NOT FOR DISTRIBUTION TO UNITED STATES NEWS WIRE SERVICES OR FOR DISSEMINATION IN
THE UNITED STATES OF AMERICA.
Fairmount Energy Inc. ("Fairmount" or the "Company") (TSX VENTURE:FMT) is
pleased to present a summary of its operating and financial results for the
three and nine months ended December 31, 2008. For a complete copy of
Fairmount's quarterly financial statements and management's discussion and
analysis ("MD&A") please visit www.sedar.com. Certain information contained in
this news release, including development plans, drilling locations, and
anticipated production from Gold Creek and Thorsby constitute forward-looking
information which are subject to risks and uncertainties. See "Forward - Looking
Information".
Highlights:
- Cash flow for the nine months increased 35% to $1,154,580 as compared to
$855,712 in the prior year period.
- Bank loan facilities were renewed in November, 2008, at $7,000,000 for the
revolving operating demand loan and $4,000,000 for the acquisition and
development facility with a Canadian chartered bank.
- Total borrowings of $3,800,000 at December 31, 2008 with all of this drawn
under the acquisition and development facility, leaving $7,000,000 of available
borrowing under the revolving operating demand loan.
- Drilled and cased 2 wells (0.8 net) during the quarter, one (0.3 net) at Gold
Creek and one (0.5 net) at Thorsby.
- Two new Gold Creek wells (1.0 net) were tied in at Gold Creek during the quarter.
- On January 21, 2009, Fairmount announced that the Board of Directors has
initiated a process to review the Company's business plan and to identify,
examine and consider a range of strategic alternatives available to Fairmount
for enhancing shareholder value. This may include, among other things, exploring
a corporate sale or business combination, potential asset divestments, adoption
of a dividend policy, making a substantial issuer bid or other alternatives to
increase shareholder value. The Board of Directors has engaged Rundle Energy
Partners to act as its independent financial adviser to assist in the conduct of
this review. Currently, Rundle is soliciting interest in the Company, and the
Company's properties with expressions of interest expected in early March. No
decision on any particular alternative has been reached at this time and there
can be no assurance that the process will result in any change in the Company's
current plan to explore and develop its current oil and gas properties or that
the Company will pursue any particular transaction or course of action.
- We are pleased to report current production has increased to approximately 625
boe/day, with an additional 300 boe/day of estimated productive capacity
currently constrained by facility limitations. The Company expects fourth
quarter production to average approximately 650 boe/day and a March 31, 2009
exit rate of 900 boe/day.
Operations
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Three Months Ended
December September June March
31, 30, 30, 31,
2008 2008 2008 2008
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Wells drilled - gross 2 3 1 2
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Wells drilled - net 0.8 2.5 0.5 1.0
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Natural gas production - mcf/day 990 914 1,412 1,439
----------------------------------------------------------------------------
Oil production bbl/day 2 8 7 12
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NGL production bbl/day 89 84 162 162
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Average daily production - boe/day 256 245 404 414
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Average selling price - natural gas
$/mcf $ 7.13 $ 8.73 $ 9.40 $ 7.94
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Average selling price - oil $/bbl $ 54.04 $ 111.12 $ 123.35 $ 97.84
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Average selling price - NGL's $/bbl $ 43.56 $ 62.73 $ 60.73 $ 52.91
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Average selling price - $/boe $ 43.16 $ 57.82 $ 59.34 $ 51.16
----------------------------------------------------------------------------
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Three Months Ended
December September June March
31, 30, 30, 31,
2007 2007 2007 2007
----------------------------------------------------------------------------
Wells drilled - gross 3 0 1 3
----------------------------------------------------------------------------
Wells drilled - net 1.8 0.0 0.1 1.6
----------------------------------------------------------------------------
Natural gas production - mcf/day 1,307 1,333 1,402 1,000
----------------------------------------------------------------------------
Oil production bbl/day 13 19 17 15
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NGL production bbl/day 138 116 140 107
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Average daily production - boe/day 369 357 390 289
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Average selling price - natural gas
$/mcf $ 6.07 $ 5.17 $ 7.06 $ 7.32
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Average selling price - oil $/bbl $ 86.70 $ 78.61 $ 69.99 $ 66.68
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Average selling price - NGL's $/bbl $ 48.01 $ 40.26 $ 41.99 $ 37.93
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Average selling price - $/boe $ 42.55 $ 36.51 $ 43.41 $ 42.89
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Gold Creek
The Gold Creek area is located on the southern flank of the Peace River Arch,
near Grande Prairie, Alberta. Fairmount has working interests ranging from 30%
to 84% in 13.75 contiguous sections of land in the Gold Creek area. Fairmount is
the operator of all of its existing Gold Creek wells.
