.7 million, a 62% increase over the same period last year. Year to date cash flow of $4.1 million increased by 30% over the same period in 2005. Natural gas prices were lower in the third quarter of 2006 compared to the same period in 2005 while oil and gas liquids were higher than last year. As a result Eastshore realized $6.39/mcf for gas and $73.44/bbl for oil and liquids versus $10.13/mcf and $62.24/bbl in the third quarter of 2005.
Operating costs before transportation were $7.96/boe, a decrease from the second quarter but an increase from third quarter 2005 operating costs of $5.24/boe. The higher operating costs this year are primarily due to bringing on new oil production at Niton and start up costs for the Hanlan gas/liquids production facilities.
Netbacks were a healthy $36.84/boe and were enhanced by the high liquids content of our natural gas as well as the high quality, light gravity of our crude oil production.
Total capital expenditures for the third quarter were $1.7 million spent mainly on completions at Niton, production facilities at Hanlan and the commencement of drilling of the sixth well at Hanlan.
During the third quarter, Eastshore completed a common share equity issue of 8.5 million shares at $1.25 per share for proceeds of $10.6 million. These funds will be allocated through the balance of the year to exploration and development drilling, completions and facilities construction at Hanlan, Niton and Ricinus.
Third Quarter Activity
Niton
At Niton, Eastshore's application for GPP on our new, 80% working interest, light gravity oil discovery was approved such that rates were increased effective October 1, 2006. Since coming onstream in March, the well had been restricted to an allowable of 70 boe/d and is now being produced at a controlled rate of 250 boe/d. With Eastshore's net interest being 80% this adds 150 boe/d or approximately 25% to Eastshore's production base. The well will be produced for the next three to four months to determine pressure decline and reservoir size prior to step out development drilling decisions.
Eastshore is also participating, with an offsetting industry partner, in a waterflood study and application on a light gravity, Rock Creek oil discovery at Niton. Eastshore's net share of production currently is about 120 boe/d. Once the waterflood study is completed and approved by the AEUB, the project will commence waterflood operations and an infill drilling program that will result in increased recoverable reserves and allowables. We anticipate that it will take six to eight months to get waterflood approval from the AEUB.
Hanlan - Q3 & Q4
Eastshore's initial production at Hanlan commenced in late June from two wells on the south end of the pool. Although continuous production and liquids recovery in the third quarter were less than anticipated due to facility restrictions and down time by the outside plant operator, most of the issues now appear to be resolved and Eastshore's 41.5% share of production capability on a daily, on stream basis, is approximately 125 boe/d of sales gas and condensate.
Our third and fourth quarter plan to drill two more wells at Hanlan is underway. Both of these wells are high impact and very strategic to pool delineation and step out development planning over the next two to three years.
In October we successfully drilled and cased a six mile step out from our existing producing wells. This well confirms our ability to successfully map and penetrate the faulted, fractured Cardium structures that yield the liquids-rich gas. The most recent well is now being completed and production tested from two separate intervals in the Cardium.
This northern exploratory well was very strategic to our bigger Hanlan picture as we have now extended and established reservoir and producible gas and liquids over about an eight mile fairway. In 2007 we plan to drill more wells in the north end to establish threshold production prior to tie-in and sizing of pipeline and surface facilities.
In November, Eastshore spudded its seventh Hanlan well in the central area of the pool. The plan is to open up a "Central Hub" to production as it has year round road access. This well currently drilling, is targeted to penetrate a faulted, fractured structure which is defined by 3D seismic and which has previously tested gas and liquids. There are multiple, 3D seismically defined deep gas offset locations on adjacent Eastshore lands in the "Central Hub".
Ricinus - Q4
In October Eastshore drilled and completed a 100% working interest deep gas well on its Ricinus property. This well was very successful and will be completed and flow tested in November and tied into production by December.
Outlook
Eastshore's strategy through the third and fourth quarters is to begin to move production levels up from about 700 boe/d and to set up the 2007 drilling program. We are right now in the middle of that plan. We have budgeted capital in the fourth quarter at approximately $6 - 8 million and are targeting an exit rate for the 2006 year of 800-1,000 boe/d driven primarily by our third and fourth quarter drilling program. All of our wells have liquids associated with the sweet gas. Although the two Hanlan wells will be drilled and completed by year-end, tie-ins are planned to occur in 2007.
