Cano Petroleum Announces Third Quarter Fiscal Year 2010 Results.
* LOE per barrel down sequentially and as compared to prior year Third Quarter;
* Continuing maintenance level capital development plan until Resaca merger closes;
* Proceeding with pending merger with Resaca Exploitation.
FORT WORTH, Texas -- Cano Petroleum, Inc. (NYSE Amex: CFW) today announced that production for the quarter ended March 31, 2010 ("Current Quarter") averaged 1,085 net barrels of oil equivalent per day (BOEPD). This is 1.3% higher as compared to production of 1,071 net BOEPD for the quarter ended December 31, 2009 and 6.6% lower as compared to production of 1,162 BOEPD for the quarter ended March 31, 2009 ("Prior Year Quarter"). Production for the nine-month period ended March 31, 2010 ("Current Nine Months") of 1,086 net BOEPD was 3.5% lower as compared to the nine-month period ended March 31, 2009 ("Prior Year Nine Months") of 1,125 net BOEPD. For both the Current Quarter and Current Nine Months, the production decrease was largely attributable to a reduction at our Cato Properties of 73 BOEPD and 20 BOEPD, respectively, due to mandatory lower waterflood injection volumes. At our other properties, normal field declines of production were offset by workover activities and a return-to-production program at the Desdemona Field.
For the Current Quarter, we had a loss applicable to common stock of $0.2 million, which was an improvement of $1.0 million as compared to the Prior Year Quarter of a $1.2 million loss applicable to common stock. The $1.0 million earnings improvement primarily related to higher operating revenues of $2.2 million and increased income from discontinued operations of $1.6 million, partially offset by reduced gain on derivatives of $2.7 million.
For the Current Nine Months, we had a loss applicable to common stock of $13.1 million, which was a $37.4 million decrease as compared to the $24.3 million income applicable to common stock incurred for the Prior Year Nine Months. Items contributing to the $37.4 million earnings decrease were reduced gain on derivatives of $52.9 million, lower income from discontinued operations of $10.0 million, decreased income from the preferred stock repurchased for less than the carrying amount of $10.9 million and lower operating revenues of $1.7 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 during the Prior Year Nine Months.
For the Current Quarter, our LOE per barrels of oil equivalent ("BOE"), based on production, was $36.88, which is an improvement of $1.22 as compared to $38.10 for the Prior Year Quarter. For the Current Nine Months, our LOE per BOE, based on production, was $39.80, which is an improvement of $5.27 as compared to $45.07 for the Prior Year Nine Months. We expect LOE to continue to decrease during the 2010 fiscal year as we realize the continued benefit of lower service rates negotiated with vendors as well as production increases from the waterflood and other activities we have implemented and are currently implementing.
In the Current Quarter we spent approximately $2.6 million of our $13.9 million FY 2010 development capital budget ($10.6 million for the Current Nine Months). Principally, these expenditures were for:
* Cato Field: $0.7 million for infrastructure upgrades in anticipation for the injection pressure increase
* Panhandle Field: $1.5 million to stimulate producers on the Harvey Ranch waterflood project as well as several behind pipe candidates
* Desdemona Field: $0.3 million to return 12 wells to production
Cato Properties. Our 2010 Fiscal Year development capital plan included 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 second quarter of our 2010 Fiscal Year. We have identified a new source of water in a non-productive formation within our acreage, and have confirmed that the water well is capable of producing 2,500 to 3,000 barrels of water per day. 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, which 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 second and third quarters 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. On May 6, 2010, we received administrative approval from the New Mexico Oil and Gas Conservation Division to increase injection pressures at the 14 active wells to our current physical plant capabilities of approximately 21,000 BWIPD. We expect to see increasing fluid production rates and corresponding increasing oil rates as injection rates increase. Further development plans for the Cato Properties include behind-pipe recompletions, restoration of production from the Tom-Tom and Tomahawk fields, and the drilling of a 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 241 BOEPD, or 11 BOEPD lower, as compared to 252 BOEPD for the quarter ended December 31, 2009. The 11 BOEPD decrease resulted from the reduction in injected water and redistribution of water injection at the waterflood. Net production at the Cato Properties for the Current Nine Months was 264 BOEPD. Net production at the Cato Properties for the Prior Year Quarter and Prior Year Nine Months was 313 BOEPD and 284 BOEPD, respectively.
