Canoro
Reports Third Quarter and Updates Activity
Calgary, Alberta � February 27, 2009 Canoro Resources Ltd., is pleased to
announce its financial and operational results for the three and nine months
ended December 31, 2008.
Please look at Website (www.canoro.com) for Canoro Resources Ltd. Financial
Statements
Operational Update
The third quarter of Fiscal 2009 has proven to be a challenging period for
Canoro Resources Ltd. Whilst there were initially encouraging drilling
results in Q2, subsequent testing of Amguri-14 and Amguri-12 yielded mixed
results. While A-14 proved to be an excellent dry gas producer, A-12 was unable
to demonstrate commercial production potential. Persistent problems with
one of the drilling rigs under contract resulted in significant delays and cost
overruns and the rig was subsequently released. A complete re-evaluation of the
Amguri geological model was initiated while the liquids extraction plant
project at Amguri was moved ahead.
Canoro posted a loss of $3.6 million, or $0.03 per share for the quarter. Funds
flow from operations was negligible with a realized oil price of $55.17 per
barrel and natural gas prices of $2.00 per mcf average during the
quarter. With approximately 70% of the Company�s production currently being
natural gas sold on a fixed price contract basis, Canoro currently has limited
exposure to changes in oil prices. For each $1.00 per barrel change in oil
prices, the Company�s annual funds flow changes by approximately $0.1 million
based on year-to-date average liquids production volumes. Having $12.0 million
working capital as at December 31, 2008, the Company continues to be debt free
and well capitalized to complete its 2009 program, although low oil prices
contribute minimally to capital re-investment at this juncture. With little
access to either equity or debt markets in the current environment, Canoro will
be cautious with its available resources to ensure that it can complete this
phase of its development and be well positioned as conditions improve.
Going into Q4 FY2009 and the next year, the Company has the following
objectives:
�Double condensate production and increase the proved reserves by installing a
liquids recovery and gas re-injection facility in the current Amguri gas
condensate reservoir.
�Tie in additional gas production at the recent discovery Amguri-14 as well as
recomplete A-11 for dual zone capability.
�Refine the geological model of Amguri by reprocessing and re-interpreting 3D
seismic using Pre-Stack Depth Migration (PSDM).
�Conserve financial resources by deferring discretionary exploration
activities.
�Continue to reduce operating and G&A expenses.
�Free up capital by obtaining alternative financing for the Amguri facility
additions.
�Expand the portfolio with development projects to increase the critical mass
of the Company.
Amguri
Production for the quarter averaged 651 boe/d and 826 boe/d for the nine months
ended 31 December 2008, representing increases of 127% and 212% over the
respective prior year periods. Quarter over quarter production declined 30% due
to both lower seasonal gas demand and the need to maintain reservoir conditions
while waiting for the condensate extraction plant to be installed later this
year. The effect of the liquids extraction is two-fold. First, overall reserves
of condensate and gas have the potential to double through the enhanced
recovery of liquids and the ability through reservoir management to produce the
gas significantly longer. Second, the production mix will change from
approximately 30/70 condensate/gas to 70/30, the net effect of which would be
to increase funds flow from operations by approximately 60% from the same
production volume due to the substantially higher netback generated by liquids
sales.
During the quarter, the Company completed the evaluation of bids for gas
re-injection and condensate extraction facilities at Amguri. The main equipment
packages have been awarded for manufacture with commissioning expected by the
end of the year based on manufacturers' current delivery dates. The delay in
commissioning is primarily due to longer than expected delivery times for the
equipment packages. Preparations are being made to convert the Amguri-11
well to a dual producer/injector, install an electric submersible pump (ESP) in
well Amguri-5 to increase Barail condensate/oil production and tie in Amguri-14
as a producer of dry Tippam gas by June 30, 2009. Amguri-14 gas is
planned to be used for sales and additional reinjection supply. Current
production is estimated to be approximately 225 barrels of oil/condensate per
day and 3.0 million cubic feet of gas per day, or about 725 boe/d.
The Amguri A-12 and A-14 appraisal wells were drilled in the prior quarter and
production testing was conducted during Q3 FY2009. The Amguri A-14 appraisal
well was tested in the upper Tipam Formation. A three-day production test on
this section yielded maximum rates of 4.8 mmscfd on an 8mm choke with a tubing
pressure of 2100 pounds per square inch ("psi"), and a stabilized
final rate of 2.7 mmscfd on a 6 mm choke with a tubing head pressure of 2,180
psi. These results combined with a subsequent pressure buildup test, support
the Company�s view that the A-14 well is an excellent dry gas well which could
be capable of flowing over 6 mmcfd dry gas at minimal pressure drawdown. This
Tipam gas discovery allows the Company to sell dry natural gas to local markets
as well as re-injecting excess Tipam gas for voidage replacement in Barail gas
condensate reservoir currently producing. The Company has commenced the
building of a four-inch diameter flow line to facilitate both gas sales and gas
re-injection from A-14.
The Company had high expectations for the Amguri-12 well; however production
testing of the two main Barail intervals was unsuccessful in spite of log
analysis indications of hydrocarbons. The well tested water in both target
Barail sands. The A-12 well came in significantly lower than prognosis
and appears to be in a separate compartment and not connected to the
"A" pool as defined by the A-11, A-10B and A-6 producers. The Company
plans to conduct additional pressure gradient work to confirm this result. The
disappointing results of A-12 have led to the Company re-evaluating its
geological model of the reservoir with the aid of a detailed PSDM analysis of
reprocessed 3D seismic, expected by the beginning of calendar Q2 2009. The
Company is optimistic that the PSDM work will result in a significantly better
understanding of the subsurface geology at Amguri.