During the quarter, Fairmount participated in the drilling of one new well (0.3
net) at Gold Creek and the tie-in of two wells (1.0 net), including one (0.5
net) which was drilled in the first quarter and one (0.5 net) which was drilled
in the second quarter.
In June, the BP Canada South Wapiti plant was shut down for a major scheduled
plant turn-around for a three week period. Historically, this plant had been
shut down for one to three day periods as compared to the extended shut down in
2008. Due to the lengthened shut down of the system, upon start-up Fairmount's
production was backed out of the gathering system until such time as flush
production from wells which had priority over our wells came off. As a result,
Fairmount's production at Gold Creek was nominal through all of June, July and
August and into early September. We have been advised by the plant operator
there is no major turnaround work planned for the next 3-5 years and that there
are no planned outages for calendar 2009.
Gold Creek contributed an average of 220 boe/day of production for the three
months ended December 31, 2008 as compared to the estimated productive capacity
of over 900 boe/day during the quarter due to constraints in the BP gathering
system to which we are connected. Subsequent to quarter end, in January, 2009
production has increased to approximately 550 boe/day as production from
pre-existing wells was ramped up and the two new wells drilled this fiscal year
were placed on production. We expect production to increase further to 900
boe/day after the bottlenecks in the gathering system are resolved.
Fairmount and partners own gathering and compression facilities sufficient to
process 11 mmcf/day of raw gas from the Gold Creek area. Based on the productive
capability of existing wells and anticipated productive capability from planned
future wells, we anticipate the current infrastructure capacity will not be
sufficient to allow unrestricted production from all of our wells. This means we
will need to create new or expand existing infrastructure to handle the total
productive capability of our Gold Creek wells. The Company has started planning
alternatives to provide additional capacity should this be required.
Based on the results of the ten wells drilled to date on this property, geologic
mapping, and/or 2D and 3D seismic Fairmount has identified an additional 6
drilling locations on existing Company lands.
Thorsby
The Thorsby property is located in west central Alberta, approximately 32
kilometres southwest of Edmonton. Fairmount entered into a farm-in agreement
with a major Canadian independent oil and gas company and drilled a successful
exploratory well in January 2008, and as a result earned a 100% working interest
in 2 sections of land, with drilling options on additional lands. The well was
completed in 3 zones and was placed on production during September 2008. During
the quarter, this well contributed 20 boe/day of production. Fairmount drilled
and cased 1 well (0.5 net) at Thorsby during the third quarter. Completion
operations for this well will occur during the fourth quarter. This well was
originally planned to be drilled 100% by Fairmount. Prior to drilling the well,
Fairmount was approached by an offsetting leaseholder to pool our lands,
resulting in Fairmount having a 50% working interest in the well and the
offsetting section. As a result of this pooling, Fairmount has another potential
location for future drilling.
