First Calgary Petroleums Ltd. (FCP, First Calgary or the Company) announces its financial results for the three months ended March 31, 2006.
Highlights
- Successful production test results from the LES-3 and MLE-6 wells;
- New oil pool discovered in the TAGI zone in the LES area;
- Commercialisation and gas marketing discussions on the MLE field progressing with Sonatrach targeting field development approval in 2nd half 2006;
- Successful C$165 million (US $142 million) net equity financing in April - funds expanded exploration and appraisal drilling through 2006 and into 2007;
- Three rigs in operation, currently drilling exploration prospects ZER-1, GSME-1 and GSM-1.
Richard Anderson, President and CEO, commented:
“Our recently announced drilling and testing successes, together with ongoing commercialisation activities, confirm the excellent progress we are making with our strategy. We are delighted with the support received from shareholders in the oversubscribed equity capital raising, which enables us to extend our exploration and appraisal activities well into next year.”
FCP is building momentum in 2006, working towards commercialisation milestones and achieving excellent drilling results on Block 405b. During the quarter, First Calgary continued to execute its strategy that focuses on two principal initiatives:
- commercialise Block 405b with a staged development plan initially based on the MLE area of the Block; and
- increase proved and probable reserves through a programme of exploration, appraisal drilling and completion activities.
Ledjmet Block 405b - Exploration and Appraisal Activities
FCP recently announced very positive production test results from the LES-3 and MLE-6 wells. LES-3 encountered a new oil pool in the TAGI zone, while MLE-6 completes a successful appraisal of the MLE field. Completion and production testing activities are ongoing, currently at LEW-2.
First Calgary is now operating three rigs which are currently drilling three exploration prospects. The first prospect, ZER-1, will satisfy FCP’s remaining drilling commitment on Block 405b and explore the northwest quadrant of the Block. The second and third prospects are exploring the southern portion of the Block. It is important that these exploration prospects are drilled prior to the expiration of the exploration period in December 2006, so that FCP can optimise its retention of acreage for further appraisal and potential exploitation.
During the three months ended March 31, 2006, First Calgary spent $22.1 million on the following exploration and appraisal activities on the Block:
- ongoing geological and geophysical analysis and studies;
- completed and production tested the LES-3 and MLE-6 wells;
- drilled and cased the LEW-2 well;
- commenced drilling the ZER-1 exploration well;
- performed various testing and reservoir stimulation activities; and
- prepared access roads and drill platforms for future drilling locations. MLE Commercialisation
During the quarter, FCP and Sonatrach have progressed discussions regarding potential terms for marketing the natural gas and have been working towards commencement of FEED (Front End Engineering and Design). Once the marketing terms are finalized, an Exploitation License Application (ELA) will be submitted to the Algerian Ministry of Energy and Mines. FCP continues to target an ELA submission mid-2006, with approval sought in the second half of 2006.
Rhourde Yacoub Block 406a
The exploration period of the Block 406a joint venture agreement ends on August 10, 2006 at which time FCP is required to complete appraisal activities and, if appropriate, submit a development plan for the ZCH discovery. During the first quarter of 2006, First Calgary spent $3.5 million on completing, production testing and evaluating the ZCH-2 results. A decision will be made regarding any future activity on the Block prior to the end of the exploration period.
Capital Expenditures
The Company’s capital expenditures in the first three months of 2006 totaled $34.9 million, compared to $12.5 million in the comparable 2005 period, reflecting an increased level of activity on Block 405b.
Liquidity and Capital Resources
In April 2006, FCP raised gross proceeds of C$174 million (approximates US $142 million in net proceeds) from an equity financing of 19,340,000 common shares. These proceeds, together with the Company’s $58 million of existing working capital as at the end of March, will enable FCP to continue its aggressive three rig drilling operation into 2007. Additional funding is derived periodically from the exercise of stock options and warrants. During the three months ended March 31, 2006 FCP issued 204,533 common shares from the exercise of employee stock options, resulting in $0.2 million in proceeds. Without revenue from oil and gas operations, FCP relies upon equity to fund its short-term operations and capital programmes.
Development of the Ledjmet Block 405b reserves through to commercial production will require significant funding. This funding is expected to be in the form of debt, equity, joint ventures or some combination thereof. With the current high commodity price environment, the capital markets appear receptive to the oil and gas industry and the Company believes this environment will continue into the foreseeable future. First Calgary has been approached by a number of parties seeking to fund the Ledjmet development. To date, no arrangements have been entered into, however the Company is optimistic the necessary funding will be available when required under reasonable commercial terms.
The Company’s working capital at March 31, 2006 was $58.5 million compared to $92.2 million at last year end.
Outlook
First Calgary’s strategy is primarily to commercialise Block 405b and increase proved and probable reserves. The plan for 2006 is to make progress with both of these, through its commercialisation discussions with Sonatrach and capital investment programme. In addition, financing alternatives are currently being investigated to enable the Company to proceed to the development phase.
