Message to Shareholders
Diaz’s first quarter 2008 revenue and cashflow results improved over the prior quarter and reversed the downward trend in production rates with the addition of several new producing wells.During the quarter, Diaz drilled the N.W. Speaks Robertson #1 Well in Lavaca County, Texas, which encountered multiple Wilcox sands. The well was fracture stimulated in early May 2008 in the lowest Wilcox gas zone and is currently producing 2.45 Mmcfd of natural gas and 32 barrels of oil, at 2,700 psi flowing pressure. In Canada, a discovery well from the 2007 winter program was brought on production at 500 Mcfd (Diaz has an 80% WI) and the workover of a horizontal oil well at Parkman, Saskatchewan added 50 Bbls per day of production net to the Company.
Financial
Revenue for the three month period ended March 31, 2008, totalled $3.17 million compared with $2.97 million in Q4 2007 and with $3.25 million in Q1 2007. Cash flow from operations increased to $1.64 million, or $0.02 per share compared with $1.20 million or $0.02 per share for Q4 2007 and with $1.56 million or $0.02 per share in Q1 2007. Diaz reported a loss for the three month period of $381,000 or $(0.01) per share versus a loss of $168,000 or nil per share in Q4 2007 and a loss of $278,000 or nil per share in Q1 2007.
Capital expenditures for the first quarter of 2008 totalled $2.48 million compared with $2.66 million in Q4 2007 and with $1.87 million in Q1 2007 and were financed from cash flow and an increase in bank debt.
Diaz completed the first quarter with a net current debt of $9.4 million versus $8.5 million at the beginning of the period. Diaz also had outstanding convertible debentures of $7.1 million that mature on March 26, 2012.
Production
Natural gas production for the first quarter remained steady averaging 4.0 MMcfd for Q1 2008 compared with 4.0 MMcfd for the prior quarter Q4 2007. Oil production increased to average 155 Bopd for Q1 2008 compared with 98 Bopd for Q4 2007. Overall, production has increased 6% to 816 BOEd for Q1 2008 compared with 773 BOEd for the prior quarter Q4 2007.
Business Outlook
In the second quarter, natural gas prices have increased to the range of $9.00 to $10.00 per Mcf resulting from low year-on-year gas storage inventories in Canada and in the United States. Diaz expects this strong natural gas price trend to continue at least in the near term and plans to increase its infill development program accordingly if operating cashflow exceeds the Company’s current cashflow forecast. The Company’s number one priority for the remainder of 2008 is to optimize existing natural gas properties while matching capital investment with operating cashflow.
On behalf of the Board,
D.K. Clark, Chief Operating Officer
R.W. Lamond, Chairman
May 12, 2008
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