Wrangler West Energy Corp. 2008 First Quarter - Forging Ahead
Thu May 15, 5:38 PMCALGARY, May 15 /CNW/ - Wrangler West Energy Corp. ("Wrangler West") (TSX-V "WX") announces operating and financial results for the three months ended March 31, 2008, together with comparative data for the same period in 2007 and the year ended December 31, 2007.
Wrangler West's 2008 first quarter accomplishments:
$8 million in revenue;
$3.7 million funds flow from operations;
$15 million in capital expenditures planned for 2008;
completed oil and natural gas facilities expansion at Riviere;
credit facility increased to $20 million, post quarter end.
2008 First Quarter Highlights
Three months ended March 31 2008 2007 % Change
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OPERATIONAL HIGHLIGHTS
Production
Crude oil and NGL (bbls/d) 397 350 13
Natural gas (mcf/d) 6,965 7,861 (11)
Total (boe/d) 1,558 1,660 (6)
Prices
Crude oil and NGL ($/bbl) 82.88 52.86 57
Natural gas ($/mcf) 7.89 8.03 (2)
Per boe ($)
Petroleum and natural gas revenues 56.39 49.17 15
Royalties (10.86) (9.81) 11
Operating expenses (13.34) (11.48) 16
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Field netback 32.19 27.89 15
General and administrative (1.74) (1.76) (1)
Interest (1.17) (0.88) 33
Current income tax (3.29) (0.96) 243
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Funds flow from operations 25.98 24.29 7
Unrealized loss on commodity contracts (6.70) -
Depletion, depreciation, and accretion (23.32) (20.43) 14
Stock-based compensation (0.55) (0.29) 90
Future income tax 3.41 (1.10) (410)
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Net earnings (loss) (1.18) 2.46 (148)
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FINANCIAL HIGHLIGHTS ($ thousand)
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Petroleum and natural gas revenues 7,995 7,346 9
Royalties (1,539) (1,466) 5
Operating expenses (1,892) (1,715) 10
General and administrative (247) (263) (6)
Interest (166) (131) 27
Current income tax (467) (143) 227
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Funds flow from operations 3,683 3,629 1
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Unrealized loss on commodity contracts (950) - -
Depletion, depreciation, and accretion (3,306) (3,053) 8
Stock-based compensation (78) (44) 77
Future income tax 483 (165) (393)
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Net earnings (loss) (167) 368 (146)
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Outstanding shares (thousand, except where
indicated)
Weighted average - basic 6,361 6,361 -
Weighted average - diluted 6,847 6,622 3
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Funds flow from operations - basic ($/share) 0.58 0.57 2
Funds flow from operations - diluted ($/share) 0.54 0.55 (2)
Earnings - basic and diluted ($/share) (0.03) 0.06 (150)
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Total assets ($ thousand) 50,722 43,740 -
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Note: Wrangler West converts petroleum and natural gas reserves and
volumes to a common unit of measure on a basis of six thousand cubic feet
of natural gas to one barrel of oil. Disclosure provided in respect of
barrels of oil equivalent may be misleading, particularly if used in
isolation. A boe conversion ratio of six mcf equals one bbl is based on
an energy equivalency conversion method primarily applicable at the
burner tip and does not represent a value equivalency at the wellhead.
2008 First Quarter Production
Wrangler West achieved a production rate of 1,558 boe/d for 2008 first quarter, lower by approximately 100 boe/d when compared to the same period one year ago. Facilities expansion, started in 2007 and completed in 2008 first quarter, caused downtime and some shut-in production during the period. Our April 2008 production was above 1,600 boe/d.
Risk Management and Commodity Prices
The outlook for commodity prices remains positive. Record crude oil and improved natural gas prices, resulting in record revenue and funds flow from operations, offset Wrangler West's lower first quarter production volumes. In the quarter, we entered into contracts to hedge approximately 50 percent of natural gas and 50 percent of crude oil production, commencing in April 2008 and concluding October 31, 2008. Under the terms of the commodity contracts, we committed 200 barrels of oil per day at $100.50 per bbl and two contracts totalling 3,500 GJ/d at an average price of $7.75 per GJ. For 2008 first quarter, we recognized an unrealized loss from the commodity contracts of $950,000.
2008 Capital Expenditures
Wrangler West is undertaking a 2008 capital program of approximately $15 million. During the first three months of 2008, we directed most of our effort and expenditures to upgrading our sour facilities and related infrastructure at Riviere. In this area, we also conducted a six square kilometer seismic program and purchased three sections of crown land. We drilled one exploratory outpost well which was dry and abandoned.
In 2008, we are prepared for production additions from our Riviere Wabamun A oil pool. This property accounts for approximately 600 boe/d of total production. We determined that the first four horizontal wells Wrangler West drilled in the pool during 2007 require stimulation to increase production and properly access reserves. Our geological and engineering team are designing and preparing workover programs which we will conduct on two of these wells after spring break-up.
During 2008 first quarter, Wrangler West's Ellerslie natural gas wells at Riviere produced approximately 600 boe/d of our total production. Installation of our own compression will reduce third-party expenses and we expect our expanded natural gas gathering system will improve future tie-in timing and control costs. In total, our Riviere area accounts for 75 percent of Wrangler West's current production portfolio.
