CALGARY, Aug. 21 /CNW/ - Wrangler West Energy Corp. ("Wrangler West") (TSX-V "WX") announces operating and financial results for the three and six months ended June 30, 2008, together with comparative data for the same period in 2007 and the year ended December 31, 2007.
Financial and Operations Update
- $18.3 million in 2008 six month revenue; 22 percent increase;
- $7.8 million in 2008 six month funds flow from operations; 5 percent
increase;
- $11 million remaining in capital program for 2008 second half;
- third party engineering analysis and report completed on Wabamun A
oil pool;
- multi-stage fracture of horizontal oil wells planned for 2008 second
half.
2008 First Half Production
Wrangler West delivered a production rate of 1,547 boe/d for the 2008 six months, lower by approximately 100 boe/d compared to the same period one year ago. Production from our Riviere oil pool was curtailed by approximately 76 boe/d in 2008 second quarter when we shut in wells to obtain pressure data for our engineering evaluation and to design our horizontal well multi-stage fracturing program.
Commodity Prices and Risk Management
Commodity prices for the 2008 first half have surpassed industry expectations. Oil peaked above $140 per barrel. Lower natural gas supply, fewer wells being drilled, reduced LNG deliveries to North America and storage demand all combined to create stronger summer natural gas prices. Currently, crude oil prices have softened to the $120 per barrel range and summer natural gas recently weakened to the $7.00 per GJ range.
Hedging losses, both realized and unrealized, are the story of the 2008 first half for many Canadian oil and natural gas producers. Wrangler West has incurred $804,000 of realized hedging loss as result of our committed commodity contracts. From April 1st to October 31st, 2008, Wrangler West hedged 200 barrels of oil per day at Cdn $100.50 per barrel and 3,500 GJ/day of natural gas at an average of $7.75 per GJ.
2008 Capital Expenditures
Wrangler West's capital expenditures budget for 2008 remains at $15 million. To June 30, 2008, we have invested $4.4 million. We curtailed our 2008 second quarter spending during the prolonged spring break-up which was followed by wet ground conditions. Our activity levels will increase significantly in 2008 third and fourth quarter.
Outlook
Following commissioning and completing a study of the Wabamun A reservoir to analyse mechanical well bore damage, our engineering team have designed a multi-stage fracturing program for our Riviere horizontal oil wells. Testing of core samples from these wells identified wellbore damage as a constraint to production performance. We expect to conduct our first stimulation project in August 2008. We continue to build our understanding of this complex oil pool and are committed to our plan to capture the real value we believe it holds.
Industry activity levels have been significantly reduced for the first half of 2008. Record commodity prices and industry cash flows will drive unspent capital budgets toward new exploration plays and mergers and acquisitions. Capital markets focus on funding new exploration initiatives, as evidenced by the injection of capital into new projects in the Bakken in Saskatchewan and the Montney in British Columbia. These plays are similar to our Wabamun A oil play where producers are applying new technology to unlock tight reservoirs. We expect 2008 will continue to be a challenging, yet dynamic, year for our industry and for Wrangler West.
Steven F. Johnson
President and Chief Executive Officer
2008 Second Quarter Highlights
Three months Six months
ended Jun 30 ended Jun 30
% %
2008 2007 Change 2008 2007 Change
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OPERATIONAL HIGHLIGHTS
Production
Crude oil and NGL (bbls/d) 371 343 8 384 347 11
Natural gas (mcf/d) 6,986 8,112 (14) 6,975 7,987 (13)
Total (boe/d) 1,535 1,695 (9) 1,547 1,678 (8)
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Prices
Crude oil and NGL ($/bbl) 109.69 57.31 91 95.83 55.07 74
Natural gas ($/mcf) 10.32 7.86 31 9.10 7.95 14
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Per boe ($)
Petroleum and natural
gas revenues 73.45 49.23 49 64.86 49.20 32
Royalties (14.96) (9.58) 56 (12.89) (9.69) 33
Operating expenses (13.10) (9.58) 37 (13.22) (10.51) 26
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Field netback 45.39 30.08 51 38.74 29.00 34
General and
administrative (2.46) (1.62) 52 (2.10) (1.69) 24
Interest (1.15) (0.89) 29 (1.16) (0.88) 32
Current income taxes (6.67) (3.22) 107 (4.97) (2.11) 136
Realized loss on
commodity contracts (5.75) - - (2.86) - -
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Funds flow from
operations 29.36 24.35 21 27.66 24.32 14
Unrealized loss on
commodity contracts (11.59) - - (9.13) - -
Depletion, depreciation,
and accretion (25.26) (20.24) 25 (24.28) (20.33) 19
Stock-based compensation (0.41) (2.53) (84) (0.48) (1.43) (66)
Future income taxes
(recovery) 6.70 2.11 218 5.04 0.53 851
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Net earnings (loss) (1.19) 3.69 (132) (1.19) 3.09 (139)
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FINANCIAL HIGHLIGHTS
($ thousand)
Petroleum and natural
gas revenues 10,262 7,596 35 18,257 14,942 22
Royalties (2,090) (1,478) 41 (3,630) (2,944) 23
Operating expenses (1,830) (1,477) 24 (3,722) (3,192) 17
General and
administrative (344) (249) 38 (591) (512) 15
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Interest (160) (137) 17 (327) (268) 22
Current income taxes (932) (497) 88 (1,399) (640) 119
Realized loss on
commodity contracts (804) - - (804) - -
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Funds flow from
operations 4,102 3,757 9 7,785 7,387 5
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Unrealized loss on
