Highlights
Corporate
• 2005 funds flow was $32.1 million, up 117% over 2004. Funds flow per share (basic) was $0.49 ($0.47 per share fully diluted), up 113% year-over-year (fully diluted up 104%).
• Fourth quarter, 2005 funds flow was $10.3 million, up 159% over fourth quarter, 2004. Fourth quarter funds flow per share (basic) was $0.15, up 150%.
• Earnings per share was $0.10, up 300% compared to 2004.
• Sales volumes averaged 3,227 boe/d in 2005, up 22% compared to 2004. Fourth quarter sales volumes were 2,785 boe/d, up 5% compared to the fourth quarter of 2004.
• Net debt and working capital deficiency was $4.8 million at year-end, including bank debt of $8.8 million.
• The Company estimates its net asset value at $4.39 - $5.84 per share, up over 50% year-over-year.
U.K.
• Funds flow was $10.7 million, up 204% over 2004. Fourth quarter funds flow was $2.5 million, up 72% year-over-year.
• Major milestones were achieved with the government approvals of field development plans for three of the Company's undeveloped fields; Blane, Enoch and Chestnut. First production from the first of these fields is expected before the end of 2006.
• The Company has significantly improved its cost structure in the U.K. as a result of redirecting Kyle production from the Maersk Curlew to the Ramform Banff. Fourth quarter operating costs averaged $5.73 per boe compared to fourth quarter 2004 operating costs of $19.57 per boe and the 2005 full year average of $21.29 per boe
• The net present value (NPVBT(10)) of U.K. proved plus probable reserves increased 86% to $219.1 million due largely to project acceleration and higher oil price estimates offsetting a reserve volume reduction of 11% due to production and a revision to prior estimates.
• Sales volumes averaged 1,195 boe/d, an increase of 13% year-over-year. Fourth quarter sales volumes averaged 560 boe/d, a decrease of 49% year-over-year due to lower production owing to capacity constraints at the Ramform Banff, lower production volumes from the K14 well due to natural depletion and a lower number of liftings.
• The Company spent $11.5 million in the U.K. in 2005, with the majority of expenditures related to the development of the Company's non-producing properties.
Canada
• Funds flow was $21.3 million, up 90% over 2004. Fourth quarter funds flow was $7.9 million, up 209% year-over-year.
• Sales volumes averaged 2,032 boe/d, up 28% year-over-year. Fourth quarter sales volumes averaged 2,225 boe/d, up 43% year-over-year.
• The Company's Canadian proved plus probable reserves were 4.3 mmboe, up 14% and the net present value (NPVBT(10)) of the reserves was $88.2 million, an increase of 48%.
• The Company spent $28.0 million in Canada in 2005, up 26% year-over-year, to add 1.6 mmboe of reserves (proved plus probable before revisions).
• The Company participated in 21 (15.8 net) wells resulting in 11 (7.1 net) natural gas wells, three (2.5 net) oil wells, three (2.6 net) suspended wells and four (3.6 net) abandoned wells for a success rate of 67% (61% net). All three suspended wells have uncompleted zones from which a commercial result is anticipated, which could improve the success rate to as high as 81% (75% net).
Canada
The Company showed favourable year-over-year growth in reserves, production, cash flow and profitability, in spite of industry conditions which saw a tightening market for equipment and services and weather patterns that led to restricted surface access. In spite of these challenging conditions which resulted in much higher costs of services, the Company maintained discipline and stayed within approximately 10% of the original 2005 budget.
Bow Valley has planned a $40 million capital spending program for 2006, to drill 30 - 35 wells plus acquire land and seismic and build on its prospect inventory.
U.K.
Sales volumes in the U.K. showed good year-over-year growth, largely due to the full year performance of the K14 Paleocene well, which was brought back on production in October, 2004. The performance of this well, which has exceeded expectations, has led the Kyle partners to examine the potential for further drilling and/or recompletions in the Kyle field.
The Kyle partners completed the tie-back of the Kyle production from the Maersk Curlew to the Ramform Banff in 2005. The effect of redirecting the production will be to reduce operating costs at the field, improving profitability and extending field life. Because the Ramform Banff is a smaller vessel, Kyle production is now capacity constrained, however fourth quarter operating costs improved 71% over the previous year, which led to increased profitability. In spite of lower production in the fourth quarter, cash flow was higher, even after adjusting for higher commodity prices.
In 2005, Bow Valley continued to make progress in bringing its undeveloped U.K. assets to first production. The Company received U.K. and Norwegian government approvals for the development of three of the Company's five undeveloped fields. The first of these fields (Enoch) is expected to come on production before the end of 2006, with the other two following shortly thereafter (Blane - late 2006/early 2007; Chestnut mid-2007). These three fields will add initial production rates of over 45,000 (5,000 net) boe/d. A fourth field (Ettrick) is expected to receive U.K. government approval before the end of the first quarter, 2006 and is expected to be on production in early 2008.
With the progress being made on these development projects, the Company has begun to build an exploration portfolio, in preparation for increased exploration activity in 2007. The Company acquired three blocks in 2005 at working interests of 70 - 100%. Each of these blocks is operated by Bow Valley.
Corporate
Bow Valley estimates its current net asset value at $4.39 - $5.84 per fully diluted share, up over 50% year-over-year (based on the NPVBT(10) value of its reserves at forecast and year-end constant prices). The net asset value increased mainly due to project acceleration of the U.K. undeveloped assets and higher commodity prices.
The Company's balance sheet remains strong with a net debt to trailing cash flow of approximately 0.2 times. In 2005, the Company increased its bank lines to US$60 million in the U.K. and C$25 million in Canada.
Robert G. Moffat, President and Chief Executive Officer stated: "2005 was a significant year in which the Company achieved several strategic results. Three development projects in the U.K. North Sea advanced forward with full sanction of the Blane, Enoch and Chestnut discoveries plus the Company has filed for government approval of a fourth project at Ettrick. In addition, the Company established itself as an operator of three exploration blocks in the U.K. offshore. The western Canadian exploration program advanced with the building of a prospect inventory capable of sustaining the Canadian exploration effort for a couple of years. Operational and financial results were at record levels as the Company posted reserve and production additions combined with record revenue, cash flow and earnings. The Company is well positioned to post continued growth in 2006 and beyond on identified assets."