Bow Valley Energy Ltd. has reported its financial and operating results for the nine months ended September 30, 2004. Highlights include;
Canada
• Third quarter production of 1,433 boe/d is up 29% year-over-year.
• The Company drilled four (2.3 net) wells in the third quarter, all of which were cased for natural gas. On a year-to-date basis, the Company has drilled 17 (9.8 net) wells, resulting in 14 (6.8 net)
natural gas wells and one (1.0 net) oil well for a success rate of 88% (80% net).
• The Company has contracted a drilling rig to support an expanded winter drilling program and has increased its 2004 capital budget for Canada from $15 million to $19 million.
United Kingdom
• Third quarter sales of 887 boe/d is down 42% year-over-year.
• Field production at Kyle was reduced because two out of four wells were not producing in the third quarter. One of the shut-in wells (K14) has been brought back on-stream and re-routed to alternative facilities as of October 1, resulting in current total field production volumes of approximately 1,800 boe/d (net), approximately double third quarter reported sales volumes.
• Operating costs averaged $20.83 boe/d in the third quarter, 28% lower than the $28.78 boe/d reported in the second quarter of 2004. With the tariff based costs of the K14 well, operating costs are expected to drop further in the fourth quarter of 2004.
• An evaluation continues on means to bring the second shut-in well back on production and also on ways to extend the Life of Field with improved economics.
Company
• Production of 2,320 boe/d is down 12% year-over-year. The Company's current production is approximately 3,500 boe/d with the tie-in of the Canadian summer drilling program and the successful tie-back of the K14 well at Kyle.
• Third quarter cash flow was up 6% year-over-year to $2.9 million, or $0.04 per share.
• Net earnings were ($1.8) million, ($0.03) per share compared to ($0.8) million ($0.01) per share in the year ago period and were negatively affected by marking-to-market the Company's oil hedge position ($0.01/share).
• Working capital deficiency including bank debt is $12.3 million, representing a debt to year-to-date funds flow (annualized) ratio of 0.9 times.
Review of Operations
Canada
The Company continues to deliver positive results through the drill bit. During the third quarter, drilling levels were lower than planned due to wet field conditions, however the Company participated in the drilling of four (2.3 net) wells, all of which were cased for natural gas. On a year-to-date basis, the Company has drilled 17 (9.8 net) wells, resulting in 14 (6.8 net) natural gas wells, one (1.0 net) oil well and two (2.0 net) unsuccessful wells. The Company has contracted a drilling rig for the period November 2004 through March 2005, to support an expanded winter drilling program. As a result, the Company has raised its 2004 capital budget for Canada from $15 million to $19 million. The Company is actively developing new exploration prospects and an inventory of approximately fifty opportunities has been established. The Company plans to drill an additional 4-8 wells before year-end.
Third quarter production averaged 1,433 boe/d, up 29% from year ago levels, but lower than second quarter volumes. Current production from the Company's Canadian operations continues to grow and it is
anticipated that the Company is well positioned to reach its year-end exit production target of 2,000 boe/d in western Canada.
United Kingdom
The Company's oil and natural gas production in the U.K. is from a single producing field at Kyle in the U.K. sector of the North Sea. This field has been developed with four wells, which produce from two separate reservoirs. In late 2003, one well was shut-in after production faltered and it has been subsequently determined that gas lift is needed to facilitate production. In the second quarter 2004, a second well was shut-in when it was decided to re-route production from this well to an alternate facility located at the Banff field. This well (K14) has been tied back to the Banff Ramform production facilities and production commenced on October 1st. Initial production rates are above the Company's expectations. The K14 well is being operated on a tariff basis, which will contribute to reducing overall field operating costs.
Bow Valley is forecasting 4th quarter production from the Kyle field to average approximately 12,500 boe/d (1,780 boe/d net), although reported sales volumes will be lower than this figure at approximately 1,250 boe/d (net) due to the timing of oil tanker liftings. Oil and natural gas sales in the first quarter of 2005 are expected to be materially higher than fourth quarter 2004 averages and may even exceed current net production levels due to the forecast lifting schedule.
The Kyle partners continue to evaluate other opportunities to reduce costs, improve reservoir performance and extend the Life of Field for Kyle.
The Company's confidence in the development of the Blane and Enoch fields in the North Sea continues to grow. Several meetings with the joint venturers of each field have resulted in the expectation that field development plans will be approved over the year-end, with government sanction expected by the first quarter of 2005 and first production from each field by the third quarter of 2006. Expected net production from these two fields could more than double current corporate production.
Recent transactions in the North Sea have established a new, higher value for pre-development assets. The Company has a portfolio of 13.66 mm boe of probable reserves in the U.K.
Production and Operations
Production increased by 29% to average 1,433 boe/d for the third quarter of 2004 compared to the same period in 2003. Production is up year-over-year, largely due to the Company's successful drilling program. Daily natural gas production of 7,628 mcf/d in the third quarter of 2004 was up 58% from 4,841 mcf/d in the third quarter of 2003 due to the Company's focus on natural gas exploration and development. The Company will continue its natural gas directed activities and expects higher sales volumes in the fourth quarter of 2004 and the first quarter of 2005.
For the nine month period ended September 30, production was up 2% year-over-year, averaging 1,601 boe/d.
Revenue
Oil and natural gas sales increased 47% to $5.1 million during the third quarter of 2004 compared to $3.5 million in 2003. The increase is attributable to higher production for the year-over-year comparison as well as higher commodity prices. For the first nine months of 2004, sales were $17.4 million, up 3% compared to 2003, with higher production offset slightly by lower natural gas prices.
Operating Costs
Operating costs for the three month period improved 9% to $7.48 per boe compared to $8.22 per boe in 2003. On a year-to-date basis, operating costs were $7.10 per boe compared to $5.85 per boe in the comparable period of 2003. Operating costs were up year-over-year on a nine month basis due to the influence of Balsam in 2003, which had a significant contribution of production at low operating costs in the first quarter of 2003.