commodity contracts (1,619) - - (2,569) - -
Depletion, depreciation,
and accretion (3,529) (3,122) 13 (6,835) (6,175) 11
Stock-based compensation (57) (391) (85) (136) (435) (69)
Future income taxes
(recovery) 936 325 188 1,420 160 785
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Net earnings (loss) (167) 570 (129) (334) 938 (136)
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Outstanding shares
(thousand, except where
indicated)
Weighted average - basic 6,366 6,361 - 6,363 6,361 -
Weighted average
- diluted 6,783 6,805 - 6,780 6,719 1
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Funds flow from
operations - basic
($/share) 0.64 0.59 8 1.22 1.16 5
Funds flow from
operations - diluted
($/share) 0.60 0.55 9 1.15 1.10 5
Earnings (loss) - basic
($/share) (0.03) 0.09 (133) (0.05) 0.15 (133)
Earnings (loss) - diluted
($/share) (0.03) 0.08 (138) (0.05) 0.14 (136)
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Total assets ($ thousand) 48,641 44,379 10
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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. This conversion rate 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.
MANAGEMENT'S DISCUSSION & ANALYSIS
Management of Wrangler West Energy Corp. ("Wrangler West" or the "Company") prepared the following information as of August 19, 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 and six months ended June 30, 2008.
Forward-Looking Statements Forward-Looking Statements
Certain statements in this Management's Discussion and Analysis ("MD&A") constitute forward-looking statements. Terms such as "may", "will", "should", "expect", "plan", "anticipate", "believe", "intend", "estimate", "predict", "potential", "continue" or other similar expressions are intended to identify forward-looking statements. Forward-looking statements would include statements as to Wrangler West's future outlook and anticipated events or results, including in particular statements regarding Wrangler West's future financial position, business strategy, projected expenses, capital expenditures, financial results, taxes, plans and objectives involving financing; commodity prices; number, type, timing and tie-in of wells drilled; commencement and volume and cost of production. Statements relating to reserves, including as to their magnitude, anticipated rate of recovery and the present value of their future production, are forward-looking statements, as they involve the assessment, based on certain estimates and assumptions, that the reserves described can be profitably produced in the future. Specifically, forward-looking statements are made or relied upon under the headings "Depletion, Depreciation and Accretion" and "Outlook" below.
By their nature, forward-looking statements are subject to numerous known and unknown risks, uncertainties and other factors, as a result of which actual results or events may differ materially from those anticipated in the forward-looking statements. Such statements reflect the Company's current views, based upon assumptions considered to be reasonable based on current information, that are subject to risks, uncertainties and other factors including, without limitation: results of operations, commodity prices, royalty rates, performance and business prospects or opportunities, its ability to discover 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, contracts and markets, interest and currency exchange rates, environmental and safety issues, surface access, and financial and liquidity considerations, changes in regulatory standards, changes in applicable tax laws and other factors set out in the Company's public disclosure documents.
Many factors could cause the Company's actual results, performance or achievements to vary from those described in this MD&A, including without limitation those listed above, and the assumptions they are based upon proving incorrect. These factors should not be considered exhaustive. Should one or more of these risks or uncertainties materialize, or should one or more of the assumptions underlying forward-looking statements prove incorrect, actual results may vary materially from those described in this MD&A as intended, planned, anticipated, believed, sought, proposed, estimated or expected. Management cautions readers not to unduly rely upon the forward-looking statements nor use the forward-looking statements contained in this MD&A for purposes other than for which it is disclosed here. Wrangler West provides this MD&A as of August 19, 2008 for the purpose of reporting financial and operational results for the three and six months ended June 30, 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, except as required under securities laws.
Non-GAAP Measures
This MD&A contains the terms 'funds flow from operations' and 'netbacks', which are not recognized measures under Canadian generally accepted accounting principles (GAAP). Management believes, in addition to net earnings, funds flow from operations is a useful supplemental measure in evaluating Company performance. Management believes netbacks calculations are another useful supplemental measure in assessing profitability relative to current commodity prices. However, management cautions investors not to construe these supplemental measures as being indicative of Company performance in the same manner as net earnings which are determined in accordance with GAAP.
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. Management calculates netbacks using total revenue, minus realized losses on commodity contracts, minus royalties and operating expenses and has reported netbacks before and after realized losses resulting from commodity contracts.
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 June 30, 2008 and 2007.
