CALGARY, Nov. 8 /PRNewswire-FirstCall/ -- Canetic Resources Trust
("Canetic" or the "Trust" or "We") (CNE.UN-TSX; CNE-NYSE) is
pleased to announce its financial and operating results for the
three and nine months ended September 30, 2006. Highlights of the
third quarter include: - Closing the northeast British Columbia and
central Alberta ("Samson") acquisition on August 31, 2006 for
approximately $900 million. Canetic acquired approximately 13,500
barrels of oil equivalent ("boe") per day of production, 40.1
million boe of proved plus probable reserves and 230,000 net acres
of undeveloped land. The acquisition was financed by the issuance
of 20.8 million trust units for total proceeds of $460 million as
well as $230 million principal amount of 6.5% convertible
extendible unsecured subordinated debentures. The acquisition
balances Canetic's production profile to approximately 53 percent
crude oil and liquids and 47 percent natural gas and increases
Canetic's total proved plus probable reserves to approximately 275
million boe. - Production for the third quarter averaged 74,475 boe
per day, an increase of 85 percent compared to the third quarter of
2005 and 6 percent compared with the previous quarter. Production
for the first nine months of the year averaged 72,431 boe per day.
- Funds flow from operations for the third quarter increased 116
percent to $200.3 million as compared to $92.7 million for the same
period in 2005. Funds flow from operations increased 128 percent to
$580.1 million for the nine months ended September 30, 2006, up
from $254.0 million in the same period in 2005. - Distributions per
unit increased 18 percent compared with the same period in 2005.
During the quarter, Canetic's monthly distributions were maintained
at $0.23 per unit resulting in a payout ratio of 72 percent for the
first nine months of 2006 as well as for the third quarter. Canetic
currently anticipates maintaining the current $0.23 per unit
distribution for the balance of the year. - During the quarter,
Canetic remained active in the exploitation of its assets,
incurring $104.4 million in development expenditures while
participating in the drilling of 92 gross wells with a 98 percent
success rate. - Subsequent to the quarter end, on October 31, 2006,
the Canadian Minister of Finance proposed changes to the taxation
of Canadian income trusts. The effect of the impending legislation
is to tax income generated by income trusts at the same level as
income generated by corporations. Income trusts in existence on the
date of the announcement, such as Canetic, would not be subject to
this new tax until the taxation year 2011. For more information,
Unitholders are directed to the Outlook section of this news
release. Canetic will host a conference call to discuss the results
on Thursday, November 9, 2006 at 8:00 a.m. MST (10:00 a.m. EST).
The call is open to analysts, investors and all interested parties.
To participate, call 416-695-5259 within the local Toronto area or
1-800-769-8320 toll free across North America. To ensure timely
participation in the teleconference, callers are encouraged to dial
in 10 to 15 minutes prior to commencement of the call to register.
A live audio webcast will be accessible on Canetic's website at
http://www.canetictrust.com/. A telephone replay will be available
through to November 30, 2006, by dialing 416-695-5275 (Toronto) or
1-888-509-0081 (toll-free) and entering passcode 634267 followed by
the number sign. 2006 HIGHLIGHTS Three Months Ended Nine Months
Ended September 30 September 30
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($millions except per unit amounts) 2006 2005 change 2006(1) 2005
change
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FINANCIAL Gross revenue 368.5 217.4 70% 1,060.1 566.2 87% Funds
flow from operations(3) 200.3 92.7 116% 580.1 254.0 128% Per unit -
basic(2) 0.95 1.03 -8% 2.91 2.88 1% Per unit - diluted(2) 0.93 1.02
-9% 2.85 2.85 - Net earnings 102.7 6.5 1480% 244.7 17.2 1323% Per
unit - basic(2) 0.49 0.07 600% 1.23 0.20 515% Per unit - diluted(2)
0.48 0.07 586% 1.21 0.19 537% Distributions 144.9 52.3 177% 417.0
154.2 170% Per unit(2) 0.6900 0.5850 18% 2.0700 1.7551 18% Payout
Ratio(3) 72 56 29% 72 61 18%
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Capital expenditures Development expenditures 104.4 38.4 172% 257.2
100.3 156% Net capital expenditures 108.9 39.6 175% 280.6 105.6
166% Total assets 5,853.2 1,507.1 288% 5,853.2 1,507.1 288%
Long-term debt 1,223.0 336.9 263% 1,223.0 336.9 263% Net debt
(excluding financial derivatives)(3) 1,210.5 316.4 283% 1,210.5
316.4 283% Unitholders' equity 3,662.5 714.4 413% 3,662.5 714.4
413%
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Weighted average trust units outstanding (000s)(2) 210,226 89,801
134% 199,640 88,042 127% Trust units outstanding at period end
(000s)(2) 224,530 90,837 147% 224,530 90,837 147%
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OPERATING Production(3) Natural gas (mmcf/d) 181.4 107.4 69% 174.5
104.0 68% Crude oil (bbl/d) 38,314 17,213 123% 37,765 18,061 109%
Natural gas liquids (bbl/d) 5,925 5,110 16% 5,577 5,368 4% Barrel
of oil equivalent (boe/d) 74,475 40,227 85% 72,431 40,770 78%
