CORRIDOR ANNOUNCES SECOND QUARTER RESULTS
Halifax, Thursday, August 12, 2010, Corridor Resources Inc. (CDH - TSX) announced today its second quarter financial results.
The following table provides a summary of Corridor’s financial and operating results for the three and six months ended June 30, 2010, with comparisons to the three and six months ended June 30, 2009. Corridor's financial statements and management's discussion and analysis for the second quarter have been filed on SEDAR at www.sedar.com and are available on Corridor's website at www.corridor.ca.
All amounts referred to in this press release are in Canadian dollars unless otherwise stated.
Selected Financial Information
|
Three months ended June 30 |
Six months ended June 30 |
||
thousands of dollars except per share amounts |
2010 |
2009 |
2010 |
2009 |
Revenues |
$6,575 |
$7,887 |
$16,223 |
$31,699 |
Net earnings (loss) |
$(2,227) |
$118 |
$(2,922) |
$6,934 |
Net earnings (loss) per share - basic |
$(0.025) |
$0.001 |
$(0.033) |
$0.079 |
Net earnings (loss) per share - diluted |
$(0.025) |
$0.001 |
$(0.033) |
$0.079 |
Cash flow from operations(1) |
$2,846 |
$3,217 |
$8,174 |
$20,350 |
Capital expenditures |
$7,771 |
$2,957 |
$12,769 |
$22,757 |
Total assets |
$297,818 |
$306,603 |
$297,818 |
$306,603 |
(1) Cash flow from operations is a non-GAAP measure. Cash flow from operations represents net earnings adjusted for non-cash items including depletion, depreciation and amortization, future income taxes, stock-based compensation and other non-cash expenses. See "Non-GAAP Financial Measures" in Corridor’s management’s discussion and analysis for the six months ended June 30, 2010.
Highlights
-
During Q2 2010, natural gas production averaged 13.6 mmscfpd net to Corridor (including production from penalty wells) with an average natural gas sales price of $4.95/mscf, resulting in a net loss of $2,227 thousand and basic and diluted net loss per share of $0.025.
- Natural gas revenues for Q2 2010 decreased to $6,141 thousand from $7,164 thousand for Q2 2009 due to the decrease in production from 15.9 mmscfpd in Q2 2009 to 13.6 mmscfpd in Q2 2010, partly as a result of the decreased drilling activities in 2009 and 2010 in response to the downturn in the economy and lower natural gas prices and partly as a result of the lower than expected production from the L-37 well drilled in Q2 2010. The average natural gas sales price increased slightly from $4.94/mscf in Q2 2009 to $4.95/mscf in Q2 2010.
- Net earnings for Q2 2010 decreased to a net loss of $2,227 thousand from net earnings of $118 thousand for Q2 2009 reflecting mostly a future income tax recovery of $2,640 thousand in Q2 2009 following a decrease in New Brunswick’s corporate income tax rates. The decrease in natural gas revenues in Q2 2010 was mostly offset by the decrease in transportation expense resulting from lower firm tolls on the Maritimes and Northeast Pipeline and the decrease in depletion expense resulting from lower production.
- During Q2 2010, Corridor completed perforating the L-37 wellbore in the McCully Field. Initial efforts to flow test this well without stimulation resulted in relatively low rates of natural gas production. The McCully L-37 well is currently shut-in for a pressure build-up before conducting further testing operations. The McCully L-37 well was designed to be drilled and completed without fracture stimulation while retaining the option to frac part of the pay section if necessary. It was drilled horizontally through the upper part of the Hiram Brook formation, intercepting a number of prospective pay sands. Some of these sands had been encountered in the adjacent P-47 and L-38 vertical wells, where only small amounts of bitumen were encountered. The expectation for L-37 was that the sands encountered there would also be relatively free of bitumen and possibly productive based on perforating stimulation alone. This completion approach is significantly less expensive than conducting a multi-stage frac program in the horizontal leg of the well. However, it appears that the L-37 well encountered greater amounts of bitumen in the reservoir sands than expected, resulting in significantly lower rates of gas production than expected. Consequently, Corridor is currently evaluating the option to re-complete the well by conducting a propane frac in the well at the next opportunity when suitable frac equipment is available in the region.