Three months Six months
ended Jun 30 ended Jun 30
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($ thousand) 2008 2007 2008 2007
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Cash flow from operations 4,709 4,421 4,102 7,585
Change in non-cash working capital (607) (663) 3,684 (199)
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Funds flow from operations 4,102 3,757 7,786 7,387
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The table below illustrates the reconciliation of field netbacks after
recognizing realized losses on commodity contracts for the period ended
June 30, 2008 compared to the same period in 2007.
Three months Six months
ended Jun 30 ended Jun 30
-------------------------------------------------------------------------
Per boe ($) 2008 2007 2008 2007
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Field netback before realized loss
on commodity contracts 45.39 30.08 38.74 29.00
Realized loss on commodity contracts (5.75) - (2.86) -
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Field netback after realized loss
on commodity contracts 39.64 30.08 35.89 29.00
General and administrative (2.46) (1.62) (2.10) (1.69)
Interest (1.15) (0.89) (1.16) (0.88)
Current income taxes (6.67) (3.22) (4.97) (2.11)
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Funds flow from operations 29.36 24.35 27.66 24.32
Unrealized loss on commodity contracts (11.59) - (9.13) -
Depletion, depreciation, and accretion (25.26) (20.24) (24.28) (20.33)
Stock-based compensation (0.41) (2.53) (0.48) (1.43)
Future income taxes (recovery) 6.70 2.11 5.04 0.53
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Net earnings (loss) (1.19) 3.69 (1.19) 3.09
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Basis of Presentation
Wrangler West converts petroleum and natural gas reserves and volumes to a common unit of measure on a basis of six thousand cubic feet ("mcf") of natural gas equals one barrel ("bbl") of oil. Disclosure using barrels of oil equivalent ("boe") may be misleading, particularly if used in isolation. The basis for the boe conversion ratio of 6 mcf equals one bbl is an energy equivalency conversion method, primarily applicable at the burner tip. This conversion rate does not represent a value equivalency at the wellhead. The Company calculates boe per day based on total production for the period divided by the number of days during the period.
REVIEW OF INTERIM FINANCIAL STATEMENTS
Wrangler West's total production during 2008 second quarter remained constant as the Company did not drill or tie-in any new production during spring break-up.
SELECTED QUARTERLY INFORMATION
Three months ended Jun 30 Mar 31 Dec 31 Sep 30
($ thousand, except where indicated) 2008 2008 2007 2007
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Total revenue(1) 10,262 7,995 7,089 6,505
Funds flow from operations 4,102 3,683 3,269 2,815
Funds flow from operations
- basic ($/share) 0.64 0.58 0.51 0.44
Funds flow from operations
- diluted ($/share) 0.60 0.54 0.46 0.40
Net earnings (loss) (167) (167) 211 (228)
Earnings (loss) - basic ($/share) (0.03) (0.03) 0.03 (0.04)
Earnings (loss) - diluted ($/share) (0.03) (0.03) 0.03 (0.04)
Total production (boe/d) 1,535 1,558 1,642 1,678
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Three months ended Jun 30 Mar 31 Dec 31 Sep 30
($ thousand, except where indicated) 2007 2007 2006 2006
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Total revenue 7,596 7,346 4,921 4,611
Funds flow from operations 3,757 3,629 2,244 1,825
Funds flow from operations
- basic ($/share) 0.59 0.57 0.35 0.29
Funds flow from operations
- diluted ($/share) 0.55 0.55 0.34 0.28
Net earnings (loss) 570 368 (9) 402
Earnings - basic ($/share) 0.09 0.06 - 0.06
Earnings - diluted ($/share) 0.08 0.06 - 0.06
Total production (boe/d) 1,695 1,660 1,143 1,082
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(1) Total Revenue for the three months ended 2008 June 30, net of
realized commodity contract losses, was $9,458.
(1) Total Revenue for the three months ended 2008 June 30, net of
realized and unrealized commodity contract losses, was $7,839.
Wrangler West's funds flow from operations increased year over year. Fluctuations in this table's key indicators from quarter to quarter result primarily from fluctuations in exploration activities and success; timing and costs of surface access; seasonal limitations; changes in regulations and regulatory compliance; facilities turnarounds; commodity price volatility; and other operational issues which arise from time to time. Readers can reference the appropriate interim period MD&A for a detailed analysis and explanation of the variance between individual quarters.
PRODUCTION
Daily Production
Three months Six months
ended Jun 30 ended Jun 30
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% %
($ thousand) 2008 2007 Change 2008 2007 Change
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Oil and NGL (bbls/d) 371 343 8 384 347 11
Natural gas (mcf/d) 6,986 8,112 (14) 6,975 7,987 (13)
Total (boe/d) 1,535 1,695 (9) 1,547 1,678 (8)
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Total production for the three and six months ended June 30, 2008 decreased reflecting, in part, normal production declines. For 60 days of 2008 second quarter, an estimated 76 boe/d of production was shut-in at Riviere to collect reservoir pressure data.
Total production of 1,535 boe/d for 2008 second quarter remained constant compared to 2008 first quarter (1,558 boe/d). Wrangler West did not drill any wells during 2008 second quarter due to the prolonged spring break-up.
