Canadian Superior Energy Inc. Achieves Record Production Growth, up 150%; Q3 Revenues up 178% - Third Quarter Results -.
CALGARY, Alberta--(BUSINESS WIRE)--Nov. 29, 2002
In its third quarter report to shareholders released today, Canadian Superior (AMEX:SNG)(TSX:SNG) reported record production growth, with third quarter 2002 production up 150% from third quarter 2001. Additionally, third quarter 2002 revenues increased 178% over the corresponding 2001 period as a result of higher natural gas production and increased commodity prices. In its third quarter report to shareholders, the Company said:
"The first nine months of 2002 was an exciting period for Canadian Superior. The period was highlighted by several significant achievements by the Company, including operating the drilling of our first Offshore Nova Scotia well. In addition, we continued to actively develop and successfully expand our interest in several significant high impact Western Canadian natural gas plays. On the East Coast, the drilling of our "Marquis" L-35/L-35A well succeeded in confirming the targeted play type, the Abenaki reef reservoir and porosity. Accordingly, we intend to proceed with the drilling of a second "Marquis" well on our "Marquis" natural gas project during 2003. In addition, on our 101,800 acre "Mariner" project, drilling plans are proceeding ahead with a well planned for early 2003 on this "world-class" prospect. During the third quarter, we initiated a 2,200-kilometre high resolution seismic program with El Paso Oil & Gas Canada, Inc. on our "Mariner" lands. We have now completed the shooting of this $3.5 million seismic program, and we are currently moving ahead with drilling preparations for our first "Mariner" exploration well. Engineering and procurement activities for this well are currently in high gear. Subject to regulatory approval, the offshore site survey field work for the "Mariner" well will commence in mid-January 2003 with drilling to occur thereafter. In addition, the deep water natural gas play Offshore Nova Scotia is attracting worldwide attention as industry moves forward with several significant deep water exploration wells Offshore Nova Scotia where Canadian Superior is one of the largest acreage holders with our 100% owned "Mayflower" block.
In Western Canada, we initiated a major new natural gas exploration and development program late in the third quarter. This program is targeting the development of newly acquired acreage in Northwest and West Central Alberta and Northeast British Columbia. Drilling commenced at the end of the third quarter in a program that entails drilling of approximately 25 high working interest wells in Company operated areas (approximately 90 percent average working interest). During the third quarter, our average daily production increased to approximately 7.25 mmcfe/d up substantially from approximately 2.75 mmcfe/d in the third quarter of 2001 and up from approximately 5.9 mmcfe/d in the second quarter of 2002. In addition, field activities and shut-in production and production that required remedial work in new core areas drilled last winter was restricted by winter access limitations. Production curtailments related to winter access limitations in the Windfall and Venus areas will be addressed over the next few weeks once winter freeze-up allows us access to these areas. In addition, shut-in production, estimated to be approximately 2 mmcfe/d, will be added when winter access allows for additional tie-ins in the Bison Lake area.
Significant achievements in the third quarter of 2002 are as follows:
Western Canadian oil and gas production increased approximately 113 percent in the first three quarters of 2002 compared to the same period in 2001.
Third quarter 2002 oil and gas production increased approximately 163 percent compared to the third quarter of 2001 and approximately 23 percent compared to the second quarter of 2002.
Third quarter 2002 revenues increased approximately 178 percent compared to the third quarter of 2001 and approximately 12 percent compared to the second quarter of 2002.