Financial Results and selected financial information
----------------------------------------------------------------------------
Three Months Ended
December September June March
31, 30, 30, 31,
$ except number of shares 2008 2008 2008 2008
----------------------------------------------------------------------------
Natural gas sales 649,772 734,434 1,207,795 1,039,287
----------------------------------------------------------------------------
Crude oil and natural
gas liquids sales 367,986 566,234 974,173 888,314
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Interest income - - - 111
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Royalties (220,285) (250,232) (614,863) (537,145)
----------------------------------------------------------------------------
Revenue 754,849 1,307,152 1,419,772 1,351,713
----------------------------------------------------------------------------
Production expenses 253,395 216,791 340,903 328,057
----------------------------------------------------------------------------
General and administrative
expenses 366,528 322,300 359,315 303,737
----------------------------------------------------------------------------
Depletion, depreciation
& accretion 562,261 478,442 886,186 907,170
----------------------------------------------------------------------------
Interest expense 54,641 171,763 197,207 176,920
----------------------------------------------------------------------------
Net income (loss) before
income taxes (468,388) 42,713 (479,032) (408,837)
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Recovery of future
income taxes - - - 1,402,166
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Net income (loss) (468,388) 42,713 (479,032) 993,329
----------------------------------------------------------------------------
Net income (loss) per
share - basic $ (0.03) $ 0.00 $ (0.03) $ 0.06
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- diluted $ (0.03) $ 0.00 $ (0.03) $ 0.06
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Weighted average common
shares outstanding:
----------------------------------------------------------------------------
- Basic 16,702,606 17,167,204 17,198,400 17,241,614
----------------------------------------------------------------------------
- Diluted 16,702,606 17,277,979 17,198,400 17,241,614
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----------------------------------------------------------------------------
Three Months Ended
December September June March
31, 30, 30, 31,
$ except number of shares 2007 2007 2007 2007
----------------------------------------------------------------------------
Natural gas sales 729,918 633,856 900,622 658,422
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Crude oil and natural
gas liquids sales 714,465 565,123 641,013 455,324
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Interest income 3,511 3,840 4,667 6,956
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Royalties (317,908) (345,581) (420,662) (321,739)
----------------------------------------------------------------------------
Revenue 1,142,088 865,907 1,133,766 806,166
----------------------------------------------------------------------------
Production expenses 288,903 315,449 215,645 262,958
----------------------------------------------------------------------------
General and
administrative expenses 247,875 344,248 394,290 220,661
----------------------------------------------------------------------------
Depletion, depreciation
& accretion 834,993 764,453 789,912 569,914
----------------------------------------------------------------------------
Interest expense 164,867 179,169 135,604 21,405
----------------------------------------------------------------------------
Net income (loss)
before income taxes (463,674) (820,840) (503,684) (376,085)
----------------------------------------------------------------------------
Recovery of future
income taxes - - - 1,475,074
----------------------------------------------------------------------------
Net income (loss) (463,674) (820,840) (503,684) 1,098,989
----------------------------------------------------------------------------
Net income (loss)
per share - basic $ (0.03) $ (0.06) $ (0.04) $ 0.08
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- diluted $ (0.03) $ (0.06) $ (0.04) $ 0.08
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Weighted average common
shares outstanding:
----------------------------------------------------------------------------
- Basic 15,457,889 13,671,889 13,671,889 13,671,889
----------------------------------------------------------------------------
- Diluted 15,457,889 13,671,889 13,671,889 13,920,761
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Reconciliation of cash flow from operations to net income (loss):
The terms "cash flow" or "cash flow from operations" as used below do not have
any standardized meaning prescribed by GAAP and should not be considered an
alternative to, or more meaningful than, cash flow from operating activities or
net income (loss) as determined in accordance with GAAP as an indicator of the
Company's performance. In addition, the Company's determination of cash flow
from operations may not be comparable to that reported by other companies. The
reconciliation between net income (loss) and cash flow from operations is set
out below. Fairmount believes this measure is meaningful because it is an
indicator of funding sources for on-going efforts to replace production volumes
and increase reserve volumes. The Company also presents cash flow from
operations per share which is calculated using the same methodology as earnings
per share; however this measurement also does not correspond to GAAP.