REVENUES
Production Revenues
Three months Six months
ended Jun 30 ended Jun 30
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% %
($ thousand) 2008 2007 Change 2008 2007 Change
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Oil and NGL 3,704 1,791 107 6,699 3,445 94
Natural gas 6,558 5,805 13 11,558 11,487 1
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Petroleum and natural gas
revenues before realized
loss on commodity
contracts 10,262 7,596 35 18,257 14,942 22
Realized loss on
commodity contracts (804) - - (804) - -
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Petroleum and natural gas
revenues after realized
loss on commodity
contracts 9,458 7,596 25 17,453 14,942 17
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Prices before realized loss on commodity contracts
Three months Six months
ended Jun 30 ended Jun 30
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% %
2008 2007 Change 2008 2007 Change
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Oil and NGL ($/bbl) 109.69 57.31 91 95.83 55.07 74
Natural gas ($/mcf) 10.32 7.86 31 9.10 7.95 14
Total production ($/boe) 73.45 49.23 49 64.86 49.20 32
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For the three and six months ended June 30, 2008, Wrangler West recognized
a significant increase in total revenue before realized and unrealized loss on
commodity contracts due to the strength in overall commodity prices.
Prices after realized loss on commodity contracts
Three months Six months
ended Jun 30 ended Jun 30
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% %
2008 2007 Change 2008 2007 Change
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Oil and NGL ($/bbl) 96.36 57.31 68 89.39 55.07 62
Natural gas ($/mcf) 9.76 7.86 24 8.83 7.95 11
Total production ($/boe) 67.69 49.23 37 62.00 49.20 26
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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 June 30, 2008 was $2.6 million.
Total production revenues for 2008 second quarter increased 28 percent from 2008 first quarter reflecting the improvement in overall commodity prices.
ROYALTIES
Three months Six months
ended Jun 30 ended Jun 30
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% %
($ thousand) 2008 2007 Change 2008 2007 Change
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Crown 1,034 756 37 1,822 1,675 9
Other 1,057 722 46 1,808 1,269 42
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Total royalties 2,090 1,478 41 3,630 2,944 23
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Three months Six months
ended Jun 30 ended Jun 30
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% %
($/boe) 2008 2007 Change 2008 2007 Change
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Crown 7.40 4.90 51 6.47 5.52 17
Other 7.56 4.68 62 6.42 4.18 54
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Total royalties 14.96 9.58 56 12.89 9.69 33
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For the three and six months ended June 30, 2008, total royalties increased consistent with higher commodity prices. Royalties, as a percentage of revenue, for the three and six months, as well as the comparative period in 2007, remain consistent at approximately 20 percent.
Wrangler West expects the 2008 royalty rate, as a percentage of revenue, to remain consistent with that of the 2007 annualized rate of 21 percent.
Since a significant portion of Wrangler West's production is subject to freehold royalties, rather than crown royalties, the Company expects changes to the Alberta royalty regime in 2009 will have a marginal impact on total royalties.
OPERATING EXPENSES
Three months Six months
ended Jun 30 ended Jun 30
-------------------------------------------------------------------------
% %
2008 2007 Change 2008 2007 Change
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Operating expenses
($ thousand) 1,830 1,477 24 3,722 3,192 17
Operating expenses
($/boe) 13.10 9.58 37 13.22 10.51 26
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For the three and six months ended June 30, 2008, total operating expenses increased due to repairs and maintenance conducted on certain wells.
For the three months ended June 30, 2008, Wrangler West included crude oil trucking expenses of $3.99 per bbl (2007 - $4.09 per bbl). For 2008 first quarter, crude oil trucking expenses of $3.65 per bbl were included in operating expenses.
In 2008 second quarter, operating expenses decreased 3 percent (2 percent on a per boe basis) from 2008 first quarter.
NETBACKS
Field netbacks before realized loss on commodity contracts
Three months Six months
ended Jun 30 ended Jun 30
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% %
($/boe) 2008 2007 Change 2008 2007 Change
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Light and medium
crude oil ($/bbl) 71.01 27.24 161 60.16 24.39 147
Natural gas ($/mcf) 6.24 5.12 22 5.30 4.97 7
NGL ($/bbl) 51.24 33.02 55 50.30 37.08 36
Combined netback ($/boe) 45.39 30.08 51 38.74 29.00 34
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For the three and six months ended June 30, 2008, netbacks increased due
to the strength of commodity prices received.
Combined netbacks before realized loss for 2008 second quarter increased
41 percent from 2008 first quarter ($32.19 per boe).
Field netbacks after realized loss on commodity contracts
Three months Six months
ended Jun 30 ended Jun 30
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% %
($/boe) 2008 2007 Change 2008 2007 Change
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Light and medium
crude oil ($/bbl) 57.27 27.24 110 53.46 24.39 119
Natural gas ($/mcf) 5.68 5.12 11 5.02 4.97 1
NGL ($/bbl) 51.24 33.02 55 50.30 37.08 36
Combined netback ($/boe) 39.64 30.08 32 35.89 29.00 24
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Combined netbacks after realized loss for 2008 second quarter increased 23
percent from 2008 first quarter ($32.19 per boe).