On July 2, 2002 we received approval to drill the "Marquis" test well Offshore Nova Scotia. This well spudded on July 6. The "Marquis" L-35/L-35A test well was completed safely and under budget at a cost of $41 million. Although commercial hydrocarbons were not tested in the "Marquis" L-35/L-35A test well, the well encountered both porosity and the Abenaki reef reservoir, thereby establishing significant prospectivity on additional offsetting locations on the "Marquis" Project lands. During the third quarter, we initiated a $3.5million, 2,200 kilometre high resolution seismic acquisition program covering the "Mariner" Project lands Offshore Nova Scotia. During the period, we also commenced the detailed licensing application process with the Canada-Nova Scotia Offshore Petroleum Board ("CNSOPB") for exploration drilling on our "Mariner" lands commencing with the filing of the Environmental Assessment for the project. In Western Canada, we continued to successfully expand our acreage positions in Alberta and British Columbia. This initiative has allowed us to proceed with a multi-well drilling program in Western Canada targeting high impact drilling in newly established high working interest areas, including the Ladyfern, Chinchaga and Pine Creek areas in Alberta. Furthermore, development drilling is planned for the Windfall, Boundary Lake and Bison Lake areas in Alberta, as well as high impact exploration planned for the Umbach, Altares and Parkland areas of Northwestern British Columbia. On September 3, 2002, Canadian Superior's common shares commenced trading on the American Stock Exchange (AMEX) under the symbol "SNG". During the first nine months of 2002, our average daily trading volume on the Toronto Stock Exchange (TSX) was 323,443 shares. The AMEX listing will further increase our share liquidity and expands the capital markets available to the Company. We are very pleased to welcome our new U.S. shareholders to the Company.
EAST COAST OFFSHORE NOVA SCOTIA ACTIVITIES
Drilling of the First "Marquis" Project Test Well
On July 2, 2002, Canadian Superior, as operator, received approval to drill the first "Marquis" test well Offshore Nova Scotia. The "Marquis" L-35/L-35A test well spudded on July 6, 2002 and drilling was completed safely and under budget in September on this $41 million well. Through joint venture agreements with subsidiaries of El Paso Corporation ("El Paso"), El Paso earned a 50 percent working interest to depth drilled on the "Marquis" Prospect by carrying Canadian Superior for the bulk of the cost of the test well. The 4,552 metre test well encountered both porosity and the Abenaki reef reservoir, thereby establishing significant prospectivity on additional offsetting locations on the "Marquis" Project lands. Although commercial hydrocarbons were not tested in the "Marquis" L-35/L-35A, based on the encouraging results of the test well, further drilling on the "Marquis" prospect is planned for 2003.
Drilling of the First "Mariner" Project Test Well
Canadian Superior's "Mariner" Project lands cover a total area of approximately 101,800 acres and directly offset five significant discoveries near Sable Island, including the 1.6 tcf Venture field located 275 kilometres southeast of Halifax, Nova Scotia. During the third quarter we initiated a 2,200 kilometre high resolution seismic program with El Paso Oil & Gas Canada, Inc. on our "Mariner" Project lands. This $3.5 million seismic program has now been completed and we are currently moving ahead with preparations for the drilling of our first "Mariner" exploration well. The "Mariner" Prospect is targeting reserves of up to 1.0 tcf and our first "Mariner" well is expected to commence drilling in early 2003. Engineering and procurement activities for this well are currently in high gear. Subject to regulatory approval, offshore site survey field work for the "Mariner" well is expected to commence in mid-January 2003 with drilling to be scheduled commencing thereafter.
"Mayflower" Deep Water Project
Canadian Superior holds a 100 percent interest in approximately 720,000 acres of deep water acreage Offshore Nova Scotia. Work is currently underway to secure a deep water partner for this prospect and we expect to be in a position to announce a major joint venture partner in the very near future for this exciting project on similar terms as to what we have achieved on our "Mariner" and "Marquis" Projects. Late in the third quarter, we completed a Deep-Water Environmental Survey field program for our "Mayflower" Prospect. Our Environmental Assessment for Exploration Drilling for the "Mayflower" block is expected to be filed in December along with our Canada-Nova Scotia Benefits Plan. Our "Mayflower" block is located on the Western portion of the Scotian Basin, approximately 285 kilometres east of Boston, Massachusetts, in close proximity to large northeastern United States energy markets. Drilling on the "Mayflower" Prospect, targeting large deep water turbidite structures identified on our lands, is currently targeted for late 2003 or early in 2004. Three large prospects identified on our "Mayflower" Prospect are basin floor fans and turbidites flanked up against large salt diapers. Potential exists in these types of prospects for the discovery of several tcf of natural gas. Canadian Superior is one of the largest holders of deepwater acreage Offshore Nova Scotia where the CNSOPB has recently significantly upgraded potential natural gas reserves. The potential of Canadian Superior's lands was highlighted in the CNSOPB report. Deepwater wells encountering natural gas have been drilling by Marathon Oil and Chevron Canada during 2002 in the area and EnCana Corporation is currently operating their first deepwater well at Torbrook Offshore Nova Scotia. Accordingly, we are very optimistic about this prospect's future potential.