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 is expected to 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. We have experienced positive results from the controlled injection project. Oil production from wells in the affected area has increased to at or above target levels of 8-12 BOEPD on a per well basis. These results, coupled with the accompanying reservoir simulation modeling, should allow a comprehensive analysis of the potential for the Cockrell Ranch Unit. Results of the studies should be completed in the third calendar quarter of 2010.
Net production at the Panhandle Properties, as adjusted for the sale of certain properties, for the Current Quarter and Current Nine Months was 481 BOEPD and 479 BOEPD, respectively. During the Current Nine Months, we constructed gathering lines to redirect natural gas production from Eagle Rock Field Services L.P. ("Eagle Rock") to DCP Midstream, LP ("DCP"). As of March 31, 2010, we had redirected approximately 80% of our natural gas production to DCP. As adjusted for the sold properties, net production at the Panhandle Properties for the Prior Year Quarter and Prior Year Nine Months was 498 BOEPD and 485 BOEPD, respectively.
Desdemona Properties. We are in the midst of a project to return to production ("RTP") previously shut-in gas wells from the Duke Sand formation. This project converted approximately 311 MBOE of previously PDNP reserves to PDP reserves with the RTP of 12 previously shut-in wells in December 2009. Production increased from 46 BOEPD for the second quarter ending December 31, 2009 to 69 BOEPD for the Current Quarter without the benefit of selling any natural gas liquids ("NGLs"). We plan to RTP another 13 wells during the quarter ending June 30, 2010. Production from all of the RTP 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 April 2010 and expect to realize the full benefit of these produced volumes in May 2010.
During the Current Quarter, we drilled one new well to a total depth of 3,650 feet to test the Marble Falls, Atoka and Strawn Sand formations. We have completed the new well in the Strawn Sand formation at a depth of 1,750 feet. The well had initial production, on April 16, 2010, of 20 BOPD, 50 MCFPD and 450 BWPD. We are currently evaluating three offset locations for future Strawn Sand development in the Desdemona Properties.
Net production at the Desdemona Properties for the Current Quarter and Current Nine Months was 69 BOEPD and 51 BOEPD, respectively. Net production at the Desdemona Properties for the Prior Year Quarter and Prior Year Nine Months was 55 BOEPD and 61 BOEPD, respectively. During July 2009, we shut-in our Barnett Shale natural gas wells based upon the then current and the outlook for natural gas prices from the Barnett Shale wells.
Nowata Properties. Net production for the Current Quarter and Current Nine Months was 222 BOEPD and 219 BOEPD, respectively. Net production for the Prior Year Quarter and Prior Year Nine Months was 227 BOEPD and 222 BOEPD, respectively.
Davenport Properties. Net production for the Current Quarter and Current Nine Months was 78 BOEPD and 75 BOEPD, respectively. Net production for the Prior Year Quarter and Prior Year Nine Months was 70 BOEPD for each time period.
Resaca Exploitation, Inc. ("Resaca") has filed its registration statement on Form S-4 and amendments thereto with the Securities and Exchange Commission (the "SEC"). Once approved by the SEC, the registration statement on Form S-4 will serve as a prospectus relating to the Resaca shares to be issued in the merger 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. Resaca also filed a registration statement on Form S-1 and amendments thereto with the SEC relating to the equity to be issued on a U.S. exchange in conjunction with the closing of the merger. Those interested in reading the Form S-4, the Form S-1 and all 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 April 1, 2010, Resaca changed the currency for its AIM listing to US dollars, from British pounds, to facilitate the trading of the combined entity once merged and dually listed. On February 4, 2010, Resaca announced the signing of a $200.0 million new committed senior credit facility with Union Bank North America and Natixis. The facility's initial borrowing base will be $90.0 million. On March 30, 2010, the NYSE Amex authorized the listing of Resaca's common stock on the exchange for the combined entity.
No Earnings Conference Call
There will be no earnings conference call associated with the third 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.
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.
CANO PETROLEUM, INC.
Operating Revenue Summary
The table below summarizes our operating revenues for the three-and nine-month periods ended March 31, 2010 and 2009.
As of March 31, 2010, we maintained the following commodity derivative contracts:
(a) This column is computed by dividing the "Mcf per Day" by 6 and adding "Barrels per Day."
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|Article Type:||Financial report|
|Date:||May 12, 2010|
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