Cano Petroleum Announces Second Quarter Fiscal Year 2010 Results.
* LOE per barrel down 16% from Second Quarter 2009 and 4% from First Quarter Fiscal Year 2010;
* Executing maintenance level capital development plan until Resaca merger closes;
* The pending merger with Resaca Exploitation is proceeding as planned.
FORT WORTH, Texas -- Cano Petroleum, Inc. (NYSE Amex: CFW) today announced that production for the quarter ended December 31, 2009 ("Current Quarter") averaged 1,189 net barrels of equivalent oil per day ("BOEPD"). This is 1.2% lower as compared to production of 1,203 net BOEPD for the quarter ended December 31, 2008 ("Prior Year Quarter") and 2.4% lower as compared to production of 1,218 net BOEPD for the quarter ended September 30, 2009. Production for the six-month period ended December 31, 2009 ("Current Six Months") of 1,204 net BOEPD was 1.1% lower as compared to the six-month period ended December 31, 2008 ("Prior Year Six months") of 1,218 net BOEPD. Factors decreasing production for the Current Quarter include: (i) a 50 BOEPD temporary reduction to redistribute water injection at the Cato waterflood to enlarge the waterflood "footprint", and (ii) a 22 BOEPD reduction due to curtailed Barnett Shale natural gas production at our Desdemona Properties. Otherwise, normal field declines of production were more than offset by consistent and increasing performance at waterfloods from both our Cato and Panhandle Properties.
For the Current Quarter, we had a loss applicable to common stock of $8.9 million, which was a $22.6 million decrease as compared to the Prior Year Quarter of $13.7 million income applicable to common stock. Items contributing to the $22.6 million earnings decrease were reduced gain on derivatives of $26.0 million, lower income from discontinued operations of $12.2 million and decreased income from the preferred stock repurchased for less than the carrying amount of $10.9 million. Partially offsetting the earnings decrease were lower operating expenses of $24.6 million and higher operating revenues of $1.2 million. The $24.6 million reduction in operating expenses is primarily attributable to a $22.4 million charge for impairment of long-lived assets in the Prior Year Quarter.
For the Current Six Months, we had a loss applicable to common stock of $12.9 million, which was a $38.4 million decrease as compared to
the $25.5 million income applicable to common stock incurred for the Prior Year Six Months. Items contributing to the $38.4 million earnings decrease were reduced gain on derivatives of $50.2 million, lower income from discontinued operations of $11.4 million, decreased income from the preferred stock repurchased for less than the carrying amount of $10.9 million and lower operating revenues of $4.4 million. Partially offsetting the earnings decrease were lower operating expenses of $27.0 million, which is primarily attributable to a $22.4 million charge for impairment of long-lived assets in the Prior Year Quarter.
For the Current Quarter, our LOE per produced BOE was $37.12, which is an improvement of $6.94 as compared to $44.06 for the Prior Year Quarter. For the Current Six Months, our LOE per produced BOE was $37.93, which is an improvement of $6.92 as compared to $44.86 for the Prior Year Six Months. We expect LOE to decrease during the 2010 fiscal year as we realize the continued benefit of lower service rates negotiated with vendors. Additionally, we expect LOE per BOE to decrease as production increases from the waterflood and enhanced oil recovery development activities we have implemented and are currently implementing.
In the Current Quarter we spent approximately $2.9 million of our $13.9 million FY 2010 development capital budget ($8.0 million for the Current Six Months). Principally, these expenditures were for:
* Cato Field: $1.5 million to convert three wells to injection and expand the waterflood footprint
* Panhandle Field: $1.3 million to maintain the controlled injection project at the Cockrell Ranch Unit
Cato Properties. Our 2010 Fiscal Year development capital plan includes expanding the waterflood footprint from 640 acres to approximately 1,000 acres by adding three new injection wells, which were put into service in the Current Quarter. We have identified a new source of water in a non-productive formation within our acreage, and have confirmed that each water well is capable of producing 2,500 to 3,000 barrels of water per day. This new water source formation has been penetrated in a number of existing wellbores in the Cato Properties and confirms the reservoir continuity necessary for the formation to be validated as a reliable water source for future expansion of the Cato waterflood. As we develop this new water source, we will be able to increase the waterflood footprint without decreasing the injection rate at our existing injectors. This should enable us to maintain production from existing producing wells at current levels. We averaged 14,000 barrels of water injection per day ("BWIPD") during the quarter ended September 30, 2009. We experienced a decrease to 12,000 BWIPD during our Current Quarter as we measured increasing injection pressures in the northern part of the flood area and we were required, under our existing waterflood permit, to reduce the injection rate in these wells.
