First Calgary Petroleums Ltd. announces its results for the six months ended June 30, 2006.
Highlights
• Updated Final Discovery Report presented to Sonatrach, refining MLE development plan
• On track with MLE project timeline that includes field declaration of commerciality in the second half of 2006 with first production targeted for 2009
• Citigroup appointed in July 2006 as sole financial advisor on project debt financing for the development of the MLE field
• Aggressive exploration and appraisal programme funded through 2006 and into 2007 following successful $143 million equity financing
• 2006 full year capital budget expanded to $150 million, increasing drilling programme to a total of 12 wells
• LEW-2 appraisal well result positive for the overall structure but restricted reservoir volume encountered
• Testing operations underway on recently completed exploration well, ZER-1
• Recent results from exploration wells GSM-1 and GSME-1 being reviewed by FCP and Sonatrach
• LES-4 well appraising LES-3 oil discovery currently drilling – candidate for early oil development if LES-4 successful
• Further seven appraisal and exploration wells scheduled for remainder of 2006, including recently spudded appraisal well MZLS-2
Richard Anderson, President and CEO, commented:
“Our fast track MLE field commercialisation plan is progressing on schedule. We have an aggressive drilling programme in the next six months, with three rigs currently employed and seven further wells planned.”
President’s Report to Shareholders
During the second quarter of 2006 First Calgary continued to pursue its strategy of:
- commercialising Ledjmet Block 405b with a staged development plan starting with the MLE field area of the block; and
- increasing proved and probable reserves through an aggressive drilling programme and completion activities.
Operational Progress
Operational activity in the second quarter increased significantly with three drilling rigs operating on Ledjmet Block 405b for the first time. During this period, three exploration wells have completed drilling: ZER-1, GSM-1 and GSME-1. ZER-1 has been cased and testing operations recently commenced. Testing operations at GSM-1 were completed on 29 July 2006; currently the test data are being reviewed and analysed. GSME-1 has been logged and cased and technical data are being reviewed by FCP and Sonatrach.
Production testing of the LEW-2 appraisal well was also completed in the quarter. The well flowed at over 10 mmcf/d and while the test data confirmed the overall prospectivity of the structure, it also indicated LEW-2 had penetrated a Lower Devonian reservoir compartment of restricted volume, likely due to local faulting.
With the five year exploration phase on Block 405b ending in December this year, in order to continue exploration and appraisal drilling FCP has expanded its 2006 full year capital budget to a total of $150 million, to include another six wells in 2006, making a total of 12 wells. The next three wells are LES-4, MZLS-2 and MZLN-2 and each will be appraising existing discoveries. LES-4 is currently drilling and is a step-out to the oil discovery well at LES-3, which is a candidate for early development, and MZLS-2 has also recently spudded. Further well locations will be decided in the future depending on the results of the current drilling and testing programme. When Block 405b reaches the end of its five year exploration period, the part of the block without discoveries will be relinquished and we will move into the two year appraisal phase, during which plans for the further development of the retained area will be formulated.
On June 26 FCP announced the planned relinquishment of our interest in Rhourde Yacoub Block 406a, in order to focus our activities fully on Block 405b.
Financing
During the quarter FCP increased its cash resources by $143 million from an equity financing of 19,445,636 common shares. Proceeds from this financing have provided First Calgary with the financial strength to continue its aggressive exploration and appraisal drilling programme through 2006 and into 2007, and to progress the commercialisation of the MLE field.
In July 2006 First Calgary announced that Citigroup has been appointed sole financial advisor to the Company on raising project debt for the development of the MLE field.
Commercialisation
During the quarter, FCP presented an updated Final Discovery Report to Sonatrach that refined the MLE development plan. Discussions regarding terms for marketing the natural gas were advanced significantly during the quarter. Once the marketing terms are agreed in principle, an Exploitation License Application (ELA) will be submitted to the Algerian Ministry of Energy and Mines. FCP remains on-track with its project timeline that includes an ELA approval in the second half of 2006 leading to development commencement next year and first production in
2009.
Algerian Hydrocarbon Law
FCP has noted the changes to the hydrocarbon laws recently announced by the Algerian Government. These changes will be carefully reviewed when the legislation is published to determine the impact, if any, on FCP’s interest in Block 405b.
Outlook
The plan for the rest of 2006 is to finalise the gas marketing terms, and obtain ELA approval for the MLE development, whilst continuing with our drilling and testing programme ahead of the Block 405b partial relinquishment at year end. In addition, we will be progressing the front end engineering and design (FEED) work on MLE, and increasing our focus on project debt finance for the field.