----------------------------------------------------------------------------
Nine Months
Ended Three Months Ended
December December September June March
$ except per 31, 31, 30, 30, 31,
share amounts 2008 2008 2008 2008 2008
----------------------------------------------------------------------------
Net Income
(loss) (904,707) (468,388) 42,713 (479,032) 993,329
Depletion,
depreciation
and accretion 1,926,889 562,261 478,442 886,186 907,170
Stock-based
compensation 176,748 (13,588) 75,143 115,193 44,666
Loss (gain)
on forward
commodity
contracts (44,350) 48,925 (254,285) 161,010 44,350
Future income
taxes (recovery) - - - - (1,402,166)
----------------------------------------------------------------------------
Cash flow from
operations 1,154,580 129,210 342,013 683,357 587,349
----------------------------------------------------------------------------
Cash flow per
common share:
----------------------------------------------------------------------------
- Basic $ 0.07 $ 0.01 $ 0.02 $ 0.04 $ 0.03
----------------------------------------------------------------------------
- Diluted $ 0.07 $ 0.01 $ 0.02 $ 0.04 $ 0.03
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Nine Months
Ended Three Months Ended
December December September June March
$ except per 31, 31, 30, 30, 31,
share amounts 2007 2007 2007 2007 2007
----------------------------------------------------------------------------
Net Income
(loss) (1,788,198) (463,674) (820,840) (503,684) 1,098,989
Depletion,
depreciation
and accretion 2,389,359 834,993 764,453 789,912 569,914
Stock-based
compensation 254,551 69,124 83,428 101,999 107,313
Future income
taxes (recovery) - - - - (1,475,074)
----------------------------------------------------------------------------
Cash flow from
operations 855,712 440,443 27,041 388,227 301,142
----------------------------------------------------------------------------
Cash flow per
common share:
----------------------------------------------------------------------------
- Basic $ 0.06 $ 0.03 $ 0.00 $ 0.03 $ 0.02
----------------------------------------------------------------------------
- Diluted $ 0.06 $ 0.03 $ 0.00 $ 0.03 $ 0.02
----------------------------------------------------------------------------
Forward - Looking Information
This news release contains forward-looking information, including but not
limited to future exploration and development plans, anticipated production
levels, anticipated productivity of certain wells, and potential drilling
locations. This information relates to future events or the Company's future
performance. All statements and information other than statements of historical
fact are forward-looking information. In some cases, forward-looking information
can be identified by terminology such as "may", "will", "should", "expect",
"plan", "anticipate", "believe", "estimate", "predict", "potential", "continue",
or the negative of these terms or other comparable terminology. By its nature,
forward-looking information involves numerous assumptions, known and unknown
risks and uncertainties, both general and specific, that contribute to the
possibility that the predictions, forecasts, projections and other
forward-looking information will not occur. Forward-looking information is based
on assumptions, including, among other things, the Company's ability to benefit
from the combination of growth opportunities and the ability to grow through the
capital markets; the Company's acquisition strategy, the criteria to be
considered in connection therewith and the benefits to be derived therefrom;
sustainability and growth of production and reserves through prudent management
and acquisitions; commodity prices, the emergence of accretive growth
opportunities; the impact of Canadian governmental regulation on the Company;
the strategy of the Company regarding commodity price risk management, changes
in oil and natural gas prices and the impact of such changes on financial
performance; the level of capital expenditures devoted to development activity
rather than exploration; the use of development activity and/or acquisitions to
replace and add to reserves; the quantity of oil and natural gas reserves and
oil and natural gas production levels; and currency, exchange and interest
rates.
Although the Company believes that the expectations reflected in the
forward-looking information are reasonable, there can be no assurance that such
expectations will prove to be correct. The Company can not guarantee future
results, levels of activity, performance, or achievements. Moreover, neither the
Company nor any other person assumes responsibility for the accuracy and
completeness of the forward-looking information. Some of the risks and other
factors, some of which are beyond the Company's control, which could cause
results to differ materially from those expressed in the forward-looking
statements contained in this press release include, but are not limited to,
general economic conditions in Canada, the United States and globally; the
actual productive capacity from new and existing wells in the Gold Creek area
and Thorsby area may differ materially from the Company's forecasted production
rates once wells come onto production and the timing of wells coming onto
production may differ materially from that expected by the Company; industry
conditions, including fluctuations in the price of crude oil, natural gas and
natural gas liquids and services used by the Company; uncertainties associated
with estimating reserves; royalties payable in respect of oil and gas
production; governmental regulation of the oil and gas industry, including
income tax and environmental regulation; fluctuation in foreign exchange or
interest rates; stock market volatility and market valuations; the impact of
environmental events; the need to obtain required approvals from regulatory
authorities; unanticipated operating events which can reduce production or cause
production to be shut-in or delayed; failure to obtain industry partner and
other third party consents and approvals, when required; and third party
performance of obligations under contractual arrangements. Subject to the
company's obligations under applicable securities laws, the Company is not under
any duty to update any of the forward-looking information after the date of this
news release to conform such statements to actual results or to changes in the
Company's expectations.
Per barrel of oil equivalent amounts have been calculated using a conversion
rate of six thousand cubic feet of natural gas to one barrel of oil (6:1).
Barrel of oil equivalents ("boe") may be misleading, particularly if used in
isolation. A boe conversion of ratio 6 mcf:1 bbl is based on an energy
equivalency conversion method primarily applicable at the burner tip and does
not represent a value equivalency at the wellhead.
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