- Subsequent to the quarter end, Apache Canada Ltd. (“Apache”) completed the drilling of the horizontal section of the Green Road B-41 well located north of Elgin, New Brunswick and is preparing to case the horizontal section in preparation for multi-zone fracturing of the well. Apache has advised that it plans to move the drilling rig approximately three kilometers to the southwest to drill a second shale gas appraisal well at the Will DeMille #1 location.
- On July 31, 2010, Corridor’s $20 million revolving credit facility with a Canadian chartered bank was renewed. This new credit facility can be increased at any time up to the current approved borrowing base of $32 million, subject to the bank reconfirming this borrowing base. The interest rate on the credit facility remains at the bank’s prime rate plus 1.25% per annum. The loan will mature, subject to mutual agreement to extend, on July 30, 2011. At June 30, 2010, no amounts were drawn on this credit facility.
Q2 2010 Netback Analysis
|
Three months ended June 30 |
Six months ended June 30 |
||
thousands of dollars except $/mscf |
2010 |
2009 |
2010 |
2009 |
Natural gas revenues |
$6,141 |
$7,164 |
$15,238 |
$30,376 |
Royalty expense |
(29) |
(106) |
(321) |
(1,603) |
Production expense |
(802) |
(652) |
(1,721) |
(1,642) |
Transportation expense |
(1,727) |
(2,467) |
(3,564) |
(5,621) |
Netback |
$3,583 |
$3,939 |
$9,632 |
$21,510 |
|
|
|
|
|
Natural gas production (mmscf) |
1,240 |
1,450 |
2,584 |
3,064 |
Natural gas production per day (mmscfpd) |
13.6 |
15.9 |
14.3 |
16.9 |
|
|
|
|
|
Natural gas revenues ($/mscf) |
$4.95 |
$4.94 |
$5.90 |
$9.92 |
Royalty expense ($/mscf) |
(0.02) |
(0.07) |
(0.12) |
(0.52) |
Production expense ($/mscf) |
(0.65) |
(0.45) |
(0.67) |
(0.54) |
Transportation expense ($/mscf) |
(1.39) |
(1.70) |
(1.38) |
(1.83) |
Netback ($/mscf) |
$2.89 |
$2.72 |
$3.73 |
$7.03 |
Natural gas revenues decreased to $6,141 thousand in Q2 2010 from $7,164 thousand in Q2 2009 due to the decrease in the average daily production to 13.6 mmscfpd in Q2 2010 from 15.9 mmscfpd in Q2 2009. The decrease in production is largely due to the Company suspending drilling activities early in Q2 2009 in response to the downturn in the economy resulting in only three wells being drilled and completed in Q1 2009 and only the L-37 well being drilled in Q2 2010. In addition, this well is currently shut-in for a pressure build-up before conducting further testing operations and potential future fracturing operations.
The decrease in the royalty expense per mscf for the three months ended June 30, 2010 to $0.02/mscf from $0.07/mscf for the three months ended June 30, 2009 is due to the significant decrease in the natural gas revenues during the period while the deductions allowable in the royalty calculation remained consistent.
Gross production expense for Q2 2010 decreased to $954 thousand from $1,077 thousand for Q2 2009 due to the decrease in methanol and water disposal costs resulting from the lower production of water. However, net production expense increased to $802 thousand in Q2 2010 from $652 thousand in Q2 2009 due to the decrease in third party recoveries as a result of the decrease in their share of production in the period.
Transportation expense for Q2 2010 decreased to $1,727 thousand from $2,467 thousand for Q2 2009 due to a decrease in natural gas production, two decreases in the cost of U.S. firm tolls effective August 1, 2009 and April 1, 2010, respectively, and a stronger Canadian dollar as compared to the U.S. dollar in Q2 2010 compared to Q2 2009.
2010 Outlook
Corridor has decreased its estimate of the average daily net production for 2010 from 17.5 mmscfpd to 13.7 mmscfpd due primarily to the lower than estimated production from the McCully L-37 well and the decision not to drill a second McCully well in 2010. However, Corridor has maintained its estimate of the average natural gas sales price at US$4.80/mmbtu at Henry Hub and its estimate of the exchange rate at $0.98 U.S. per Canadian dollar for the remainder of 2010. As a result, Corridor’s 2010 budget for revenues has decreased from $42 million to $33 million.