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Average prices(3) Natural gas ($/mcf) 6.21 9.08 -32% 7.04 7.98 -12%
Natural gas ($/mcf) (including financial instruments) 7.23 8.80
-18% 7.72 7.85 -2% Crude oil ($/bbl) 67.27 66.82 1% 63.03 57.28 10%
Crude oil ($/bbl) (including financial instruments) 62.67 51.56 22%
58.63 46.98 25% Natural gas liquids ($/bbl) 50.60 46.61 9% 48.81
39.03 25%
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Total per boe ($/boe) 53.78 58.76 -8% 53.61 50.87 5% Total per boe
($/boe) (including financial instruments) 53.91 51.49 5% 52.96
45.97 15%
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(1) Includes the financial and operating results of StarPoint
Energy Trust from the date of the merger, January 5, 2006. (2) The
merger of Acclaim Energy Trust ("Acclaim") and StarPoint Energy
Trust ("StarPoint") have been accounted for as a purchase of
StarPoint by Acclaim. Accordingly, the financial and operating
results of StarPoint has been included from the date of
acquisition, January 5, 2006. The comparative results for 2005 are
those of Acclaim only. All disclosures of units and per unit
amounts of Acclaim up to the merger on January 5, 2006 have been
restated using the exchange ratio of 0.8333 of a Canetic unit for
each Acclaim unit. (3) Please refer to the Advisory section at the
end of this news release for definitions of Non-GAAP terms and
frequently recurring terms and abbreviations. Three Months Ended
Nine Months Ended DRILLING ACTIVITY September 30 September 30
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2006 2005 2006 2005
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Natural gas 55 19 150 41 Oil 34 28 101 45 Other 3 1 12 2
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Total gross wells 92 48 263 88
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Total net wells 43.2 35.5 125.6 54.1
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Success rate (%) 98% 100% 97% 99%
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PRESIDENT'S MESSAGE Canetic provided solid financial and
operational results for the third consecutive quarter since merging
Acclaim Energy Trust ("Acclaim") and StarPoint Energy Trust
("StarPoint") to form Canetic, on January 5, 2006. During the
quarter we reported $368.5 million in gross revenue and $200.3
million of funds flow from operations. Strong gross revenue and
funds flow from operations were the result of increased production
related to the merger of Acclaim and StarPoint and the Samson
acquisition as well as strong crude oil prices offset by lower
natural gas prices. On August 31, 2006, Canetic closed the
previously announced strategic acquisition of the Samson interests.
The acquisition balanced our production portfolio to 53 percent
crude oil and liquids and 47 percent natural gas, added production,
at the time of closing, of approximately 13,500 boe per day and
increased our proved plus probable reserves base to almost 275
million boe. The acquisition was financed through the issuance of
equity and 6.5% convertible extendible unsecured subordinated
debenture issue for total gross proceeds of $690 million. By the
end of the third quarter, we had successfully integrated the assets
with the assistance of the more than 50 people who joined Canetic
from Samson. We have deferred most of the originally planned
capital activities on these properties for the fourth quarter due
to volatile natural gas prices and to enhance previously identified
development opportunities in order to meet Canetic's stringent
project economic requirements and long term reservoir management
objectives. We will begin to pursue opportunities on these
properties in the first quarter of 2007. Our drilling and
optimization programs continued to be highly successful during the
third quarter, with Canetic participating in 92 gross wells (43.2
net) with a 98 percent success rate. Our capital program, including
drilling, recompletions and optimizations, year to date has added
approximately 14,000 boe per day of production to offset our
declines. FINANCIAL RESULTS Three Months Ended Nine Months Ended
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($000s except Sep 30 Jun 30 Sep 30 Sep 30 Sep 30 per unit amounts)
2006 2006 2005 2006 2005
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Gross Revenue 368,502 341,205 217,449 1,060,053 566,151 Funds Flow
from operations 200,268 185,053 92,679 580,062 253,998 Per unit -
basic(1)(2) 0.95 0.92 1.03 2.91 2.88 Per unit - diluted(1)(2) 0.93
0.89 1.02 2.85 2.85 Net earnings 102,663 82,875 6,538 244,733
17,186 Per unit - basic(1)(2) 0.49 0.41 .07 1.23 0.20 Per unit -
diluted(1)(2) 0.48 0.40 .07 1.21 0.19
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(1) Includes the financial and operating results of StarPoint
Energy Trust from the date of the merger, January 5, 2006. (2) All
units of Acclaim up to the merger on January 5, 2006 have been
restated using the exchange ratio of 0.8333 of a Canetic trust unit
for each Acclaim trust unit. For the three months ended September
30, 2006, Canetic's gross revenue increased 70 percent while funds
flow from operations increased 116 percent compared to the same
period in 2005 due to continued strong commodity prices and