GENERAL AND ADMINISTRATIVE (G&A)
Three months Six months
ended Jun 30 ended Jun 30
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% %
2008 2007 Change 2008 2007 Change
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G&A ($ thousand) 344 249 38 591 512 15
G&A ($/boe) 2.46 1.62 52 2.10 1.69 24
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For the three and six months ended June 30, 2008, total G&A increased from the comparative periods reflecting staffing and office cost increases.
At June 30, 2008, Wrangler West capitalized G&A of $348,000 (2007 - $421,000) associated with exploration activities.
G&A for 2008 second quarter increased 39 percent (41 percent on a per boe basis) from 2008 first quarter, reflecting lower overhead recoveries and one-time expenditures incurred for public company annual reporting. Wrangler West expects 2008 G&A per boe to increase from the 2007 annualized rate of $2.34 per boe.
INTEREST EXPENSE
Three months Six months
ended Jun 30 ended Jun 30
-------------------------------------------------------------------------
% %
2008 2007 Change 2008 2007 Change
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Interest ($ thousand) 160 137 17 327 268 22
Interest ($/boe) 1.15 0.89 29 1.16 0.88 32
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Interest expense for the six months ended June 30, 2008 represented interest charges for the use of Wrangler West's demand revolving operating credit facility ("credit facility"). The Company uses the credit facility to fund its capital expenditures program.
Interest expense in 2008 second quarter decreased 3 percent (2 percent on a per boe basis) from 2008 first quarter due to decreased utilization of the credit facility.
STOCK-BASED COMPENSATION
Three months Six months
ended Jun 30 ended Jun 30
-------------------------------------------------------------------------
% %
2008 2007 Change 2008 2007 Change
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Stock-based compensation
($ thousand) 57 391 (85) 136 435 (69)
Stock-based compensation
($/boe) 0.41 2.53 (84) 0.48 1.43 (66)
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At June 30, 2008, Wrangler West had outstanding 1,232,000 options to purchase common shares. There were no options granted during 2008. During 2008 second quarter, 30,000 stock options were exercised.
For the three and six months ended June 30, 2008, total stock-based compensation was $190,816 (2007 - $684,946) of which Wrangler West capitalized $129,060 (2007 - $250,401) relating to exploration and development activities. All outstanding stock options fully vest in November 2008.
In 2008 second quarter, stock-based compensation decreased 26 percent from 2008 first quarter.
DEPLETION, DEPRECIATION AND ACCRETION ("DD&A")
Three months Six months
ended Jun 30 ended Jun 30
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% %
2008 2007 Change 2008 2007 Change
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Depletion, depreciation
and accretion
($ thousand) 3,529 3,122 13 6,835 6,175 11
Depletion, depreciation
and accretion ($/boe) 25.26 20.24 25 24.28 20.33 19
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The increase in DD&A on a per boe basis for the three and six months ended June 30, 2008 reflects a lower production rate and minimal reserves additions from exploration success. During the three months ended June 30, 2008, a prolonged spring break-up deferred investment in exploration and development of oil and natural gas properties. A significant portion of 2008 first quarter expenses related to facilities expansion and tie-in for existing reserves.
DD&A for 2008 first quarter was $23.32 on a per boe basis.
INCOME TAXES
Three months Six months
ended Jun 30 ended Jun 30
-------------------------------------------------------------------------
% %
($ thousand) 2008 2007 Change 2008 2007 Change
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Current income taxes 932 497 88 1,399 640 119
Future income taxes
expense (recovery) (936) (325) 188 (1,420) (160) 785
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Total ($/boe) (5) 171 (103) (21) 479 (104)
Current income taxes 6.67 3.22 107 4.97 2.11 136
Future income taxes
expense (recovery) (6.70) (2.11) 218 (5.04) (0.53) 851
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Total (0.03) 1.11 (103) (0.07) 1.58 (104)
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Tax pools as at June 30, 2008 sheltered approximately $4.4 million of income for tax purposes resulting in $1.4 million of current income tax for the six month period. For the six months ended June 30, 2008, Wrangler West recognized a future income tax recovery of $1.4 million, resulting in a net income tax recovery of $21,000.
As at June 30, 2008, Wrangler West recognized a future tax asset of $761,000 related to the unrealized loss on commodity contracts.
EARNINGS
Three months Six months
ended Jun 30 ended Jun 30
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% %
2008 2007 Change 2008 2007 Change
-------------------------------------------------------------------------
Net earnings (loss)
($ thousand) (167) 570 (129) (334) 938 (136)
Net earnings (loss)
($/boe) (1.19) 3.69 (132) (1.19) 3.09 (139)
Earnings (loss) - basic
($/share) (0.03) 0.09 (133) (0.05) 0.15 (133)
Earnings (loss) - diluted
($/share) (0.03) 0.08 (138) (0.05) 0.14 (136)
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For the three and six months ended June 30, 2008, Wrangler West's earnings were negatively impacted by the realized and unrealized loss attributed to commodity contracts.
Wrangler West recorded a loss of $167,000 for both 2008 second quarter and 2008 first quarter or $0.03 on a per share basis for each quarter.