Recent Exploration and Development Activity
In Western Canada, Canadian Superior spent a considerable amount of effort in preparing for the commencement of its fall and winter season high impact drilling program. This program began at the end of the third quarter and is targeting the development of newly acquired acreage in Northwest and West Central Alberta and Northeast British Columbia. Drilling commenced at the end of the third quarter on a 2002/2003 program that entails approximately 25 high working interest wells to be drilled on Company operated lands (approximately 90 percent average working interest).
Of particular note was the hiring of additional professional staff to complete the formation of our Western Canadian exploration team. In this regard, we wish to welcome Mr. Ed Chau to the position of senior geophysicist, Mr. Vince Ekvall and Mr. Wally Pedersen to the positions of senior geologists and Mr. Neil Dore to the position of Engineering Manager. The Western Canadian team is focusing on expanding our production base with several exciting wells planned over the next few months. Activities will initially be concentrated on the Windfall, Venus, Boundary Lake and Bison areas.
In the Windfall area, the construction of a year-round access road is nearing completion to allow year-round access to this winter access only area. At least three exploration and development wells are planned in this area with drilling to commence prior to year-end. Compression is being added to enhance production from three existing wells that are currently producing against high pipeline pressure. The compression is expected to be installed by early December. The three existing wells in this area are currently producing approximately 1.4 mmcfe/d on a restricted basis, but are expected to produce approximately 5.5 mmcfe/d upon the completion of the installation of the compression facilities. In the Venus area, subsurface equipment and further production facilities are required to enhance production and compression equipment is also being considered. In addition, a 3-D seismic program will be conducted over lands acquired earlier this year at Crown Land Sales and over farm-in lands. Up to three wells are planned for drilling in the Venus area this winter. Access to the Venus area, which is highly prospective for Slave Point and Debolt production, is restricted to winter access only and drilling will occur in January after freeze-up.
In addition, to the activities planned for the Windfall and Venus areas, we plan to drill several wells and bring on shut-in gas production, estimated to be approximately 2 mmcfe/d, when winter access allows for additional tie-ins and enhancement of production in the Bison and Boundary Lake areas.
High Impact Western Canada Exploration East Ladyfern Play
Subsequent to the end of the third quarter, on November 18, 2002 Canadian Superior announced that it completed the acquisition in Northwest Alberta of a major acreage position totaling 22 sections of contiguous land located updip of the main Ladyfern gas field.
On November 13, 2002, Canadian Superior successfully acquired 10 sections of land at the Government of Alberta's Alberta Petroleum and Natural Gas Land Sale for a total purchase price of $1,249,740 at an average cost of $488 per hectare. This acreage position complements lands previously acquired by the Company as a result of an extensive land acquisition program conducted by the Company through land agents over the past 18 months in this highly competitive natural gas play. The Ladyfern acquisition, which was done on a highly confidential basis, is located on the Alberta side of the main Ladyfern play which to date is predominantly in British Columbia. The Ladyfern acquisition is based on extensive seismic data acquired and shot by Canadian Superior updip from the main Ladyfern field on the Slave Point carbonate bank during the fall of 2001 and winter of 2002 which has identified multiple Slave Point natural gas opportunities on our extensive holdings. A decision was made after the original Murphy/Apache Ladyfern discovery to concentrate on the acquisition of acreage updip and East of Ladyfern where little seismic data had been shot by industry. Henceforth, we were able to acquire extensive acreage on a reasonable basis prior to industry focusing on this area. Several major Slave Point amplitude anomalies analogous to the main Ladyfern field have been identified on our acreage and we are very excited about this 'world-class' play". Ladyfern's reserves are estimated to be in excess of 1 tcf of natural gas and it is one of the largest discoveries in Western Canada in the past 15 years. The Ladyfern field accounts for approximately 4% of Western Canadian gas production. The Murphy/Apache Ladyfern discovery at A-097-H/094-H-01 tested at rates in excess of 100 mmcf/d of natural gas.