additional production volumes resulting from the merger of Acclaim
and StarPoint and the Samson acquisition. Third quarter gross
revenue, funds flow from operations and net earnings increased 8
percent, 8 percent and 24 percent, respectively, compared with the
previous quarter due largely to the additional production volumes
associated with the Samson acquisition. Gross revenue nearly
doubled to $1,060.1 million for the first nine months of 2006
compared to the same period in 2005, attributable largely to
additional production volumes related to the merger of Acclaim and
StarPoint. Year to date, funds flow from operations increased 128
percent compared to the same nine month period in 2005. Our 2006
year to date funds flow from operations includes a realized loss on
financial derivatives of $12.8 million as compared to a loss of
$54.5 million for the same period in 2005. Net earnings for the
three and nine month periods ended September 30, 2006 increased
substantially on both a total and per unit basis compared with the
corresponding periods in 2005. The substantial increase was
primarily attributable to changes in the provision for future taxes
as well as the accounting impact of reporting unrealized gains and
losses on financial derivatives. Net earnings for the third quarter
of 2006 increased 24 percent, or 20 percent on a per unit basis,
compared to the previous quarter. The increase in net earnings,
quarter over quarter, is largely attributable to lower effective
royalty rates and financial derivative gains reported in the third
quarter. PRODUCTION Three Months Ended Nine Months Ended
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Sep 30 Jun 30 Sep 30 Sep 30 Sep 30 2006 2006 2005 2006 2005
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Natural gas (mmcf/d) 181.4 166.0 107.4 174.5 104.0 Crude oil
(bbl/d) 38,314 37,348 17,213 37,765 18,061 Natural gas liquids
(bbl/d) 5,925 5,043 5,110 5,577 5,368
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Boe/d 74,475 70,061 40,227 72,431 40,770
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Average daily production for the three and nine month periods ended
September 30, 2006 increased 85 percent and 78 percent,
respectively, compared to the corresponding periods in 2005. The
period over period increases in production were attributable mainly
to the merger of Acclaim and StarPoint and strong results from our
2006 capital activities. Third quarter average daily production
increased approximately 6 percent compared with the second quarter
of 2006, largely as a result of the completion of the Samson
acquisition on August 31, 2006, offset by the impact of an extended
turnaround at our Mitsue Gas Plant as well as unplanned turnarounds
at third party facilities and tie-in delays associated with our
second quarter program. The Mitsue turnaround, originally scheduled
to last approximately one week, was not brought back into
production for approximately four weeks due to required maintenance
and repair work identified after the turnaround commenced. Upon
inspection of the facility following the shutdown, a number of
vessels required remedial work that was not originally anticipated.
The repairs were completed to ensure the long term sustainability,
safety and efficient operation of the facility. The associated
production loss for the quarter was approximately 700 boe per day.
The extended turnaround will have an undetermined impact on our
fourth quarter production volumes as it straddled the quarter end
and various operational difficulties in the Mitsue field,
attributable to the extended downtime, have resulted in reduced
rates since start up. We anticipate that the field will be
operating at approximately 15 percent reduced rates through the
first quarter of 2007, as infrastructure work is completed. Canetic
Management currently anticipates exiting 2006 with production of
approximately 82,000 boe per day. This estimate incorporates our
revised expectations with respect to the impact of start-up and
maintenance issues at Mitsue, which will extend into the first
quarter of 2007. It also reflects the delay of projects on the
recently acquired Samson properties as well as the impact of
adjustments to our operated drilling program in the third and
fourth quarter, whereby we shifted the focus of the program from
near term production adds to programs designed to achieve higher
economic returns and a weaker natural gas environment. The
anticipated exit rate for 2006 remains subject to the ongoing
performance of recently drilled wells in our Acheson D3a pool as
well as certain wells drilled in Pouce Coupe in northern Alberta
and at Alderson and Suffield West in southern Alberta. Management
currently anticipates providing guidance for 2007 production in
early December following approval of Canetic's 2007 Capital Budget
by the Board of Directors. PRICING Three Months Ended Nine Months
Ended
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Sep 30 Jun 30 Sep 30 Sep 30 Sep 30 2006 2006 2005 2006 2005
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Natural gas ($/mcf) 6.21 5.97 9.08 7.04 7.98 Natural gas ($/mcf)
(incl. financial instruments) 7.23 6.80 8.80 7.72 7.85 Crude oil
($/bbl) 67.27 67.29 66.82 63.03 57.28 Crude oil ($/bbl) (incl.
