Fairborne Energy Ltd. Provides Update to Its Bank Credit Facilities and the Results of Independent Resource Study for Harlech Cardium Play
MAY 2, 2012 - 07:00 ET
CALGARY, ALBERTA--(Marketwire - May 2, 2012) - Fairborne Energy Ltd. (TSX:FEL) ("Fairborne" or the "Company") is pleased to provide the following updates:
Fairborne's banking syndicate has updated the Company's credit facilities after its recently completed semi-annual review and pro-forma closing of the previously announced Clive and Sinclair asset dispositions, to $220 million with other terms of the credit facilities anticipated to be unchanged. Fairborne estimates its bank debt, pro-forma the Clive and Sinclair dispositions (and receipt of all proceeds therefrom) to be approximately $140 to $150 million, which will provide the Company with approximately $70 to $80 million of unused and available bank credit.
Cardium Resource Study
With the successful drilling, completion and initial production profile of the recent wells in the Cardium resource play in the greater Harlech area and to quantify the long-term future reserve and resource potential of the play, the Company commissioned GLJ Petroleum Consultants Ltd. ("GLJ") to conduct an independent resource study (the "Resource Study") for a portion of Fairborne's Cardium land holdings in the greater Harlech area. The findings confirm that Fairborne's Cardium holdings represent a significant long-term growth opportunity with considerable reserves potential.
The Resource Study is effective March 31, 2012 and was prepared in accordance with National Instrument 51-101 - Standards of Disclosure for Oil and Gas Activities ("NI 51-101") of the Canadian Securities Administrators based on the definitions and guidelines contained in the Canadian Oil and Gas Evaluation Handbook ("COGE Handbook").
The following table summarizes the results of the Resource Study.
Economic Contingent Resources (Cardium)
As at March 31, 2012
The Resource Study includes Fairborne's Cardium interest lands of 137 gross sections (75 net sections).
Contingent resources are those quantities of petroleum estimated, as of a given date, to be potentially recoverable from known accumulations using established technology or technology under development, but may not currently be considered commercially recoverable due to one or more contingencies. Contingent resources are in addition to reserves booked as proved, probable and possible.
In the Company's year-end independent reserves evaluation, effective as at December 31, 2011, prepared by GLJ, gross proved plus probable reserves of 2.2 MMboe were assigned to seven gross (4.9 net) horizontal Cardium well locations attributable to the Evaluated Interest, which resources are incremented to Economic Contingent Resource ("ECR") identified in the Resource Study. The year-end independent reserve evaluation did not incorporate Fairborne's most recent Cardium well (75% WI) that, as previously announced, had an initial 30 day gross production rate of 1,000 boe per day.
The most significant positive factors with respect to estimates of contingent resources are that the Cardium formation is extensive in the Harlech region and there is extensive vertical well data. Negative factors include that there is limited horizontal well tests and history in the immediate area. Both resource-in-place and productivity may be higher or lower than current estimates. The principal risk that will influence the recovery of the ECR relate to the potential for variations in the quality of the Cardium formation where minimal well data currently exists. There is no certainty that it will be commercially viable to produce any portion of the resources.
The contingencies that prevent the ECR from being classified as reserves are due to the early stage of the development. Additional drilling, completion, test and production history results are required before these contingent resources are converted to reserves and for a development plan to be committed to. A development plan for a project such as this will likely be developed sequentially over a number of drilling seasons and is subject to annual budget constraints, orderly development on a staged basis, the timing of the growth of third party infrastructure, the short and long-term view on gas prices, the results of exploration and development activities in the area and possible infrastructure capacity constraints.
Information Regarding Disclosure on Contingent Resources
Uncertainty ranges are described by the COGE Handbook as low, best and high estimates for resources as follows:
Low Estimate: This is considered to be a conservative estimate of the quantity that will actually be recovered. It is likely that the actual remaining quantities recovered will exceed the low estimate. If probabilistic methods are used, there should be at least a 90 percent probability (P90) that the quantities actually recovered will equal or exceed the low estimate.