New Industry Technologies Rejuvenate the Basin
Recent high profile oil and natural gas plays, such as the Montney and the Bakken, are creating a great deal of excitement as producers apply new technologies in the Western Canada Sedimentary Basin by using horizontal drilling and multi-stage stimulation to access low permeability pools. The current strength of commodity prices assists oil and natural gas companies in attracting the capital investment required to unlock these reservoirs.
Historically, projects like the Montney and Bakken projects could not be produced at economic rates. New completion technologies applied to these well-defined existing reservoirs is demonstrating they are capable of significant production rates. Successful multi-stage stimulation of horizontally-drilled wells appears to be the key to delivering improvements in production and allowing for the recognition of significant reserves.
The implementation of new technologies, reserves increases and new discoveries, in combination with high commodity prices, should create a flurry of activity. When there is such strength in the commodity price cycle, companies, large and small, will aggressively re-evaluate, and rework their assets to exploit and capture all the incremental value possible. Ultimately, increased competition for land, services and opportunities will increase industry costs.
Outlook for 2008
During spring break-up, we are formulating drilling plans and organizing our capital expenditures program. We have identified and prioritized asset exploitation opportunities to maximize production. To respond to the complexity of the Riviere Wabamun A oil project, our geological and engineering team is analyzing and planning multi-stage fracturing completions for our horizontal well bores. At Riviere, Wrangler West is prepared for production growth and has completed the crude oil facility expansion.
We recently received downspacing approval for the Wabamun A pool and have identified up to twenty drilling locations. Results from the planned horizontal well stimulations will drive the future development of our Riviere oil project. In May 2008, Wrangler West's maximum revolving demand credit facility increased to $20.0 million from $17.5 million one year ago.
Steven F. Johnson
President and Chief Executive Officer
MANAGEMENT'S DISCUSSION & ANALYSIS
Management of Wrangler West Energy Corp. ("Wrangler West" or the "Company") prepared the following information as of May 13, 2008 and recommends reading it in conjunction with the Company's audited financial statements for the years ended December 31, 2007 and 2006 and the Company's unaudited interim financial statements for the three months ended March 31, 2008.
Management's Discussion and Analysis contains the terms 'funds flow from operations' and 'netbacks', which are not recognized measures under Canadian generally accepted accounting principles (GAAP). Management believes that, in addition to net earnings, funds flow from operations is a useful supplemental measure. Investors are cautioned, however, that this measure should not be construed as an alternative to net earnings determined in accordance with GAAP, as an indication of the Company's performance.
Wrangler West's determination of funds flow from operations may not be comparable to that reported by other companies. Funds flow from operations is equal to cash flow from operations before changes in non-cash operating working capital items as presented in the statement of cash flows. Wrangler West presents funds flow from operations per share calculated on a basis consistent with the calculation of earnings per share. Netbacks are calculated using total revenue minus royalties and operating expenses.
The table below illustrates the reconciliation between cash flow from operations and funds flow from operations, as defined above, after changes in working capital for the periods ended March 31, 2008 and 2007.
($ thousands) 2008 2007
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Cash flow from operations (607) 3,165
Change in non-cash working capital 4,291 465
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Funds flow from operations 3,683 3,629
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Wrangler West converts petroleum and natural gas reserves and volumes to a common unit of measure on a basis of six thousand cubic feet ("mcf") of natural gas equals one barrel ("bbl") of oil. Disclosure using barrels of oil equivalent ("boe") may be misleading, particularly if used in isolation. The basis for the boe conversion ratio of 6 mcf equals one bbl is an energy equivalency conversion method, primarily applicable at the burner tip, and it does not represent a value equivalency at the wellhead. The Company calculates boe per day based on total production for the period divided by the number of days during the period.
Certain forward-looking statements in this MD&A constitute forward-looking information within the meaning of securities laws. Forward-looking information may relate to Wrangler West's future outlook and anticipated events or results and may include statements regarding Wrangler West's future financial position, business strategy, projected costs, capital expenditures, financial results, taxes, and plans and objectives involving financing; commodity prices; number, type, timing and tie-in of wells drilled; commencement and costs of production; and the magnitude of crude oil and natural gas reserves. Statements relating to "reserves" or "resources" are deemed to be forward-looking statements, as they involve the implied assessment, based on certain estimates and assumptions that the reserves and resources described can be profitably produced in the future. In some cases, forward-looking information can be identified by terms such as "may", "will", "should", "expect", "plan", "anticipate", "believe", "intend", "estimate", "predict", "potential", "continue" or other similar expressions concerning matters that are not historical facts.