financial instruments) 62.67 61.97 51.56 58.63 46.98 Natural gas
liquids ($/bbl) 50.60 48.90 46.61 48.81 39.03
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Total per boe ($/boe) 53.78 53.52 58.76 53.61 50.87 Total per boe
($/boe) (incl. financial instruments) 53.91 52.63 51.49 52.96 45.97
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BENCHMARK PRICING
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WTI oil (U.S. $ per bbl) 70.55 70.70 63.16 68.29 55.45 AECO Spot
gas (Cdn $ per mcf) 5.55 6.00 9.27 6.35 7.85 NYMEX gas (U.S. $ per
mmbtu) 6.52 6.89 7.90 7.87 7.09 Currency (U.S. $/Cdn $) 0.8919
0.8914 0.8324 0.8832 0.8172
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The average posted price of West Texas Intermediate (WTI) crude
during the third quarter remained essentially unchanged on a
quarter over quarter basis. Canetic's corporate average oil price
differential narrowed slightly in relation to the benchmark NYMEX
WTI futures contracts in the third quarter compared to the second
quarter of 2006. This narrowing is attributable to seasonal
fluctuations in heavy oil differentials, to which Canetic has
exposure for a portion of its crude oil production. The Trust's
corporate average price for natural gas, before adjustments for
financial instruments, for the third quarter of 2006 decreased 32
percent as compared to the same period in 2005. For the first nine
months of 2006, Canetic's average natural gas price, before
adjustments for financial instruments, decreased 12 percent
compared to the same period in 2005. COMMODITY PRICE RISK
MANAGEMENT During the third quarter crude oil prices continued to
experience significant volatility triggered by geo-political events
similar to what had been experienced in the second quarter.
Tensions over the Iranian nuclear program continued while the
Israeli-Hezbollah conflict added concerns about the security of
crude oil supply from the Middle East. Prices for the prompt month
NYMEX WTI crude oil contract peaked at US$76.98 per barrel in the
second week of August leading up to the ceasefire. Also
contributing to the run up in prices during this period was the
thwarted terrorist plot against airlines at Heathrow and the
announcement of significant crude oil shut-ins at Prudhoe Bay. The
Israeli-Hezbollah conflict appears to have been the most
significant event impacting prices during the quarter because once
it became clear that the ceasefire would hold, crude oil prices
began a long descent downward. More recently there has been growing
concern as to whether the U.S. economy is starting to slow and if
so, what impact this would have on crude oil demand growth and
prices. Natural gas inventories in North America are at their
highest levels ever. Last winter was one of the warmest on record
and this has generally been attributed as the cause of the current
inventory situation. The historically high prices experienced
throughout most of 2005 appear to have impacted both the supply and
demand factors that are now contributing to the current natural gas
environment. While the record high prices encouraged increased
natural gas drilling resulting in higher year over year production
levels in the U.S. they are also believed to have contributed to
some year over year loss of industrial demand for natural gas.
Despite these factors, weather and inventory remain the most
significant drivers of natural gas prices and a colder winter this
year could deplete the inventory overhang and result in upward
pressure on prices. Canetic has an active hedging program that is
intended to reduce exposure to price volatility through the use of
financial derivatives. Canetic will hedge the price exposure on up
to 50% of its production through the use of swaps, collars or other
participating structures that provide firm floor prices while
maintaining some exposure to price increases. In addition to our
hedging activities, Canetic attempts to reduce sensitivity to price
volatility by splitting our physical natural gas sales evenly
between daily and monthly index pricing terms. Our hedging program
has provided a solid backstop for our operations. For the fourth
quarter of 2006, over 40 percent of crude oil volumes are hedged
with average floors of approximately $US 52.50 per bbl and
approximately 45 percent of natural gas volumes are hedged with
average floors of $C 7.52 per gj. For 2007, approximately 40
percent of crude oil volumes are hedged with average floors of
approximately $US 58.35 per bbl while 44 percent of natural gas
volumes are hedged to the end of March 2007 with average floors of
$C 7.74 per gj and 33 percent of natural gas volumes are hedged to
October 2007 with average floors of $C 6.80 per gj. Further details
on our current positions are available in the MD&A on
http://www.sedar.com/. CASH DISTRIBUTIONS & TAXABILITY Three
Months Ended Nine Months Ended
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Sep 30 Jun 30 Sep 30 Sep 30 Sep 30 (000's) 2006 2006 2005 2006 2005
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Cash flow from operating activities 138,644 239,665 83,329 485,823
199,167 Asset retirement costs incurred 4,639 (2.468) 1,823 10,563
4,073 Changes in non-cash working capital 56,985 57,080 7,527
83,676 50,758
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Funds flow from operations 200,268 185,053 92,679 580,062 253,998
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Cash distributions 144,859 139,236 52,297 416,974 154,216
Distributions per unit 0.6900 0.6900 0.5850 2.0700 1.7551
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Payout Ratio 72 75 56 72 61
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Canetic paid distributions of $144.9 million ($0.69 per Trust unit)
during the quarter. This represents a payout ratio of 72 percent.