Best Estimate: This is considered to be the best estimate of the quantity that will actually be recovered. It is equally likely that the actual remaining quantities recovered will be greater or less than the best estimate. If probabilistic methods are used, there should be at least a 50 percent probability (P50) that the quantities actually recovered will equal or exceed the best estimate.
High Estimate: This is considered to be an optimistic estimate of the quantity that will actually be recovered. It is unlikely that the actual remaining quantities recovered will exceed the high estimate. If probabilistic methods are used, there should be at least a 10 percent probability (P10) that the quantities actually recovered will equal or exceed the high estimate.
Barrels of Oil Equivalent
Where applicable, natural gas has been converted to barrels of oil equivalent ("boe") based on 6 Mcf:1 boe. The boe conversion ratio is based on an energy equivalent conversion method primarily applicable at the burner tip and does not represent a value equivalent at the wellhead. Given that the value ratio based on the current price of crude oil as compared to natural gas is significantly different than the energy equivalency of the 6:1 conversion ratio, utilizing the 6:1 conversion ratio may be misleading as an indication of value.
This press release contains forward-looking statements within the meaning of applicable securities laws. The use of any of the words "will", "expects", "believe", "plans", "potential" and similar expressions are intended to identify forward-looking statements or information. More particularly and without limitation, this press release contains forward-looking statements and information concerning the recognition of additional resources under the heading "Contingent Resource Study" and the Company's bank debt pro-forma closing of the dispositions and available bank credit.
The forward-looking statements and information in this press release are based on certain key expectations and assumptions made by Fairborne, including the quality of the Cardium reservoir, continued performance from existing wells, future drilling programs and performance from new wells, the growth of infrastructure, well density per section, recovery factors and development and closing of the Sinclair and Clive dispositions necessarily involve known and unknown risks and uncertainties. Although Fairborne believes that the expectations and assumptions on which such forward-looking statements and information are based are reasonable, undue reliance should not be placed on the forward-looking statements and information because Fairborne can give no assurance that they will prove to be correct. There is no certainty that Fairborne will achieve commercially viable production from its undeveloped lands and prospects.
Since forward-looking statements and information address future events and conditions, by their very nature they involve inherent risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors and risks. These include, but are not limited to the risks associated with the oil and gas industry in general such as: operational risks in development, exploration and production; delays or changes in plans with respect to exploration or development projects or capital expenditures; the uncertainty of reserve estimates; the uncertainty of estimates and projections relating to reserves, production, costs and expenses; health, safety and environmental risks; commodity price and exchange rate fluctuations; marketing and transportation of petroleum and natural gas and loss of markets; environmental risks; competition; incorrect assessment of the value of acquisitions; failure to realize the anticipated benefits of acquisitions; ability to access sufficient capital from internal and external sources; stock market volatility; and changes in legislation, including but not limited to tax laws, royalty rates and environmental regulations and risks related to closing of the Sinclair and Clive dispositions whether as a result of non-satisfaction of conditions or otherwise.
Readers are cautioned that the foregoing list of factors is not exhaustive. Additional information on these and other factors that could affect the operations or financial results of Fairborne are included in reports on file with applicable securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com). The forward-looking statements contained in this press release are made as of the date hereof and Fairborne undertakes no obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws.
The forward-looking statements contained in this press release are made as of the date hereof and Fairborne undertakes no obligation to update publicly or revise any forward-looking statements or information, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws.
Initial Production Rates
Initial production rates disclosed herein may not necessarily be indicative of long-term performance or of ultimate recovery.
Fairborne is a crude oil and natural gas exploration, development and production company headquartered in Calgary, Alberta, Canada. Fairborne's common shares trade on the Toronto Stock Exchange under the symbol "FEL".
Fairborne Energy Ltd.
Steven R. VanSickle
President and Chief Executive Officer
Fairborne Energy Ltd.
Aaron G. Grandberg
Chief Financial Officer