When the three new injection wells were activated during the latter portion of the Current Quarter, we were able to increase water injection to the southern portion of the flood. During January 2010, we increased the injection rate back to 14,000 BWIPD. Further development plans for Cato include behind-pipe recompletions, restoration of production from the Tom Tom and Tomahawk fields and the drilling of a deep Morrow formation test well. These development plans are contemplated to begin after the completion of the Merger.
Net production at the Cato Properties for the Current Quarter was 250 BOEPD, which was 50 BOEPD lower as compared to 300 BOEPD for the quarter ended September 30, 2009. The 50 BOEPD decrease resulted from the reduction of injected water and redistribution of water injection at the waterflood. We have applied for injection pressure increases on 21 wells with the New Mexico Oil and Gas Conservation Division and expect a decision in the March/April 2010 timeframe. A favorable decision would enable us to achieve increased injection rates up to 21,000 BWIPD (our current physical plant capacity). Net production at the Cato Properties for the Current Six Months was 275 BOEPD.
Panhandle Properties. In the quarter ended September 30, 2009 we retained an independent engineering firm to assist us with reservoir analysis and simulation modeling at the Cockrell Ranch unit. Based on this engineering firm's recommendations, we established a controlled water injection pattern to gauge the effects of optimizing water injection into the highest remaining crude oil saturation intervals of the Brown Dolomite formation. We are essentially performing a "Mini-Flood" in the key target interval at the Cockrell Ranch Unit. The result of this field observation, coupled with rigorous reservoir simulation modeling, is expected to demonstrate an optimal pattern for waterflooding the balance of the Cockrell Ranch unit with an increasingly predicable production profile. Moreover, the field observation and modeling results will improve the planning of future development programs for the remaining leases located within our Panhandle Properties. To isolate the observed wells, we had temporarily shut-in production during most of the quarter ended September 30, 2009, which reduced Panhandle production by 25 net BOEPD. All production that was shut-in for the controlled injection project was restored on September 28, 2009. The results of the controlled injection project and the accompanying reservoir simulation testing should be completed in the second calendar quarter of 2010.
Net production at the Panhandle Properties for the Current Quarter and Current Six Months was 599 BOEPD and 595 BOEPD, respectively. In addition to the controlled injection project curtailment, production was lower by 15 BOEPD as Eagle Rock Field Services, L.P. ("Eagle Rock"), a large purchaser of our natural gas and natural gas liquids ("NGL"), experienced an unplanned plant outage from mid-August 2009 through the end of September 2009. The Eagle Rock gas plant was returned to full operating capacity on October 1, 2009. During the Current Six Months we constructed gathering lines to redirect natural gas production from Eagle Rock to DCP Midstream, LP ("DCP"). As of December 31, 2009, we had redirected approximately 75% of the natural gas production previously delivered to Eagle Rock to DCP.
Desdemona Properties. During July 2009, we shut-in our Barnett Shale natural gas wells based upon the current and near-term outlook of natural gas prices and production from the Barnett Shale wells on a per-well basis. We are in the midst of a project to return to production previously shut-in gas wells from the Duke Sand formation. The proved reserves associated with these gas wells were classified as proved developed non-producing reserves on our June 30, 2009 reserve report (1.3 MMBOE). We successfully returned 12 of these wells to production during December 2009 (but did not sell any volumes) and returned an additional 13 wells to production during January-February 2010. Production from these gas wells, including associated NGL recovery from our gas plant, is expected to be approximately 10-20 Mcfe per day for each gas well returned to production. We restarted our gas plant in December 2009 and expect to realize the full benefit of these produced volumes by February 2010.
Net production at the Desdemona Properties for the Current Quarter and Current Six Months was 46 BOEPD and 42 BOEPD, respectively.
Nowata Properties. Our ASP tertiary recovery pilot project ("ASP Pilot") has been in full operation since December 2007. Analyses of the ASP Pilot results are complete. While we achieved some positive reaction to the surfactant in the reservoir, the recipe designed by an outside consultant did not take into consideration certain factors which lead to significant absorption of the surfactant in the reservoir rock. We have since retained UT to study the ASP Pilot results and develop an alternate recipe. Using the actual results of the ASP Pilot and performing additional coreflood studies, UT believes they have developed a new and optimal recipe that shows exceptional recoveries can be achieved at Nowata on a commercial basis. The lessons learned in regard to actual plant design and operation, fluid handling, injection pressures and rates, and producing fluid properties, should benefit full field development in the future and similar projects we may undertake at our other properties.
As a result of the non-commercial results from the ASP pilot, we recorded a $5.0 million pre-tax exploration expense during December 2009. There were no proved reserves associated with the ASP pilot project.
Net production at the Nowata Properties for the Current Quarter and Current Six Months was 219 BOEPD and 218 BOEPD, respectively.