Wrangler West bases forward-looking statements on certain factors and assumptions regarding: expected growth, results of operations, commodity prices, royalty rates, performance and business prospects and opportunities. Specifically, in projecting future activities, management has made assumptions about Wrangler West's ability to find and develop economic crude oil and natural gas reserves, production of discovered reserves, costs of material and services, access to production facilities and transportation, access to qualified and experienced staff and changes in government regulations. While management considers these assumptions reasonable based on information currently available, they may prove to be incorrect. By their nature, forward-looking statements are subject to numerous risks and uncertainties that could significantly affect anticipated results in the future and, accordingly, actual results may differ materially from those predicted. Wrangler West's business risks arise from uncertainties involving, but not limited to: crude oil and natural gas commodity prices, interest and currency exchange rates, environmental and safety issues, surface access, and financial and liquidity considerations. Additional risk arises from, among others, the production performance of existing properties, changes in regulatory standards and uncertain results from capital expenditure programs.
Financial outlook information contained in this MD&A about prospective results of operations, financial position or cash flows is based on assumptions about future events, including economic conditions and proposed courses of action, based on management's assessment of the relevant information currently available. Readers are cautioned that such financial outlook information contained in this MD&A should not be used for purposes other than for which it is disclosed herein.
Assumptions used in the preparation of such information, although considered reasonable at the time of preparation, may prove to be imprecise and, as such, readers should not rely unduly on forward-looking statements or financial outlooks. Wrangler West is providing this MD&A as of May 13, 2008 for the purpose of reporting financial and operational results for the three months ended March 31, 2008. Wrangler West disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, other than as required under securities laws.
REVIEW OF INTERIM FINANCIAL STATEMENTS
Wrangler West experienced a drop in total production during 2008 first quarter as the Company expanded processing facilities, natural gas compression and gathering systems at Riviere. This resulted in periodic interruptions of production during commissioning and start-up of the new facilities. The restriction in production volumes was offset by stronger commodity prices.
SELECTED QUARTERLY INFORMATION
Three months ended Mar 31 Dec 31 Sep 30 Jun 30
($ thousand, except where indicated) 2008 2007 2007 2007
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Total revenues 7,995 7,089 6,505 7,596
Funds flow from operations 3,683 3,269 2,815 3,757
Funds flow from operations - basic
($/share) 0.58 0.51 0.44 0.59
Funds flow from operations - diluted
($/share) 0.54 0.46 0.40 0.55
Net earnings (loss) (167) 211 (228) 570
Earnings (loss) - basic ($/share) (0.03) 0.03 (0.04) 0.09
Earnings (loss) - diluted ($/share) (0.03) 0.03 (0.04) 0.08
Total production (boe/d) 1,558 1,642 1,678 1,695
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Three months ended Mar 31 Dec 31 Sep 30 Mar 31
($ thousand, except where indicated) 2007 2006 2006 2006
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Total revenues 7,346 4,921 4,611 4,900
Funds flow from operations 3,629 2,244 1,825 2,188
Funds flow from operations - basic
($/share) 0.57 0.35 0.29 0.34
Funds flow from operations - diluted
($/share) 0.55 0.34 0.28 0.33
Net earnings 368 (9) 402 560
Earnings - basic ($/share) 0.06 - 0.06 0.09
Earnings - diluted ($/share) 0.06 - 0.06 0.08
Total production (boe/d) 1,660 1,143 1,082 1,100
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Wrangler West's funds flow from operations increased modestly year over year. In 2008 first quarter, total production was interrupted due to facilities expansion whereas in 2007 first quarter, tie-in of production from the first Ellerslie natural gas well resulted in the recognition of flush volumes. Fluctuations quarter-to-quarter primarily result from exploration activities and success; timing and costs of surface access; seasonal limitations; changes in regulations and regulatory compliance; facilities turnarounds; commodity price volatility; and other operational issues which arise from time to time. Readers can refer to the appropriate interim period MD&A for a detailed analysis and explanation of the variance between individual quarters.
PRODUCTION
Daily Production
Three Months ended March 31
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2008 2007 % Change
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Oil and NGL (bbls/d) 397 350 13
Natural gas (mcf/d) 6,965 7,861 (11)
Total (boe/d) 1,558 1,660 (6)
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Total production for the three months ended March 31 decreased 6 percent as a result of interruptions experienced while Wrangler West expanded, commissioned and tied-in Riviere crude oil treatment and solution natural gas compression, as well as new compression for Ellerslie natural gas production.
Total production of 1,558 boe/d for 2008 first quarter decreased five percent from 2007 fourth quarter, primarily due to the facilities expansion described above. In 2008 first quarter, Wrangler West drilled one well which was dry and abandoned (2007 - 3 wells of which one was D&A).
REVENUES
Production Revenues ($ thousand)
Three Months ended March 31
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2008 2007 % Change
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Oil and NGL 2,995 1,664 80
Natural gas 5,000 5,682 (12)
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Petroleum and natural gas revenues 7,995 7,346 9
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Prices
Three Months ended March 31
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2008 2007 % Change
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Oil and NGL ($/bbl) 82.88 52.86 57
Natural gas ($/mcf) 7.89 8.03 (2)
Total production ($/boe) 56.39 49.17 15
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For the three months ended March 31, 2008, Wrangler West recognized a nine percent increase in total production revenue (before an unrealized hedging loss) due to a six percent decrease in total production volumes which was offset by a 15 percent increase in overall commodity prices.