Based on our current business and financial model, and including
the impact of the Samson acquisition that closed August 31, 2006,
Canetic estimates that for 2006 income tax purposes, our
distributions will be comprised of zero to 15 percent return of
capital and 85 to 100 percent income for Canadian investors. For US
investors, we estimate that our distributions for 2006 will be zero
to 10 percent return of capital and 90 to 100 percent qualifying
dividend income as computed under US income tax law. This tax
estimate is based on information available to Canetic as of
November 8, 2006, and is subject to change based on a variety of
circumstances including, but not limited to, commodity prices,
acquisitions, tax laws and tax and royalty rates. Actual taxable
and return of capital amounts will be provided in early 2007.
REVIEW OF OPERATIONS Capital spending on development activities for
the three months ended September 30, 2006 totalled $104.4 million.
The expenditures included $41.1 million for drilling, $20.9 million
for facilities and well site equipment, $38.5 million for
workovers, recompletions and optimization, $3.8 million for land
and $0.2 million for geological expenditures. Our program, year to
date, has been very successful. We have added production of
approximately 14,000 boe per day with the expenditures incurred and
have achieved notable success in Pouce Coupe, Acheson, Williston
Basin and in respect of our CBM projects. Year to date, the 2006
drilling program has achieved a 97 percent success rate drilling
150 gross (59.0 net) gas wells, 101 gross (59.4 net) oil wells, 5
gross (2.1 net) service wells and 7 gross (5.1 net) wells to be
abandoned. Canetic operated 74 gross (64.7 net) wells while its
partners operated 189 gross (60.9 net) wells. Optimization
continues to be a key part of our development program. During the
third quarter of 2006, Canetic executed over 180 operated
optimization and facility events, adding over 2,700 boe per day of
new production. The third quarter of 2006 was highlighted by
activity in the following areas: - In the Southern area, Canetic
participated in 26 gross (13.5 net) wells during the third quarter
with a 96 percent success rate. Year to date, we have drilled 44
gross (19.8 net) wells with a 93 percent success rate. During the
third quarter, Canetic drilled seven 100% working interest infill
drills in various Lower Manville and Nisku oil pools, of which, six
have been cased. Two very successful infill wells were drilled into
the Lower Mannville E3E on one successful test well in the
Mannville D3D. Two other drills in the Arcs D pool are awaiting
tie-in. Canetic anticipates drilling an additional 6 to 8 oil wells
in the Rosemary area, during the remainder of 2006. - In the South
Central area, Canetic participated in the drilling of 8 gross (5.9
net) wells with a success rate of 88 percent during the third
quarter. Totals for the first nine months of 2006 were 19 gross
(11.0 net) wells with a year to date success rate of 84 percent.
Our outlook for the last quarter is to drill 3 additional oil wells
and 1 gas well prior to year end. A successful multi well drilling
program in the Acheson area combined with an aggressive up-hole
optimization program helped to back fill some of the decline seen
in the D3a pool. Given the volatility of natural gas prices, during
the fourth quarter we conducted a turnaround at the Acheson Gas
Processing Facility which lasted approximately one week. The
associated shut-in natural gas and NGL volumes were approximately
5,000 boe/d. - In the Williston Basin area, Canetic participated in
the drilling of 10 gross (7.9 net) oil wells during the quarter
with a 100 percent success rate, operating 8 of the 10 wells
drilled and targeting the Alida, Frobisher and Torquay formations
in southeast Saskatchewan. All 8 Alida and Frobisher oil wells were
tied in and on production prior to the quarter end, with the
remaining 2 Torquay wells on prior to year end. Totals for the
first nine months of 2006 were 46 gross (31.0 net) oil wells with a
100 percent success rate. Our outlook is to drill an additional 3
to 6 oil wells prior to year end. Early in the fourth quarter,
Canetic completed the drilling of its first well at Tracy Mountain,
in North Dakota. The well was tested and on production in early
November with promising results. - During the third quarter,
Canetic participated in 29 gross (11.2 net) coalbed methane ("CBM")
wells, bringing our year to date total to 69 gross (27.6 net) CBM
wells with a 100 percent success rate, the majority of which are
currently subject to the dewatering phase. Production is expected
to be on stream in late 2007. Canetic participated in 19 gross (9.5
net) CBM wells in the Wyoming area and 9 gross (1.3 net) Horseshoe
Canyon wells in our Rocky area. Within the South Central area we
participated in 1 gross (0.4 net) horizontal well during the
quarter at the Corbett Creek Upper Mannville CBM prospect. Our
outlook is to participate in the drilling of an additional 20 to 25
gross wells for the remainder of 2006 and accordingly, Canetic has
commenced a 50 well CBM program at Big Bend which is expected to be
completed by mid year 2007 with sales volumes gradually coming on
at the completion of the program and late into the year. - In the
Rocky area, Canetic participated in the drilling of 20 gross (3.5
net) wells during the third quarter, none of which were operated.
Management deferred much of the operated shallow gas drilling
program due to facility constraints and softening gas prices.