FUNDS FLOW AND LIQUIDITY
Three months Six months
ended Jun 30 ended Jun 30
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% %
2008 2007 Change 2008 2007 Change
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Funds flow from operations
($ thousand) 4,102 3,757 9 7,786 7,387 5
Funds flow from operations
($/boe) 29.36 24.35 21 27.66 24.32 14
Funds flow from operations
- basic ($/share) 0.64 0.59 8 1.22 1.16 5
Funds flow from operations
- diluted ($/share) 0.60 0.55 9 1.15 1.10 5
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For the three and six months ended June 30, 2008, Wrangler West's funds flow from operations increased, primarily due to higher commodity prices.
As at June 30, 2008, Wrangler West had drawn $11.2 million on its 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 credit facility to fulfill an estimated $15.0 million capital program. A shortfall in available funds resulting from significantly weaker commodity prices would require review and reprioritization of Wrangler West's ongoing capital program. If new business opportunities arise, Wrangler West would pursue an increase in the credit facility, or seek alternate funding in the equity markets to capture those opportunities.
At June 30, 2008, Wrangler West had a working capital deficiency, including bank debt, of $13.9 million (2007 second quarter - $10.5 million).
In May 2008, Wrangler West's authorized amount of credit facility increased to $20 million from $17.5 million. Wrangler West expects increased production volumes and its corporate reserves base will continue to support the credit facility.
TOTAL CAPITALIZATION
($ thousand except where noted) As at June 30, 2008
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Common shares outstanding (thousand) 6,391
Closing market price at June 30 ($/share) 10.50
Market value of common shares 67,104
Net debt 13,884
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Total capitalization 80,988
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As at August 19, 2008, Wrangler West had 6,390,827 common shares
outstanding.
CAPITAL EXPENDITURES
Three months Six months
ended Jun 30 ended Jun 30
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% %
($ thousand) 2008 2007 Change 2008 2007 Change
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Land 41 348 (88) 359 569 (37)
Seismic - 916 (100) 275 1,178 (77)
Capitalized general and
administrative expenses 183 236 (22) 348 421 (17)
Drilling and completions 170 1,493 89 1,114 3,353 (67)
Production equipment and
gathering systems 15 610 (98) 2,341 1,508 55
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Total capital expenditures 409 3,603 (89) 4,438 7,030 (37)
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In the six months ended June 30, 2008, Wrangler West drilled one dry and abandoned ("D&A") well (2007 - four wells; one of which was D&A).
For the three months ended June 30, 2008, Wrangler West deferred capital expenditures during spring break-up and continued to accumulate wellbore data for the third party engineering analysis of the Riviere Wabamun A oil pool. Wrangler West's capital expenditures have resumed in 2008 third quarter.
Wrangler West continues to use funds flow from operations and the demand revolving operating credit facility to support its capital expenditures program.
INTERNATIONAL FINANCIAL REPORTING STANDARDS ("IFRS")
In February 2008, the CICA Accounting Standards Board ("AcSB") confirmed the changeover to IFRS from Canadian GAAP will be required for public companies effective for interim and annual financial statements relating to fiscal years beginning on or after January 1, 2011. The AcSB issued the "omnibus" exposure draft of IFRS with comments due by July 31, 2008, wherein Canadian public companies are permitted to early adopt. The Canadian Securities Administrators ("CSA") has also issued Concept Paper 52-402, which requested feedback on the early adoption of IFRS. The eventual changeover to IFRS represents changes due to new accounting standards. The transition from current Canadian GAAP to IFRS is a significant undertaking that may affect Wrangler West's reported financial position and results of operations.
Wrangler West has not completed development of an IFRS changeover plan, which will include project structure and governance, resourcing and training, analysis of key GAAP differences and a phased plan to assess accounting policies under IFRS as well as potential IFRS exemptions. During the latter part of 2008, Wrangler West will complete IFRS project scoping, which will include a timetable for assessing the impact on data systems, internal controls over financial reporting, and business activities, such as financing and compensation arrangements.
OUTLOOK
Wrangler West's 2008 capital expenditures are budgeted at approximately $15 million. To date, we have invested $4.4 million. We anticipate accelerating our capital program in the third and fourth quarter. Wrangler West continues to pursue the reserves in the Riviere Wabamun A pool. We have built an inventory of new natural gas prospects and have drilled two natural gas wells since the end of 2008 second quarter.
To date, the horizontal oil wells at Riviere have underperformed. Wrangler West commissioned a third party engineering study which identifies mechanical damage in the horizontal open wellbores. To rectify this mechanical damage, Wrangler West will undertake a program to case, cement and multi-stage fracture the horizontal wells. Our first two recompletion programs are planned for 2008 third quarter. If these recompletions are successful and oil production rates improve, Wrangler West will undertake the same work on the remaining horizontal wells and will drill additional horizontal wells in the Wabamun A pool.
Wrangler West has benefited from strong commodity prices during the first six months of 2008. Although prices have softened early in 2008 third quarter, they remain relatively high on an historical basis. Current commodity prices continue to offer oil and natural gas producers significant opportunities to add value.