To offset negative volatility in commodity prices and to secure predictable cash flow to manage its capital expenditures program, Wrangler West entered into three commodity contracts during 2008 first quarter. The unrealized loss on these commodity contracts at March 31, 2008 was $949,969. The Company may experience a higher loss, both realized and unrealized, for the second quarter if commodity prices remain the same or continue to increase.
Production revenues for 2008 first quarter increased 13 percent from 2007 fourth quarter reflecting the five percent decrease in total production volumes offset by a 20 percent improvement in overall commodity prices.
ROYALTIES
Three months ended March 31
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($ thousand) 2008 2007 % Change
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Crown 788 919 (14)
Other 751 547 37
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Total royalties 1,539 1,466 5
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Three months ended March 31
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($/boe) 2008 2007 % Change
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Crown 5.56 6.15 (10)
Other 5.30 3.66 45
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Total royalties 10.86 9.81 11
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For the three months ended March 31, 2008, total royalties increased marginally. Royalties, as a percentage of revenue, for 2008 first quarter were 19 percent, consistent with 20 percent in 2007 first quarter. Most of Wrangler West's new production in 2007 was added from freehold lands. Consequently, freehold royalties increased substantially whereas royalties from production on crown lands decreased slightly. In 2007 fourth quarter, royalties, as a percentage of revenue, were 25 percent.
For 2008 first quarter, royalties decreased 13 percent from 2007 fourth quarter. The decrease in royalties quarter-over-quarter was primarily due to a decrease in production. Wrangler West expects the 2008 royalty rate, as a percentage of revenue, to remain consistent with that of 2007 annualized rate of 21 percent.
Since a significant portion of Wrangler West's production is subject to freehold royalties, rather than crown royalties, the Company expects changes to the Alberta royalty regime in 2009 will have a marginal impact on total royalties.
OPERATING EXPENSES
Three months ended March 31
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2008 2007 % Change
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Operating expenses ($ thousand) 1,892 1,715 10
Operating expenses ($/boe) 13.34 11.48 16
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For the three months ended March 31, 2008, total operating expenses increased 10 percent due to a number of workovers and the repairs and maintenance conducted on wells being produced with artificial lift. On a per boe basis, operating expenses increased 16 percent for 2008 first quarter due primarily to higher overall unit costs and, to a lesser degree, the decrease in total production volumes.
In 2008 first quarter, operating expenses increased 30 percent (39 percent on a boe basis) from 2007 fourth quarter.
Wrangler West included crude oil trucking expenses of $3.65 per bbl (2007 - $3.04) in operating expenses.
NETBACKS
Field netbacks
Three months ended March 31
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2008 2007 % Change
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Light and medium crude oil($/bbl) 50.00 18.70 167
Natural gas ($/mcf) 4.36 4.94 (12)
NGL ($/bbl) 46.87 36.68 28
Combined netback ($/boe) 32.19 27.89 15
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Wrangler West's combined netbacks reflect the weighting of total production towards natural gas. For the three months ended March 31, 2008, the Company experienced a 15 percent increase in netbacks due to flat natural gas prices received during 2008 first quarter when Wrangler West's natural gas-weighting reduced the impact of higher crude oil prices.
Combined netbacks for 2008 first quarter increased 26 percent from 2007 fourth quarter ($25.60 per boe) as natural gas prices strengthened during the winter heating season.
GENERAL AND ADMINISTRATIVE (G&A)
Three months ended March 31
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2008 2007 % Change
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G&A ($ thousand) 247 263 (6)
G&A ($/boe) 1.74 1.76 (1)
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For the three months ended March 31, 2008, total G&A decreased six percent from 2007 first quarter.
In 2008 first quarter, Wrangler West capitalized G&A of $165,000 (2007 - $185,000) associated with exploration activities.
G&A for 2008 first quarter decreased 53 percent (50 percent on a per boe basis) from 2007 fourth quarter when the 2007 bonus program was paid. Wrangler West expects 2008 G&A per boe to increase modestly from the 2007 annualized rate of $2.34 per boe.
INTEREST EXPENSE
Three months ended March 31
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2008 2007 % Change
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Interest ($ thousand) 166 131 27
Interest ($/boe) 1.17 0.88 33
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Interest expense for the three months ended March 31, 2008 represented interest charges for the use of Wrangler West's revolving demand credit facility. The Company uses the revolving demand credit facility to fund its capital expenditures program.
Interest expense in 2008 first quarter increased 19 percent (27 percent on a per boe basis) from 2007 fourth quarter due to increased utilization of the revolving demand credit facility.
STOCK-BASED COMPENSATION
Three months ended March 31
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2008 2007 % Change
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Stock-based compensation ($ thousand) 78 44 77
Stock-based compensation ($/boe) 0.55 0.29 90
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At March 31, 2008, Wrangler West had outstanding 1,262,000 options to purchase common shares. There were no options granted during 2008 first quarter.
In 2008 first quarter, total stock-based compensation was $133,673 (2007 - $82,294) of which $56,000 (2007 - $38,000) relating to exploration and development activities was capitalized.