Canetic now anticipates 6 to 8 additional gas wells prior to year
end with an ongoing program into the first quarter of 2007 to
coincide with the startup of the previously announced Willisden
Green Gas Processing Facility. Year to date, Canetic has
participated in 59 gross (21.7 net) wells in this area with a 98
percent success rate resulting in 5 gross (2.6 net) oil wells, 30
gross (12.6 net) gas wells and 23 gross (5.7 net) CBM gas wells. -
In the Peace River Arch area, Canetic participated in 1 gross (0.5
net) oil well, bringing our year to date totals to 13 gross (4.9
net) wells with a 100 percent success rate. Canetic anticipates
drilling another 3 to 4 locations in the Pouce Coupe area prior to
year end with plans to continue the program into Q1 2007. Our
program to date has surpassed expectations in terms of production
and reserve additions and we are optimistic about the upcoming
program. At the end of the quarter, Canetic was participating in
one deeper test well with our joint venture partner in the
Blackhawk area. An additional well is planned with the partner
prior to year end. Canetic will continue to focus the drilling
program on high netback conventional oil and gas plays in areas
where infrastructure is readily accessible such as Acheson,
Rosemary, Alderson, Pouce Coupe and southeast Saskatchewan. Canetic
is also gradually shifting the focus of our exploitation program
towards longer life, shallow decline hydrocarbon plays. Operating
costs increased to $9.72 per boe in the third quarter of 2006 from
those reported in the second quarter of 2006 of $8.80 per boe.
Although operating costs generally have increased due to higher
service costs in the field, certain additional costs continue to be
incurred to ensure the predictability of production during periods
of higher commodity prices. In addition, operating costs in the
third quarter reflect the annual payment of property taxes, plant
turnaround and maintenance costs, and extensive well maintenance
and workover programs which continue to be undertaken to maximize
production and optimize plant utilization. Operating costs during
the quarter were also impacted by late joint venture billings from
partners on non-operated properties in the amount of approximately
$4.0 million or $0.58/boe. We expect operating costs to average
between $8.50 - $9.00 per boe for the remainder of 2006. OUTLOOK We
will continue to actively exploit our asset base with plans to
participate in the drilling of up to 30 operated wells in the
fourth quarter of 2006. We are very pleased with the success of our
drilling and optimization programs year to date. Canetic currently
has four active rigs and will exit the year with four or five rigs
working. On October 31, 2006, the Canadian Minister of Finance
announced its proposal to apply a tax on distributions from
publicly-traded income trusts. Under the proposal, existing income
trusts will be subject to the new tax commencing in their 2011
taxation year, following a four-year grace period. Following the
Minister's announcement, the market's reaction was significant and
swift resulting in a widespread sell-off across the entire trust
sector that eliminated tens of billions of dollars in unitholder
value. Income trusts comprise a significant portion of market
capitalization in Canada, and trusts provide an important income
stream for individuals, especially retirees and those planning
retirement. Canetic is a member of the Canadian Association of
Income Funds ("CAIF") as well as the newly formed Coalition of
Canadian Energy Trusts (the "Coalition"). We are concerned with the
approach taken by our federal government and the
mischaracterization of energy trusts and their impact on the
Canadian economy. Action plans have been put together by both CAIF
and the Coalition to initiate a consultation with industry to
develop and implement solutions that do not damage Canadians and
the Canadian economy. It is our hope that through this process, the
government will gain a clearer understanding of our issues and that
together, we can find solutions that will see Canada's energy
trusts continue to contribute to the prosperity of our nation. We
encourage our Unitholders to read the full transcript of the
government's plan at: http://www.fin.gc.ca/news06/06-061e.html and
consult with their financial and tax advisors regarding potential
tax consequences based on their individual circumstances.
Unitholders may also express their views directly to the Minister
of Finance, whose contact information is available at
http://www.fin.gc.ca/admin/contact-e.html. Unitholders should also
visit Canetic's website at http://www.canetictrust.com/.
Notwithstanding the recent announcement by the Canadian Minister of
Finance, Canetic remains committed and believes it is well
positioned both financially and operationally to continue to
deliver solid returns to its investors in the years ahead. Until
the rules underlying the proposal put forward by the Minister of
Finance are released in legislative form and passed into law, it is
uncertain what the impact of such rules will be to the Trust and
its Unitholders. We will continue to review the legislation and
information as it becomes available and position our business
accordingly. ADVISORY Forward-Looking Statements Certain
information in this news release constitutes forward-looking
statements under applicable securities law. Any statements that are
contained in this news release that are not statements of
historical fact may be deemed to be forward-looking statements.
Forward-looking statements are often identified by terms such as
"may", "should", "anticipate", "expects" and similar expressions.
Forward-looking statements in this news release include, but are
not limited to, statements with respect to the production, cash
flows, payout ratios, distributions, operating costs, commodity
prices, taxability of distributions and operational activities.