Exploration
AA-ON/7
The Company drilled the Dergaon #2 well, on the Assam portion of the AA-ON/7
block during the quarter. Dergaon #2, the appraisal well was offsetting Dergaon
#1 and targeted a zone of equivalent structural height to Dergaon # 1. The zone
tested in Dergaon #2 was non-hydrocarbon bearing on well-log data and the well
has been plugged and abandoned.
Subsequently, , Canoro has withdrawn its application to the Government of India
seeking an extension of the exploration phase thereby, relinquishing the
Assam portion of the AA-ON/7 Block.. As a result of the relinquishment,
probable reserves of 21.2 BCF (3.5 MMBOE) net to Canoro�s 65% working interest
and possible reserves of 15.8 BCF (2.6 MMBOE) net have been written down by the
Company. Proven reserves will be unaffected by the relinquishment. Canoro is
currently pursuing a new PSC to be established on the Nagaland portion of the
AA-ON/7 block the exploration license for this was granted in August 2006.
Other Blocks
In Arunachal Pradesh, Block AA-ONN-2003/2, the operator has contracted a
drilling rig and commenced location and road building. Canoro and its
joint venture partners have a commitment to drill seven wells. However,
based on current interpretation of the 3D seismic, only three drillable
prospects have been identified and approved for drilling to date. It is
anticipated that the operator will complete the three wells this calendar year
with expenditures estimated at $3.0 million net to Canoro�s 15% working
interest.
The remaining blocks in Assam are AA-ONN-2004/3 and AA-ONN-2004/5 with Phase I
commitments that require 2D and 3D seismic programs, which will be deferred to
later this year or early 2010, and the drilling of one exploration well on each
block. The estimated capital expenditures required on these blocks for Phase I
over the next three years is approximately US$6.8 million net to Canoro�s 30%
working interest. Procedures for the transfer of the 30% interest,
operatorship to Canoro is in progress and pending approvals of the Government
of India.
For more information, contact:
S. Brian Gieni Les Kondratoff
Vice President, Finance & CFO President & CEO
P: (403) 543 � 5742 P: (403) 543-5741
F: (403) 543 � 5740 F: (403) 543-5740
700, 717 � 7th Ave SW
Calgary, Alberta T2P 0Z3
CANADA
or visit the Company�s website at www.canoro.com
Common shares of Canoro trade on the TSX Venture Exchange under the symbol
�CNS�. The TSX Venture Exchange does not accept responsibility for the adequacy
or accuracy of this News Release.
This news release contains certain forward-looking statements, including
management�s assessment of future plans and operations, and capital
expenditures and the timing thereof, that involve substantial known and unknown
risks and uncertainties, certain of which are beyond Canoro�s control. Such
risks and uncertainties include, without limitation, risks associated with oil
and gas exploration, development, exploitation, production, marketing and
transportation, loss of markets, volatility of commodity prices, currency
fluctuations, imprecision of reserve estimates, environmental risks,
competition from other producers, inability to retain drilling rigs and other
services, delays resulting from or inability to obtain required regulatory
approvals and ability to access sufficient capital from internal and external
sources, the impact of general economic conditions in Canada, the United States
and overseas, industry conditions, changes in laws and regulations (including
the adoption of new environmental laws and regulations) and changes in how they
are interpreted and enforced, increased competition, the lack of availability
of qualified personnel or management, fluctuations in foreign exchange or
interest rates, stock market volatility and market valuations of companies with
respect to announced transactions and the final valuations thereof, and
obtaining required approvals of regulatory authorities. Canoro�s actual
results, performance or achievements could differ materially from those
expressed in, or implied by, these forward-looking statements and, accordingly,
no assurances can be given that any of the events anticipated by the
forward-looking statements will transpire or occur, or if any of them do so,
what benefits, including the amount of proceeds, that Canoro will derive
therefrom. Readers are cautioned that the foregoing list of factors is not
exhaustive. All subsequent forward-looking statements, whether written or
oral, attributable to Canoro or persons acting on its behalf are expressly
qualified in their entirety by these cautionary statements. Furthermore, the
forward-looking statements contained in this news release are made as at the
date of this news release and Canoro does not undertake any obligation to
update publicly or to revise any of the included forward-looking statements, whether
as a result of new information, future events or otherwise, except as may be
required by applicable securities laws.
Non-GAAP terms
The Press Release contains the terms "funds from operations", and
"netbacks" which are not recognized measures under Canadian generally
accepted accounting principles. The Company uses these measures to help
evaluate its performance. Management considers netbacks an important
measure as it demonstrates its profitability relative to current commodity
prices. Management uses funds from operations to analyze performance and
considers it a key measure as it demonstrates the Company�s ability to generate
the cash necessary to fund future capital investments and to repay
debt. Funds from operations has been defined by the Company as net
earnings adjusted for non-cash items (depletion, depreciation and accretion,
stock-based compensation, unrealized (gain)/loss on foreign exchange, and
unrealized investment (gain)/loss) and excludes the change in non-cash working
capital related to operating activities and expenditures on asset retirement
obligations and reclamation. Canoro�s determination of funds from operations
may not be comparable to that reported by other companies nor should it be
viewed as an alternative to cash flow from operating activities, net earnings
or other measures of financial performance calculated in accordance with
Canadian GAAP. .
Barrel of oil equivalent
Where amounts are expressed on a barrel of oil equivalent (boe) basis, natural
gas volumes have been converted to barrels of oil equivalent at six thousand
cubic feet to one barrel of oil equivalent (6 mcf = 1 boe). This
conversion ratio is the convention used in the oil and natural gas industry and
is based on an energy equivalent conversion method primarily applicable at the
burner tip and does not represent a value equivalent at the wellhead. The
use of boe�s may be misleading, particularly if used in isolation.