In 2008 first quarter, stock-based compensation decreased 29 percent from 2007 fourth quarter.
DEPLETION, DEPRECIATION AND ACCRETION (DD&A)
Three months ended March 31
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2008 2007 % Change
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Depletion, depreciation and accretion
($ thousand) 3,306 3,053 8
Depletion, depreciation and accretion ($/boe) 23.32 20.43 14
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For the three months ended March 31, 2008 total DD&A increased slightly as Wrangler West invested in exploration and development of oil and natural gas properties with a modest increase in new reserves. A significant portion of costs were related to facilities expansion and tie-in for existing reserves. The increase in DD&A on a per boe basis was due to a higher cost base and lower production volumes without significant additions to reserves.
DD&A for 2008 first quarter was marginally higher on a boe basis, compared to 2007 fourth quarter ($22.63 on a boe basis).
INCOME TAXES
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Three months ended March 31
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($ thousand) 2008 2007 % Change
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Current income tax 467 143 227
Future income tax expense (recovery) (483) 165 (393)
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Total (16) 308 (105)
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($/boe)
Current income tax 3.29 0.96 243
Future income tax expense (recovery) (3.41) 1.10 (410)
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Total (0.11) 2.06 (105)
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Tax pools for 2008 first quarter sheltered approximately $2.6 million of income for tax purposes resulting in $467,000 of current income tax for the quarter. Income tax on the unrealized loss on commodity contracts was recorded as a future tax asset. For the three months ended March 31, 2008, Wrangler West recognized a net income tax recovery of $16,000.
EARNINGS
Three months ended March 31
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2008 2007 % Change
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Net earnings (loss) ($ thousand) (167) 368 (146)
Net earnings (loss) ($/boe) (1.18) 2.46 (148)
Earnings - basic and diluted ($/share) (0.03) 0.06 (150)
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For the three months ended March 31, 2008, Wrangler West's earnings were negatively impacted by increased expenses which included the unrealized loss attributed to hedging as well as higher DD&A and operating expenses.
Wrangler West recorded a loss of $167,000 for 2008 first quarter compared to earnings of $211,000 for 2007 fourth quarter ($1.40 on a per boe basis, $0.03 on a per share basis).
FUNDS FLOW AND LIQUIDITY
Three months ended March 31
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2008 2007 % Change
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Funds flow from operations ($ thousand) 3,683 3,629 1
Funds flow from operations ($/boe) 25.98 24.29 7
Funds flow from operations - basic ($/share) 0.58 0.57 2
Funds flow from operations - diluted ($/share) 0.54 0.55 (2)
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For the three months ended March 31, 2008, Wrangler West's funds flow from operations remained relatively constant, primarily due to higher commodity prices offsetting the lower production volumes discussed previously.
As at March 31, 2008, Wrangler West had drawn $13.7 million on its revolving demand credit facility compared to $11.6 million drawn at December 31, 2007.
In 2008, the Company will use available funds flow from operations and its revolving demand credit facility to fulfill its estimated $15.0 million capital program. A shortfall in available funds resulting from significantly weaker commodity prices would require review and prioritization of Wrangler West's ongoing capital program. If new business opportunities arise, Wrangler West would pursue an increase in the revolving demand credit facility, or seek alternate funding in the equity markets to capture those opportunities.
At March 31, 2008, Wrangler West had a working capital deficiency, including bank debt, of $16.6 million (2007 first quarter - $10.7 million).
In May 2008, Wrangler West's authorized amount of revolving demand credit facility increased to $20 million from $17.5 million. Wrangler West expects increased production volumes and its corporate reserves base will continue to support Wrangler West's revolving demand credit facility.
TOTAL CAPITALIZATION
As at March 31, 2008
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Common shares outstanding 6,360,827
Closing market price at March 31 ($/share) 11.25
Market value of common shares ($ thousand) 71,559
Net debt ($ thousand) 16,604
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Total capitalization ($ thousand) 88,163
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As at May 13, 2008, Wrangler West had 6,360,827 common shares outstanding.
CAPITAL EXPENDITURES
Three months ended March 31
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($ thousand) 2008 2007 % Change
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Land costs 318 221 44
Seismic 275 262 5
Capitalized general and administrative
expenses 165 185 (11)
Drilling and completions 944 1,861 (49)
Production equipment and gathering systems 2,327 898 159
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Total capital expenditures 4,030 3,427 18
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In 2008 first quarter, Wrangler drilled 1 D&A well (2007 first quarter - 3 wells of which one was D&A).
During the three months ended March 31, 2008, Wrangler West invested over 50 percent of total capital expenditures on production equipment and gathering systems at Riviere. In addition to drilling one well the Company invested the balance of capital expenditures in seismic programs and land acquisitions. Wrangler West uses funds flow from operations and the revolving demand credit facility to support its capital expenditures program.
OUTLOOK
Wrangler West will continue to prioritise existing and future opportunities for deployment of funds flow from operations as the Company develops its crude oil and natural gas assets. In early 2008, Wrangler West completed a significant investment in facility and gathering systems at Riviere. The Company expects this will allow for the addition of production and will streamline future production additions to create operating efficiencies and mitigate tie-in delays.