Forward-looking statements necessarily involve known and unknown
risks, including, without limitation, risks associated with oil and
gas exploration, development, exploitation, production, marketing
and transportation; loss of markets; volatility of commodity
prices; currency fluctuations; variations in interest rates;
geopolitical instability; variability in consumer demand for oil,
natural gas and natural gas liquids; variability in heavy oil
differentials; variations in royalty rates; imprecision of reserve
estimates; environmental risks; competition; incorrect assessment
of the value of acquisitions; failure to realize the anticipated
benefits of acquisitions; failure to complete drilling, maintenance
and optimization programs due to bad weather, shortages of labour
or equipment or other factors beyond the control of the trust;
inability to access sufficient capital from internal and external
sources; changes in legislation, including but not limited to
income tax and environmental laws and regulatory matters; as a
consequence, actual results may differ materially from those
anticipated in the forward-looking statements. Readers are
cautioned that the foregoing list of factors is not exhaustive.
Additional information on these and other factors that could affect
Canetic's operations or financial results are included in Canetic's
reports on file with Canadian and U.S. securities regulatory
authorities and may be accessed through the SEDAR website
(http://www.sedar.com/), the EDGAR website (http://www.edgar.com/),
Canetic's website (http://www.canetictrust.com/) or by contacting
Canetic. Furthermore, the forward-looking statements contained in
this news release are made as of the date of this news release, and
Canetic does not undertake any obligation to update publicly or to
revise any of the included forward-looking statements, whether as a
result of new information, future events or otherwise, except as
expressly required by securities law. All references are to
Canadian dollars unless otherwise indicated. Frequently Recurring
Terms and Abbreviations: Where reserves or production are stated on
a barrel of oil equivalent (boe) basis, natural gas volumes have
been converted to a barrel of oil equivalent (boe) at a ratio of 6
thousand cubic feet (mcf) of natural gas to one barrel of oil. This
conversion ratio is based upon an energy equivalent conversion
method primarily applicable at the burner tip and does not
represent value equivalence at the wellhead. Boe may be misleading,
particularly if used in isolation. Other frequently used
abbreviations include: boe/d - barrels of oil equivalent per day
mcf/d - thousand cubic feet per day mmcf/d - million cubic feet per
day bbl/d - barrels of oil per day gj - gigajoule mmbtu - million
British thermal units NGL - natural gas liquids Non-GAAP Measures
Management uses the term funds flow from operations, which we
define as cash flow from operating activities before deducting
non-cash working capital and asset retirement costs incurred to
analyze operating performance and leverage. We use the term net
debt, which we define as long-term debt and working capital, to
analyze liquidity and capital resources. We use the term payout
ratio, which we define as cash distributions to unitholders divided
by funds flow from operations, to analyze financial and operating
performance. We use the terms operating and cash netbacks to
analyze margin and cash flow on each barrel of oil equivalent
("boe") production. Operating and cash netbacks should not be
viewed as an alternative to cash from operating activities, net
earnings per trust unit or other measures of financial performance
calculated in accordance with GAAP. We use the term total
capitalization, which we define as net debt including convertible
debentures plus the market value of issued equity, to analyze
leverage. Total capitalization is not intended to represent the
total funds from equity and debt received by the Trust. These
measures as presented do not have any standardized meaning
prescribed by Canadian GAAP and therefore, they may not be
comparable with calculations of similar measures for other
companies or trusts. Additional Information Additional information
regarding the Trust and its business operations, including the
Trust's annual information form for the period ended December 31,
2005, is available on the Trust's SEDAR company profile at
http://www.sedar.com/, the EDGAR company profile at
http://www.edgar.com/ or Canetic's website at
http://www.canetictrust.com/. CONSOLIDATED BALANCE SHEETS September
30, December 31, unaudited ($000s) 2006 2005
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ASSETS Current Assets Accounts receivable $ 242,503 $ 140,907
Prepaid expenses and deposits 26,204 11,630 Financial derivative
asset 12,391 -
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281,098 152,537 Property, plant and equipment, net 4,622,211
1,317,917 Goodwill 940,404 87,954 Deferred financing charges, net
of amortization 9,460 689 Deferred costs - 12,000
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Total assets $ 5,853,173 $ 1,571,097
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LIABILITIES AND UNITHOLDERS' EQUITY Current Liabilities Accounts
payable and accrued liabilities $ 204,528 $ 157,368 Income taxes
payable 43,946 - Distributions payable 51,641 17,834 Financial
derivative liability 13,752 22,965
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313,867 198,167 Bank debt 1,223,016 309,146 Convertible debentures
263,382 16,289 Financial derivative liability 8,393 8,763 Future
income taxes 241,731 202,110 Asset retirement obligations 140,241