In today's current lower gas cycle, the importance of the liquids associated with our gas stream cannot be understated. At the current $7.50/mcf price range, for example, 40% of the cash flow stream from Hanlan is composed of the liquids sales.
Looking Forward
Eastshore began as a public Company in 2003 with zero production and a very small land base. Our strategy hasn't changed in three years. We are dedicated to growth through the drill bit, focused in the W5 Corridor and target light gravity crude oil and liquids-rich gas. We operate the majority of our wells and focus on high pressure, long life reserves in the 2,000-3,000m depth range.
Today, Eastshore enters its second stage. We have a production base of approximately 700 boe/d and are building toward a 2006 exit target of 800 to 1,000 boe/d. Most importantly, we now have a built-in drilling inventory and a resource base for three to four years of production growth on four core projects in the W5 Corridor. We operate all four project areas and we have high working interest lands, which today, in this portion of Alberta, are virtually irreplaceable.
As we move through the fourth quarter of this year, our production and cash flow are starting to build. We have been, and still are in a soft cycle in the oil business. This gives us better access to drilling rigs, equipment and manpower. For our 2007 drilling program, we expect to drill three wells on the Hanlan project in the first half and two to three wells at Niton for an overall capital expenditure of $10-12 million. This plan will be reviewed late in the first half based on success and forecast cash flow relative to capital expenditures going forward.
Eastshore's longer term plan is to move forward with development and step out exploration on the Hanlan liquids-rich gas discovery over the next few years and complement the Company's production and cash flow through internally-generated growth on our three other core areas. Our three year plan is very simple and our strategy is to crystallize value while we continue building and driving our production and reserves base into the next energy cycle.
<<
Eastshore is now an emerging production growth story. Our attributes are:
- We are focused on deep liquids-rich gas in the W5 Corridor;
- We have the inventory to drive our internal growth;
- Hanlan is a very large, multi-well, multi-year project just beginning
to come into its own.
>>
-------------------------------------------------------------------------
To view Eastshore's 2006 Third Quarter Report in its entirety please visit our Company website at http://www.eastshoreenergy.com
This and other detailed corporate filings by Eastshore can be found by visiting SEDAR at www.sedar.com or the SEDAR link at http://www.eastshoreenergy.com.
Eastshore's Class A and Class B shares trade on the TSX Venture Stock Exchange under the symbols, "EST.A" and "EST.B" respectively. The Company presently has 34.9 million Class A shares and 0.8 million Class B shares outstanding.
-------------------------------------------------------------------------
The TSX Venture Exchange has not reviewed and does not accept
responsibility for the adequacy or accuracy of this release.
Reader Advisory
Information provided herein contains forward-looking statements. The reader is cautioned that assumptions used in the preparation of such information, which are considered reasonable by Eastshore Energy Ltd. at the time of preparation, may be proved to be incorrect. Actual results achieved during the forecast period will vary from the information provided and the variations may be material. There is no representation by Eastshore that actual results achieved during the forecast period will be the same in whole or in part as those forecast.
BOE Presentation
The calculations of barrels of oil equivalent ("boe") are based on a conversion rate of six thousand cubic feet ("mcf") of natural gas to one barrel ("bbl") of crude oil. Boe's may be misleading, particularly if used in isolation. A boe conversion ratio of 6 mcf: 1 bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.
This news release shall not constitute an offer to sell or the solicitation of an offer to buy the securities in any jurisdiction. The Common Shares will not be and have not been registered under the United States Securities Act of 1933 and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements.
For further information: Eastshore Energy Ltd., Telephone: (403) 232-1150, Facsimile: (403) 232-1466, www.eastshoreenergy.com; Gary W. Burns, President & Chief Executive Officer; Wende L. Dummer, Vice President Finance, Chief Financial Officer & Corporate Secretary, wdummer@eastshoreenergy.com