Wrangler West continues to optimize production where it determines there are opportunities with economic potential. The Company's emphasis in 2008 will be expansion and development of its Ellerslie natural gas play at Riviere and the ongoing exploitation and optimization of its Riviere Wabamun A oil pool. Horizontal drilling in the Wabamun A oil pool is in the evaluation stage and the Company continues to be optimistic about the potential of this pool. Wrangler West expects to conduct the first multi-stage stimulation of one or more of its four existing horizontal wells and will assess production performance following these workovers.
Wrangler West's 2008 capital expenditures are budgeted at approximately $15 million. To date, the Company has invested approximately 25 percent of this annual budget. Wrangler West expects strong commodity prices and quality development opportunities will combine to position the Company for a successful 2008.
ADDITIONAL INFORMATION
Additional information relating to Wrangler West Energy Corp. is filed on SEDAR and accessible at www.sedar.com. To obtain copies of published corporate information, contact JoAnne Dorval-Dronyk at Wrangler West Energy Corp. 1950, 444 Fifth Avenue SW, Calgary, Alberta, Canada T2P 2T8 or e-mail JoAnne@wranglerwest.ca.
Wrangler West Energy Corp.
Balance Sheets
(unaudited)
March 31 December 31
2008 2007
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Assets
Current assets
Accounts receivable $ 3,166,003 $ 2,729,405
Prepaid expenses 478,348 471,548
Future income taxes 281,381 -
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3,925,732 3,200,953
Property and equipment 46,796,461 45,949,078
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$ 50,722,193 $ 49,150,031
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Liabilities and Shareholders' Equity
Current liabilities
Bank indebtedness $ 13,746,215 $ 11,557,480
Accounts payable and accrued liabilities 5,534,815 6,402,768
Commodity contract liability 949,969 -
Income taxes payable 298,366 829,583
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20,529,365 18,789,831
Asset retirement obligation 1,923,414 1,875,201
Future income taxes 5,659,133 5,840,893
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28,111,912 26,505,925
Shareholders' equity
Share capital 11,070,257 11,070,257
Contributed surplus (note 2) 3,253,874 3,120,201
Retained earnings 8,286,150 8,453,648
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22,610,281 22,644,106
Commitments (note 3)
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$ 50,722,193 $ 49,150,031
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See accompanying notes to interim financial statements
Wrangler West Energy Corp.
Statements of Earnings (Loss) and Retained Earnings
(unaudited)
Three months ended March 31
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2008 2007
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Revenue
Petroleum and natural gas $ 7,994,664 $ 7,346,361
Unrealized loss on commodity contracts
(note 3) (949,969) -
Royalties (1,539,177) (1,465,532)
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5,505,518 5,880,829
Expenses
Operating 1,891,841 1,714,812
General and administrative 247,059 262,888
Interest 166,100 130,836
Stock-based compensation (note 2) 78,099 44,011
Depletion, depreciation and accretion 3,306,063 3,052,662
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5,689,162 5,205,209
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Earnings (loss) before income taxes (183,644) 675,620
Current income taxes 466,995 143,000
Future income taxes (recovery) (483,141) 165,000
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(16,146) 308,000
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Net earnings (loss) and comprehensive
income (loss) (167,498) 367,620
Retained earnings, beginning of period 8,453,648 7,533,164
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Retained earnings, end of period $ 8,268,150 $ 7,900,784
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Earnings (loss) per share - basic and
diluted $ (0.03) $ 0.06
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See accompanying notes to interim financial statements
Wrangler West Energy Corp.
Statements of Cash Flows
(unaudited)
Three months ended March 31
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2008 2007
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Cash provided by (used in)
Operating
Net earnings (loss) $ (167,498) $ 367,620
Items not involving cash
Depletion, depreciation and accretion 3,306,063 3,052,662
Stock-based compensation 78,099 44,011
Unrealized loss on commodity contracts 949,969 -
Future income taxes (483,141) 165,000
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3,683,492 3,629,293
Change in non-cash operating working capital (4,290,781) (464,570)
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607,289 3,164,723
Financing
Increase in bank indebtedness 2,188,735 688,454
Investing
Additions to property and equipment (4,029,658) (3,426,736)
Change in non-cash investing working capital 2,448,212 426,441
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(1,581,446) (3,853,177)
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Cash and cash equivalents, beginning and
end of period - -
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Supplementary cash flow information
Interest paid $ 160,005 $ 125,176
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See accompanying notes to interim financial statements
Wrangler West Energy Corp.
Notes to the Interim Financial Statements
(unaudited)
Three months ended March, 2008 and 2007
Wrangler West Energy Corp. (the "Corporation") was incorporated on
March 17, 2000 under the Business Corporations Act (Alberta). The
Corporation's primary business activity is the exploration for,
development and production of, petroleum and natural gas in the Province
of Alberta, Canada.
The preparation of the financial statements in conformity with Canadian
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
dates of the financial statements and the reported amounts of revenue and
expenses during the reporting periods. Actual results could differ from
those estimates.