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.
Interim Balance Sheets
(unaudited)
June 30 December 31
2008 2007
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Assets
Current assets
Accounts receivable $ 3,607,371 $ 2,729,405
Prepaid expenses 458,763 471,548
Future income taxes 760,938 -
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4,827,072 3,200,953
Property and equipment 43,814,221 45,949,078
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$48,641,293 $49,150,031
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Liabilities and shareholders' equity
Current liabilities
Bank indebtedness $11,186,648 $11,557,480
Accounts payable and accrued liabilities 4,104,027 6,402,768
Commodity contract liability 2,569,000 -
Income taxes payable 851,785 829,583
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18,711,460 18,789,831
Asset retirement obligation 1,958,814 1,875,201
Future income taxes 5,231,337 5,840,893
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25,901,611 26,505,925
Shareholders' equity
Share capital (note 2) 11,309,057 11,070,257
Contributed surplus (note 2) 3,311,017 3,120,201
Retained earnings 8,119,608 8,453,648
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22,739,682 22,644,106
Commitments (note 3)
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$48,641,293 $49,150,031
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See accompanying notes to interim financial statements
Wrangler West Energy Corp.
Interim Statements of Earnings
and Retained Earnings
(unaudited)
Three months ended June 30 Six months ended June 30
2008 2007 2008 2007
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Revenue
Petroleum and
natural gas $10,262,179 $ 7,595,892 $18,256,843 $14,942,253
Realized loss on
commodity contracts
(note 3) (803,953) - (803,953) -
Unrealized loss on
commodity contracts
(note 3) (1,619,031) - (2,569,000) -
Royalties (2,090,334) (1,477,983) (3,629,511) (2,943,515)
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5,748,861 6,117,909 11,254,379 11,998,738
Expenses
Operating 1,829,789 1,477,344 3,721,630 3,192,156
General and
administrative 343,624 249,373 590,683 512,261
Interest 160,401 137,248 326,501 268,084
Stock-based
compensation 57,457 390,534 135,556 434,545
Depletion,
depreciation and
accretion 3,528,733 3,122,092 6,834,796 6,174,754
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5,920,004 5,376,591 11,609,166 10,581,800
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Earnings (loss) before
income taxes (171,143) 741,318 (354,787) 1,416,938
Current income taxes 931,785 496,625 1,398,780 639,625
Future income taxes
(recovery) (936,386) (325,333) (1,419,527) (160,333)
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(4,601) 171,292 (20,747) 479,292
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Net earnings (loss)
and comprehensive
income (loss) (166,542) 570,026 (334,040) 937,646
Retained earnings,
beginning of period 8,286,150 7,900,784 8,453,648 7,533,164
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Retained earnings,
end of period $ 8,119,608 $ 8,470,810 $ 8,119,608 $ 8,470,810
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Earnings (loss) per
share - basic $ (0.03) $ 0.09 $ (0.05) $ 0.15
Earnings (loss) per
share - diluted $ (0.03) $ 0.08 $ (0.05) $ 0.14
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See accompanying notes to interim financial statements
Wrangler West Energy Corp.
Interim Statements
of Cash Flows
(unaudited)
Three months ended June 30 Six months ended June 30
2008 2007 2008 2007
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Cash provided by
(used in):
Operating
Net earnings (loss) $ (166,542) $ 570,026 $ (334,040) $ 937,646
Items not involving
cash
Depletion,
depreciation and
accretion 3,528,733 3,122,092 6,834,796 6,174,754
Stock-based
compensation 57,457 390,534 135,556 434,545
Unrealized loss
on commodity
contracts 1,619,031 - 2,569,000 -
Future income
taxes (936,386) (325,333) (1,419,527) (160,333)
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4,102,293 3,757,319 7,785,785 7,386,612
Change in non-cash
operating working
capital 607,126 663,410 (3,683,655) 198,840
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4,709,419 4,420,729 4,102,130 7,585,452
Financing
Increase (decrease)
in bank
indebtedness (2,559,567) (1,488,800) (370,832) (800,346)
Issuance of common
shares 165,000 - 165,000 -
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(2,394,567) (1,488,800) (205,832) (800,346)
Investing
Additions to
petroleum and
natural gas
properties (408,574) (3,602,878) (4,438,232) (7,029,614)
Change in non-cash
investing working
capital (1,906,278) 670,949 541,934 244,508
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(2,314,852) (2,931,929) (3,896,298) (6,785,106)
Cash and cash
equivalents,
beginning and end
of period - - - -
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Supplementary cash
flow information
Interest paid $ 170,331 $ 138,193 $ 330,337 $ 263,369
Cash taxes paid $ 80,000 - $ 1,240,000 -
See accompanying notes to interim financial statements
Wrangler West Energy Corp.
Notes to the Interim Financial Statements
Three and six months ended June 30, 2008 and 2007
(unaudited)
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 six months ended June 30.