As a result, Corridor’s previously estimated cash flow from operations for 2010 is forecast to decrease by approximately $5 million to $15 million and Corridor has reduced its 2010 capital budget from $28.6 million to $24.4 million. The net decrease in the capital expenditure program reflects the following significant changes:
-
Deferral of the drilling, testing, completing and tying in of the second McCully well, for a net reduction of $7.0 million;
- Increase in the estimated costs relating to a site survey at a proposed drilling location on the Newfoundland side of the Old Harry structure in the Gulf of St. Lawrence, for a net increase of $0.3 million; and
- Increase of $2.5 million in the costs relating to the Anticosti drilling program due primarily to increased mobilization and demobilization costs as a result of complications encountered in the transportation of all drilling and ancillary equipment to the relatively remote Anticosti Island. In addition, the delayed approval for this program resulted in a compressed planning period resulting in increased costs and inadequate budgeting information. Furthermore, more drilling equipment than initially planned was required in order to drill and flow test the directional wells in an underbalanced manner. As a result of the increased costs, Corridor and its joint venture partner determined to reduce the drilling program from four wells to three wells.
Corridor is currently forecasting a net positive working capital position of $2 million at December 31, 2010 net of outstanding debt of $2 million.
Corridor is a junior resource company engaged in the exploration for and development and production of petroleum and natural gas onshore in New Brunswick, Prince Edward Island and Québec and offshore in the Gulf of St. Lawrence. Corridor currently has natural gas reserves in the McCully Field near Sussex, New Brunswick and discovered crude oil reserves in the Caledonia Field near Sussex, New Brunswick in 2008. In addition, Corridor has contingent resources in Elgin, New Brunswick. In June 2007, Corridor completed the construction of a field gathering system, a gas plant and a pipeline lateral connecting the McCully Field to markets through the Maritimes & Northeast Pipeline.
For more information:
Contact: Norman W. Miller, President
Corridor Resources Inc.
#301, 5475 Spring Garden Road, Halifax, Nova Scotia B3J 3T2
Ph:(902) 429-4511 F:(902) 429-0209
Web:www.corridor.ca
Forward Looking Statements
This press release contains certain forward-looking statements and forward-looking information (collectively referred to herein as "forward-looking statements") within the meaning of Canadian securities laws. All statements other than statements of historical fact are forward-looking statements. Forward-looking information typically contains statements with words such as "anticipate", "believe", "plan", "continuous", "estimate", "expect", "may", "will", "project", "should", or similar words suggesting future outcomes . In particular, this press release contains forward-looking statements pertaining to the following: the 2010 budget, including expected revenues, costs, capital expenditures, cash flow, natural gas prices, production, and the Canada – U.S. exchange rate, drilling and development plans; and Apache drilling plans.
Undue reliance should not be placed on forward-looking statements, which are inherently uncertain, are based on estimates and assumptions, and are subject to known and unknown risks and uncertainties (both general and specific) that contribute to the possibility that the future events or circumstances contemplated by the forward-looking statements will not occur. These factors include, but are not limited to: risks associated with oil and gas exploration, financial risks, substantial capital requirements, bank financing, government regulation, environmental, prices, markets and marketing, issuance of debt, variations in exchange rates and hedging. Further information regarding these factors may be found under the heading "Risk Factors" in Corridor's annual information form for the year ended December 31, 2009 and its most recent management's discussion and analysis. Readers are cautioned that the foregoing list of factors that may affect future results is not exhaustive. There can be no assurance that the plans, intentions or expectations upon which forward-looking statements are based will in fact be realized. Actual results will differ, and the difference may be material and adverse to Corridor and its shareholders.
Forward-looking statements are based on Corridor's current beliefs as well as assumptions made by, and information currently available to, Corridor concerning anticipated financial performance, business prospects, strategies, regulatory developments, future natural gas and oil commodity prices, exchange rates, future natural gas production levels, the ability to obtain equipment in a timely manner to carry out development activities, the ability to market natural gas successfully to current and new customers, the impact of increasing competition, the ability to obtain financing on acceptable terms, and the ability to add production and reserves through development and exploration activities. Although management considers these assumptions to be reasonable based on information currently available to it, they may prove to be incorrect. The forward-looking statements contained in this press release are made as of the date hereof and Corridor does not undertake any obligation to update publicly or to revise any of the included forward-looking statements, except as required by applicable law. The forward-looking statements contained herein are expressly qualified by this cautionary statement.