1. Significant accounting policies
Management prepared the interim financial statements of the Corporation
in accordance with generally accepted accounting principles in Canada.
The interim financial statements have been prepared following the same
accounting policies and methods of computation as the financial
statements for the year ended December 31, 2007. Management has omitted
or condensed certain information and disclosures normally required as
inclusions in the notes to the annual financial statements. These interim
financial statements and the notes thereto should be read in conjunction
with the annual financial statements in the Corporation's 2007 annual
report.
As of January 1, 2008, the Corporation was required to adopt the new
Canadian Institute of Chartered Accountants ("CICA") standard,
Section 3862 "Financial Instruments - Disclosures". The new disclosure
standard increases the emphasis on the disclosure of the risks associated
with both recognized and unrecognized financial instruments and how those
risks are managed. (See Note 3)
As of January 1, 2008, the Corporation was required to adopt the new CICA
Section 1535 "Capital Disclosures" which requires companies to disclose
their objectives, policies and processes for managing capital. (See
Note 4)
2. Share capital
(a) Contributed surplus
The table below provides a reconciliation of contributed surplus
for the three months ended March 31.
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2008
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Balance, beginning of period $ 3,120,201
Stock-based compensation costs 133,673
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Balance, end of period $ 3,253,874
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(b) Per share amounts
For the three months ended March 31, 2008, the weighted average
common shares outstanding used in calculating net earnings (loss)
per share were 6,360,827 basic and diluted (2007 - 6,360,827
basic and 6,622,489 diluted).
3. Financial instruments
(a) Fair value
The Corporation's financial instruments recognized in the balance
sheet consist of accounts receivable, bank indebtedness and
accounts payable and accrued liabilities. The fair values of
these financial instruments approximate their carrying amounts
due to their short terms to maturity or the market interest rate
on the bank indebtedness.
(b) Commodity price risk
Wrangler West enters into commodity contracts, including crude
oil and natural gas swap or option contracts, to reduce the
fluctuation in future cash flow from operations related to the
volatility of crude oil and natural gas commodity prices. Swap
contracts reduce the fluctuations in petroleum and natural gas
revenues by locking-in fixed forward prices on a portion of the
Corporation's crude oil and natural gas production. Commodity
prices higher than the contract price will result in a loss.
Conversely, commodity prices that fall below the contract price
will result in a gain.
Wrangler West entered into the following commodity contracts in
February, 2008.
Product Start End Volume Price
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Natural gas 1 Apr 08 31 Oct 08 1,500 GJ/day $ 7.520 per GJ
Natural gas 1 Apr 08 31 Oct 08 2,000 GJ/day $ 7.925 per GJ
Crude oil 1 Apr 08 31 Oct 08 200 bbls/day $ 100.500 per bbl
The unrealized loss on commodity contracts at March 31, 2008 was
$949,969 based on market price on that date.
A natural gas price increase or decrease of $0.10 per GJ at
March 31 would have resulted in a $75,000 adjustment to the
unrealized loss on the commodity contracts for the three months
ended March 31, 2008. A crude oil price increase or decrease of
$1.00 per barrel at March 31, would have resulted in a $43,000
adjustment to the unrealized loss on the commodity contracts for
the three months ended March 31, 2008.
(c) Credit risk
The Corporation's accounts receivable are with customers and
joint venture partners in the petroleum and natural gas business
and are subject to normal credit risk. The Corporation mitigates
the concentration of credit risk by marketing production to
numerous purchasers under normal industry sale and payment terms
and routinely assesses the financial strength of its customers.
In the event of non-performance by counterparties to commodity
price contracts, the Corporation may have exposure to certain
losses. The Corporation mitigates this risk by entering into
transactions with highly-rated major financial institutions.
The Corporation's maximum credit exposure at March 31, 2008 was
the accounts receivable balance of $3.2 million, of which
$2.8 million was received, pursuant to standard industry
practice, on April 25, 2008. No accounts receivable were written
off and no allowance for bad debt was established in the
three months ended March 31, 2008.
(d) Interest rate risk
Interest rate risk is created by fluctuations in the fair values
of financial instruments due to changes in the market interest
rates. The Corporation is exposed to interest rate fluctuations
on its bank credit facility which is market rate based (variable
interest rates); thus, carrying values approximate fair values.
If the bank prime rate changes by 25 basis points, the
Corporation's interest rate will also change by 25 basis points.
An interest rate increase or decrease of 25 basis points during
the three months ended March 31 would have resulted in
approximately a $9,000 increase or decrease in interest expense
for the three months ended March 31, 2008.
(e) Liquidity risk
Liquidity risk is the risk that the Corporation will not be able
to meet its financial obligations as they are due. The
Corporation's approach to managing liquidity is to ensure, as far
as possible, that it will have sufficient liquidity to meet its
liabilities when due, under both normal and stressed conditions
without incurring unacceptable losses or risking harm to the
Corporation's reputation.