Canadian Superior will be conducting a multi-well drilling program on the East Ladyfern acreage with drilling to commence over the next 6 weeks with the first test well to be located at LSD 2 of Section 07-92-11 W6M. The multi-well drilling program is part of a focused exploration and development program Canadian Superior is conducting in Western Canada alongside the Company's strategy of developing its extensive holdings Offshore Nova Scotia.
Detailed maps related to Canadian Superior's 2002/2003 Western Canadian drilling program, Ladyfern and the Company's Offshore Nova Scotia holdings are available for viewing on Canadian Superior's website at www.cansup.com.
Common Share Financing
On November 22, Canadian Superior announced the private placement financing of 7 million common shares. This private placement was over-subscribed. Gross proceeds from the financing totaled $10.5 million (net $10.1 million), and will be used to fund Canadian Superior's exciting exploration programs and to ensure maintenance of a strong balance sheet to support our aggressive growth strategy.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Oil and gas revenues for the three months ended September 30, 2002 were up significantly to $2,286,000, an increase of 178 percent over the $822,000 posted in the same quarter of 2001 as a result of higher gas production and prices. Gas production for the third quarter of 2002 averaged 6.5 mmcf/d, up 150 percent from 2.6 mmcf/d during the third quarter of 2001. Canadian Superior realized an average natural gas price of $3.49 per mcf in the third quarter of 2002, up from $3.09 in the third quarter of 2001, bringing the first nine months of 2002 average price to $3.60 per mcf down 40 percent from $6.02 per mcf during 2001. In spite of the lower nine month natural gas prices in 2002, year to date revenues increased significantly to $5,161,000 in 2002, from $4,055,000 in 2001, as average natural gas production nearly doubled to 4.7 mmcf/d for the nine months ended September 30, 2002, up from 2.4 mmcf/d in the same period of 2001.
Oil and natural gas liquids production average approximately 75 b/d during both the third quarter and nine months ended September 30, 2002, up from 15 b/d during the same periods of 2001. Liquids prices averaged $40.21 per barrel during the third quarter up 17 percent from the same period in 2001.
Royalties of $574,000 for the third quarter and $1,283,000 for the first nine months of 2002 averaged approximately 25 percent of revenues for each period. Royalties paid during 2002 have increased from 2001 as a result of increased 2002 production.
Operating costs of $1,714,000, or $7.30 per boe (6:1), for the first nine months of 2002 have increased from $620,000 during the same period in 2001, reflecting the nearly doubling of natural gas production.
General and administrative expenses of $613,000 in the third quarter of 2002 brought the nine months total to $1,911,000. 2002 G&A expenses have increased approximately 26 percent over 2001 as the Corporation increased its staffing levels to support both the Western Canadian activities and the drilling of East Coast wells.
The Corporation incurred interest expenses of $78,000 relating to advances on its revolving production loan, which at September 30, 2002 was $6,800,000.
Depletion expenses of $2,307,000 for the 9 months ended September 30, 2002 was more than triple the $694,000 posted during the same period of 2001. Two major factors affecting this are the significant net capital asset expenditures during 2002 of $36.8 million, and the nearly doubling of the average daily gas production in 2002 over 2001.
Interest income has declined from $638,000 in the first nine months of 2001, to $344,000 in the same period of 2002, largely resulting from the decrease of cash deposits, which totaled $20,462,000 at September 30, 2001 compared to $12,032,000 at September 30, 2002.
The Corporation recorded current taxes, in respect of the Large Corporation Tax of $118,000 for the first nine months of 2002. The reduction in future income taxes of $373,000 for the nine months ended September 30, 2002 results from the loss from operations.
The Corporation posted a net loss of $821,000 for the third quarter and $1,608,000 for the first nine months of 2002, due largely to increased non-cash depletion expenses, compared to a loss of $95,000 and income of $8,789,000, respectively for the same periods during 2001. The variance between 2001 and 2002 income also results from a $13.2 million pre-tax gain on the sale of the Corporation's Waterton property during 2001.