68,235
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2,190,630 802,710 Non-controlling interest - 3,804 UNITHOLDERS'
EQUITY Capital 4,205,576 1,087,459 Convertible debentures 4,065 -
Contributed surplus - 40,836 Deficit (547,098) (363,712)
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3,662,543 764,583
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Total liabilities and unitholders' equity $ 5,853,173 $ 1,571,097
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CONSOLIDATED STATEMENTS OF EARNINGS AND ACCUMULATED EARNINGS Three
months ended Nine months ended September 30 September 30
-------------------------------------------------------------------------
unaudited ($000s except per unit amounts) 2006 2005 2006 2005
-------------------------------------------------------------------------
REVENUE Petroleum and natural gas sales $ 368,502 $ 217,449 $
1,060,053 $ 566,151 Royalty expense (net of Alberta Royalty Tax
Credit) (62,432) (49,126) (194,651) (123,420)
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306,070 168,323 865,402 442,731
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EXPENSES Operating 66,579 33,218 178,226 92,518 Transportation
4,980 2,262 13,716 6,581 General and administrative 8,870 5,880
28,163 15,881 Interest on bank debt 13,908 3,186 34,197 9,830
Interest on convertible debentures 1,908 875 4,024 3,904 Unit-based
compensation 892 11,257 19,562 16,384 Depletion, depreciation and
amortization 168,639 62,591 469,129 178,460 Accretion of asset
retirement obligations 2,851 1,173 7,759 3,519 Realized loss (gain)
on financial derivatives (844) 26,889 12,831 54,460 Unrealized loss
(gain) on financial derivatives (72,453) 17,798 (79,759) 67,954
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195,330 165,129 687,848 449,491
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Earnings (loss) before taxes 110,740 3,194 177,554 (6,760)
Provision for capital taxes 7,653 3,117 11,435 4,893 Future income
tax expense (recovery) 424 (6,461) (78,614) (28,839)
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NET EARNINGS 102,663 6,538 244,733 17,186 Deficit, beginning of
period (499,843) (312,624) (363,712) (221,083) Distributions
declared (149,918) (52,909) (428,119) (155,098)
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Deficit, end of period $ (547,098) $ (358,995) $ (547,098) $
(358,995)
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Net earnings per unit (2005 restated) Basic $ 0.49 $ 0.07 $ 1.23 $
0.20 Diluted $ 0.48 $ 0.07 $ 1.21 $ 0.19 Weighted average units
outstanding (2005 restated) Basic 210,226 89,801 199,640 88,042
Diluted 217,337 91,016 204,415 89,227
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CONSOLIDATED STATEMENTS OF CASH FLOWS Three months ended Nine
months ended September 30 September 30
-------------------------------------------------------------------------
unaudited ($000s) 2006 2005 2006 2005
-------------------------------------------------------------------------
CASH FLOWS RELATED TO THE FOLLOWING ACTIVITIES: OPERATING
ACTIVITIES Net earnings $ 102,663 $ 6,538 $ 244,733 $ 17,186
Adjustments for: Unit-based compensation (1,856) 11,040 16,814
15,718 Depletion, depreciation and amortization 168,639 62,591
469,129 178,460 Accretion 2,851 1,173 7,759 3,519 Unrealized loss
(gain) on financial derivatives (72,453) 17,798 (79,759) 67,954
Future income tax expense (recovery) 424 (6,461) (78,614) (28,839)
Asset retirement costs incurred (4,639) (1,823) (10,563) (4,073)
Changes in non-cash operating working capital (56,985) (7,527)
(83,676) (50,758)
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138,644 83,329 485,823 199,167
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FINANCING ACTIVITIES Proceeds from bank debt 329,224 7,819 479,747
53,084 Proceeds from issuance of units, net of issue costs 453,016
2,372 469,366 7,431 Proceeds from issuance of convertible
debentures, net of issue costs 220,800 - 220,800 - Distributions to
unitholders (144,859) (52,297) (416,974) (154,216) Changes in
non-cash financing working capital - 31 - 329
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858,181 (42,075) 752,939 (93,372)
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996,825 41,254 1,238,762 105,795
-------------------------------------------------------------------------
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INVESTING ACTIVITIES Acquisition of petroleum and natural gas
properties (4,480) (1,221) (28,349) (9,947) Disposition of
petroleum and natural gas properties - - - 4,610 Corporate
acquisitions, net of cash (897,458) - (933,458) - Capital
expenditures (108,204) (39,247) (264,056) (102,280) Changes in
non-cash investing working capital 13,317 (786) (12,899) 1,822
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Cash used in investing activities (996,825) (41,254) (1,238,762)
(105,795)
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Cash beginning and end of period $ - $ - $ - $ -
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The Trust paid the following cash amounts: Interest paid $ 14,986 $
2,376 $ 41,881 $ 11,428 Capital taxes paid $ 4,413 $ 1,988 $ 14,888
$ 3,570
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Canetic's complete Financial Statements and Notes and Management
Discussion and Analysis are available on Canetic's website at
http://www.canetictrust.com/ or on SEDAR at http://www.sedar.com/
or on EDGAR at http://www.edgar.com/. DATASOURCE: Canetic Resources
Trust CONTACT: Investor Relations, (403) 539-6300 or toll-free in
North America 1-877-539-6300, , http://www.canetictrust.com/
Copyright