The Corporation prepares annual capital expenditure budgets,
which are regularly monitored and updated as considered
necessary. Further the Corporation requires authorizations for
expenditures on both operated and non-operated projects to
further manage capital expenditures. To facilitate the capital
expenditures program, the Corporation has a revolving demand
credit facility that is reviewed annually by the lender. The
Corporation also attempts to match its payment cycle with the
collection of petroleum and natural gas revenues on the 25th of
each month.
4. Capital management
Wrangler West's objectives when managing capital are to: (1) deploy
capital to provide an appropriate return on investment to its
shareholders; (2) maintain financial flexibility to preserve the
Corporation's ability to meet financial obligations; and (3) maintain
a capital structure that provides financial flexibility to manage the
Corporation's ongoing exploration program.
The Corporation's strategy is to maintain a flexible capital
structure consistent with its business objectives and to respond to
changes in economic conditions while managing the risk
characteristics of the underlying petroleum and natural gas assets.
Capital structure is considered to include share capital, bank debt,
and working capital. To maintain or adjust capital structure, the
Corporation may issue new common shares, increase debt, or adjust
capital spending.
A key measure Wrangler West utilizes in evaluating capital structure
is the ratio of net debt to annualized funds flow from operations.
The ratio is calculated as net debt, defined as outstanding bank debt
plus or minus working capital, divided by annualized funds flow from
operations before asset retirement obligations and changes in non-
cash working capital for the most recent quarter, annualized
(multiplied by four). The Corporation's goal is to maintain a net
debt to annualized funds flow from operations ratio of less than
1.5 : 1. At March 31, 2008, Wrangler West's ratio of net debt to
annualized funds flow from operations was 1.13 : 1.
Wrangler West's share capital is not subject to external
restrictions. However the credit facility available is based on the
lender's annual review of the Corporation's petroleum and natural gas
reserves.
There were no changes to the Corporation's approach to capital
management during the three months ended March 31, 2008.
--------------------------------
Reader Advisory
Certain forward-looking statements in this press release constitute forward-looking information within the meaning of securities laws. Forward-looking information may relate to our future outlook and anticipated events or results and may include statements regarding Wrangler West's future financial position, business strategy, projected costs, capital expenditures, financial results, taxes, and plans and objectives involving financing; commodity prices; number, type, timing and tie-in of wells drilled; commencement and costs of production; and the magnitude of crude oil and natural gas reserves. Statements relating to "reserves" are deemed to be forward-looking statements, as they involve the implied assessment, based on certain estimates and assumptions that the reserves described can be profitably produced in the future. In some cases, forward-looking information can be identified by terms such as "may", "will", "should", "expect", "plan", "anticipate", "believe", "intend", "estimate", "predict", "potential", "continue" or other similar expressions concerning matters that are not historical facts.
We base forward-looking statements on certain factors and assumptions regarding: expected growth, results of operations, commodity prices, royalty rates, performance and business prospects and opportunities. Specifically, in projecting future activities, we have made assumptions about Wrangler West's ability to find and develop economic crude oil and natural gas reserves, production of discovered reserves, costs of material and services, access to production facilities and transportation, access to qualified and experienced staff and changes in government regulations. While we consider these assumptions reasonable based on information currently available to us, they may prove to be incorrect. By their nature, forward-looking statements are subject to numerous risks and uncertainties that could significantly affect anticipated results in the future and, accordingly, actual results may differ materially from those predicted. Wrangler West's business risks arise from uncertainties involving, but not limited to: crude oil and natural gas commodity prices, interest and currency exchange rates, environmental and safety issues, surface access, and financial and liquidity considerations. Additional risk arises from, among others, the production performance of existing properties, changes in regulatory standards and uncertain results from capital expenditure programs.
Financial outlook information contained in this press release about prospective results of operations, financial position or cash flows is based on assumptions about future events, including economic conditions and proposed courses of action, based on management's assessment of the relevant information currently available. Readers are cautioned that such financial outlook information contained in this press release should not be used for purposes other than for which it is disclosed herein.
Assumptions used in the preparation of such information, although considered reasonable at the time of preparation, may prove to be imprecise and, as such, readers should not rely unduly on forward-looking statements or financial outlooks. Wrangler West is providing the information in this press release as of May 13, 2008 for the purpose of reporting financial and operational results for the three months ended March 31, 2008. Wrangler West disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, other than as required under securities laws.
Corporate Profile
Wrangler West is a Canadian junior oil and natural gas producer building production and assets through exploration in Alberta. Since inception, our mandate has been to use the drill bit to add value for our shareholders and to maximize return on invested capital. Disciplined management of our operations and production portfolio creates sufficient funds flow from operations to support growth internally. Wrangler West will continue to reinvest funds flow from operations and to protect shareholder equity by adhering to our mandate. Wrangler West trades on the TSX Venture Exchange under the symbol "WX".
The TSX Venture Exchange has not reviewed, and does not accept
responsibility for the adequacy or accuracy of, this press release.
ContactsWrangler West Energy Corp.
Steven F. Johnson
President and Chief Executive Officer
Steve@wranglerwest.ca
telephone: (403) 290-6805 JoAnne M. Dorval-Dronyk
Chief Financial Officer
JoAnne@wranglerwest.ca
telephone: (403) 290-6807
133.18 (0.94%)