Cash flow for the third quarter of 2002 of $250,000 is up slightly from $228,000 for the same period in 2001, as increased third quarter 2002 production and prices more than offset the higher associated operating and general and administrative expenses. Cash flow for the nine months ended September 30, 2002 of $401,000 was down from $1,653,000 during the same period of 2001, as the 40 percent decrease in 2002 natural gas prices lowered the Corporation 2002 operating netbacks. Cash flow is expected to increase significantly heading into 2003 as natural gas prices remain strong, production increases from field operations made possible by winter access and as the Corporation moves forward with its aggressive new drilling program and additional tie-ins and production enhancements.
Gross capital expenditures for the first nine months of 2002 were $46.8 million up 183 percent from $16.5 million spent in the same period of 2001. Approximately $33.5 million was spent on drilling and completions, $9.6 million and tie-ins and pipelines and $3.7 million on land purchases. Third quarter capital expenditure activities, totaling gross $18.4 million, were largely focused on the drilling of the Corporation's Marquis L-35/L-35A well in which the Corporation recorded $13.7 million gross drilling expenditures in the quarter. These costs were largely offset by a $10.0 million prospect commitment fee Canadian Superior received in the third quarter. In the event that any natural gas or other hydrocarbons in commercial quantities are produced from a well on the "Marquis" Prospect, the Corporation will be obligated to repay the amount in 12 quarterly installments following commencement of commercial production. This fee allowed the Company to retain a 50 percent working interest in the $41 million "Marquis" well for the nominal net cash outlay of $3.7 million.
At September 30, 2002, the Corporation had $6.8 million drawn on its revolving production loan. On October 28, 2002, the loan facility was increased to $14.0 million from $11.0 million as a result of the Company's expanded reserve and production base with the next scheduled review date set at June 30, 2003.
On November 22, 2002, the Corporation announced it had completed a private placement financing for gross proceeds totaling $10.5 million. The total financing provides for the issuance of 7 million flow-through common shares at a price of $1.50 per share. These funds, along with the increased revolving production loan will be used to fund future capital expenditures operations.
The recent financing allows the Corporation to continue forward with a strong balance sheet and places the Corporation in the current position of being net-debt free. With a full compliment of staff and increased financial flexibility, as a result of the private placement, the Corporation is also focused on potential production acquisitions into year end.
Canadian Superior's management, staff and board remain firmly committed to developing our exciting Western Canadian and East Coast projects.
A core production base in Western Canada has been developed and our East Coast program has commenced. Our objective in 2002 is to continue to emerge as a rapidly growing, well capitalized, intermediate oil and gas company. We are determined to remain well capitalized and focused on what must be achieved to continue growth and to increase long-term value for our shareholders.
Respectfully submitted on behalf of the Management, Staff and Board of Directors of Canadian Superior."
Canadian Superior is a Calgary, Alberta based oil and gas exploration and production company. The Company is one of the largest acreage holders offshore Nova Scotia, with interests in 934,065 acres offshore Nova Scotia (See: Canadian Superior's website at www.cansup.com to review Canadian Superior's "Marquis, Mariner and Mayflower Offshore Projects" and to view the "Table of Major Offshore Nova Scotia Acreage Holders" and "Offshore Nova Scotia Maps" and information on the Company's 2002/2003 Western Canadian operations including new maps on the Company's East Ladyfern High Impact Play.
Certain securities law authorities, including certain jurisdictions in the United States that regulate disclosure by publicly traded companies, allow an oil and gas Corporation to disclose only proved reserves that a Corporation has demonstrated by actual production or conclusive formation tests to be economically and legally producible under existing economic and operating conditions. The use of certain terms and references to certain types of reserves in this press release, such as probable reserves, could not be used or referenced in securities disclosure documents publicly filed in certain jurisdictions. Furthermore certain information regarding the Corporation or the information contained herein may be interpretive or may constitute forward-looking statements herein or under applicable securities laws. Such statements are subject to known or unknown risks and uncertainties that may cause actual results or estimates to differ materially from those anticipated or implied in the interpretations or forward-looking statements.
To view the complete September 30, 2002 third quarter report, including detailed financial statements and notes, visit Canadian Superior Energy Inc.'s website at www.cansup.com.
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|Date:||Nov 29, 2002|
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