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2008
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Balance, beginning of period $ 3,120,201
Stock-based compensation costs 190,816
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Balance, end of period $ 3,311,017
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(b) Per share amounts
For the six months ended June 30, 2008, the number of weighted
average common shares outstanding used in calculating net
earnings (loss) per share was 6,363,349 basic and 6,779,992
diluted (2007 - 6,360,827 basic and 6,718,813 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 June 30, 2008 was
$2,569,000 based on market prices on that date.
A natural gas price increase or decrease of $0.10 per GJ at
June 30 would have resulted in a $43,000 adjustment to the
unrealized loss on the commodity contracts for the six months
ended June 30, 2008. A crude oil price increase or decrease of
$1.00 per barrel at June 30 would have resulted in a $25,000
adjustment to the unrealized loss on the commodity contracts for
the six months ended June 30, 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 credit exposure at June 30, 2008 was
the accounts receivable balance of $3.6 million, of which
$3.3 million was received, pursuant to standard industry
practice, on July 25, 2008. No accounts receivable were written
off and no allowance for bad debt was established in the six
months ended June 30, 2008.
(d) Interest rate risk
Interest rate risk is created by fluctuations in the fair values
or cash flows 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).
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 six months ended June 30, 2008 would have resulted in
approximately a $16,000 increase or decrease in interest expense
for the period.
(e) Liquidity risk
Liquidity risk addresses whether the Corporation will meet its
financial obligations as they are due. The Corporation's approach
to managing liquidity is to ensure, as far as possible, 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 manage
capital expenditures. The Corporation matches its payment cycle
to the collection of petroleum and natural gas revenues on the
25th of each month.
To support the capital expenditures program, the Corporation has
a demand revolving operating credit facility (the "credit
facility") subject to annual review by the lender. On May 12,
2008, the Corporation's credit facility increased to $20 million
from $17.5 million. The credit facility bears interest based on
the Corporation's debt to cash flow ratio determined at the most
recently completed fiscal quarter.
Credit facility utilization up to $17.5 million bears interest at
the bank's prime rate plus 5 basis points for a debt to cash flow
ratio less than or equal to 1:1.
If the Corporation's debt to cash flow ratio increases, the
interest rate increases to a maximum of prime plus 80 basis
points for a debt to cash flow ratio greater than 3:1.
Utilization of the credit facility greater than $17.5 million
increases the interest rate by 25 basis points.
At June 30, 2008, the Corporation had drawn $11.2 million on the
credit facility. Net debt at June 30, 2008 was $13.9 million.
4. Capital management
Wrangler West's objectives when managing capital are to: (1) deploy
capital to provide an appropriate return on investment to 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 June 30, 2008, Wrangler
West's ratio of net debt to annualized funds flow from operations was
0.85 : 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 and six months ended June 30, 2008.
Reader Advisory
Certain statements in this news release and interim report to shareholders constitute forward-looking statements. Terms such as "may", "will", "should", "expect", "plan", "anticipate", "believe", "intend", "estimate", "predict", "potential", "continue" or other similar expressions are intended to identify forward-looking statements. Forward-looking statements would include statements as to Wrangler West's future outlook and anticipated events or results, including in particular statements regarding Wrangler West's future financial position, business strategy, projected expenses, capital expenditures, financial results, taxes, plans and objectives involving financing; commodity prices; number, type, timing and tie-in of wells drilled; commencement and volume and cost of production. Statements relating to reserves, including as to their magnitude, anticipated rate of recovery and the present value of their future production, are forward-looking statements, as they involve the assessment, based on certain estimates and assumptions, that the reserves described can be profitably produced in the future. Specifically, forward-looking statements are made or relied upon under the headings "Depletion, Depreciation and Accretion" and "Outlook" below.
By their nature, forward-looking statements are subject to numerous known and unknown risks, uncertainties and other factors, as a result of which actual results or events may differ materially from those anticipated in the forward-looking statements. Such statements reflect the Company's current views, based upon assumptions considered to be reasonable based on current information, that are subject to risks, uncertainties and other factors including, without limitation: results of operations, commodity prices, royalty rates, performance and business prospects or opportunities, its ability to discover 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, contracts and markets, interest and currency exchange rates, environmental and safety issues, surface access, and financial and liquidity considerations, changes in regulatory standards, changes in applicable tax laws and other factors set out in the Company's public disclosure documents.
Many factors could cause the Company's actual results, performance or achievements to vary from those described in this news release and interim report to shareholders, including without limitation those listed above, and the assumptions they are based upon proving incorrect. These factors should not be considered exhaustive. Should one or more of these risks or uncertainties materialize, or should one or more of the assumptions underlying forward-looking statements prove incorrect, actual results may vary materially from those described in this news release and interim report to shareholders as intended, planned, anticipated, believed, sought, proposed, estimated or expected. Management cautions readers not to unduly rely upon the forward- looking statements nor use the forward-looking statements contained in this news release and interim report to shareholders for purposes other than for which it is disclosed here. Wrangler West provides this news release and interim report to shareholders as of August 20, 2008 for the purpose of reporting financial and operational results for the three and six months ended June 30, 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, except 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
54.73 (0.60%)