Davenport Properties. Net production for both the Current Quarter and Current Six Months was 73 BOEPD.
Resaca Exploitation, Inc. ("Resaca") has filed its registration statement on Form S-4 and amendments thereto. Once approved by the Securities and Exchange Commission (the "SEC"), the registration statement on Form S-4 will serve as a prospectus for Resaca shareholders as well as a joint proxy statement for both Resaca shareholders and Cano stockholders to vote on the proposed merger of the two companies, in addition to other matters to be voted on as discussed therein. On January 27, 2010, Resaca filed a registration statement on Form S-1 with the SEC relating to the equity to be issued on a US exchange in conjunction with the closing of the merger. Those interested in reading the original Form S-4, and amendments thereto, can find these documents at www.sec.gov under Resaca Exploitation, Inc. filings or on Resaca's website at www.resacaexploitation.com.
On February 4, 2010, Resaca announced the signing of a $200.0 million new committed senior credit facility with Union Bank North America. The facility's initial borrowing base will be $90.0 million. We continue to work with Resaca on their efforts to procure a listing on a US exchange for the combined entity.
No Earnings Conference Call
There will be no earnings conference call associated with the second quarter results.
Cano Petroleum, Inc. is an independent Texas-based energy producer with properties in the mid-continent region of the United States. Cano's primary focus is on increasing domestic production from proven fields using enhanced recovery methods. Cano trades on the NYSE Amex under the ticker symbol CFW. Additional information is available at www.canopetro.com.
Resaca is an independent oil and gas development and production company based in Houston, Texas. Resaca is focused on the acquisition and exploitation of long-life oil and gas properties, utilizing a variety of primary, secondary and tertiary recovery techniques. Resaca's current properties are located in the Permian Basin of West Texas and Southeast New Mexico. Resaca trades on the AIM under the ticker symbols RSOX and RSX. Additional information is available at www.resacaexploitation.com.
Forward Looking Statements
Safe-Harbor Statement -- Except for the historical information contained herein, the matters set forth in this news release are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Resaca and Cano intend that all such statements be subject to the "safe-harbor" provisions of those Acts. Many important risks, factors and conditions may cause the actual results to differ materially from those discussed in any such forward-looking statement. These risks include, but are not limited to, estimates or forecasts of reserves, estimates or forecasts of production, future commodity prices, exchange rates, interest rates, geological and political risks, drilling risks, product demand, transportation restrictions, the ability of Resaca or Cano to obtain additional capital, and other risks and uncertainties described in the both companies' filings with the Securities and Exchange Commission or with Resaca's filings with the AIM. The historical results achieved by Resaca or Cano are not necessarily indicative of its future prospects. Neither Resaca nor Cano undertakes any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Additional Information and Where to Find It
This communication is being made in respect of the proposed business combination involving Resaca and Cano. In connection with the proposed transaction, Resaca and Cano have filed documents with the SEC, including the filing by Resaca of a Registration Statement on Form S-4 and its amendments containing a Joint Proxy Statement/Prospectus and Form S-1, which discusses our planned common equity issuance, and plan to (a) publish an admission document for the purpose of admitting the issued common stock of the enlarged group to trading on AIM and (b) file with AIM and the SEC other necessary documents regarding the proposed transaction. Investors and security holders of Resaca and Cano are urged to carefully read the Joint Proxy Statement/Prospectus and AIM admission document (when available) and other documents filed with AIM and the SEC by Resaca and Cano because they will contain important information about the proposed transaction. Investors and security holders may obtain free copies of these documents (when they are available) and other documents filed with the SEC by contacting Resaca Investor Relations at (713) 753-1441 or Cano Investor Relations at (817) 698-0900. Investors and security holders may obtain free copies of the documents filed with the SEC and published in connection with the admission to AIM on Resaca's website at www.resacaexploitation.com or Cano's website at www.canopetro.com. Information filed with the SEC will be available on the SEC's website at www.sec.gov. Resaca, Cano and their respective directors and executive officers may be deemed participants in the solicitation of proxies with respect to the proposed transaction. Information regarding the interests of these directors and executive officers in the proposed transaction will be included in the Joint Proxy Statement/Prospectus and AIM admission document described above. Additional information regarding the directors and executive officers of Resaca is also included in Resaca's website. Additional information is available under our periodic reports which we file with the SEC.
[TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED]
|Printer friendly Cite/link Email Feedback|
|Comment:||Cano Petroleum Announces Second Quarter Fiscal Year 2010 Results.|
|Article Type:||Financial report|
|Date:||Feb 12, 2010|
|Previous Article:||Fitch Affirms CDC 2002-FX1 P-T.|
|Next Article:||UANI to Caterpillar: Removing Internet References to Business in Iran Is Not the Same as Ending Business in Iran.|