InvestorsHub Logo
Followers 0
Posts 64
Boards Moderated 0
Alias Born 01/30/2004

Re: None

Wednesday, 11/10/2004 4:22:59 PM

Wednesday, November 10, 2004 4:22:59 PM

Post# of 95
Oilexco Inc (TSX-V:OIL)
Shares Issued 10,927,689
Last Close 11/9/2004 $2.15
Wednesday November 10 2004 - News Release

Mr. Arthur Millholland reports

OILEXCO ANNOUNCES ITS 3RD QUARTER RESULTS

Oilexco Inc. has provided its financial results for the third quarter, and for the nine-month period ending Sept. 30, 2004.

Oil and gas revenues before royalties for the three months ended Sept. 30, 2004, were $404,088 versus $368,886 for the same period last year. Oil and gas revenues before royalties for the nine months ended Sept. 30, 2004, were $1,276,953 versus $1,172,695 for the same period last year. Period-to-period change was an increase of 10 per cent for the quarter and an increase of 9 per cent for the nine months of the year mainly due to higher realized oil prices.

Interest income was significant for both the three-month and nine-month periods and is a reflection of cash balances that were held.

Sales of oil, gas and liquids averaged 88 barrels of oil equivalent per day and 103 barrels of oil equivalent per day during the third quarter ended Sept. 30, 2004, and 2003 respectively. Sales volumes for the period of nine months ended Sept. 30, 2004, and 2003 amounted to an average of 100 barrels of oil equivalent per day and 102 barrels of oil equivalent per day, respectively. The decrease was due to the fact that there were a few shut-in days in Alabama due to the Ivan hurricane. Additionally, there was a decrease in sales of oil from Forgan field due to a change of the processing operator. Average oil and natural gas prices increased by 26 per cent from third quarter of 2003 compared with the third quarter 2004. For the nine-month period ended Sept. 30, average oil and natural gas prices increased by 29 per cent for comparative periods of 2003 and 2004. The increase is attributable to worldwide crude oil prices being significantly higher in 2004 than in 2003. No production from the interest in Balmoral and Glamis joint ventures is accounted for as the facility was shut down for maintenance and recertification in September, 2004, resuming production in late October.

Operating expenses related to oil and natural gas production for the three months ended Sept. 30, 2004, were $82,967, an 88-per-cent increase from the same period last year of $44,231. For the nine months ended Sept. 30, 2004, operating expenses increased by 15 per cent from $185,249 in 2003 to $212,594 in 2004. Operating expenses related to oil and natural gas production were higher in third quarter of 2004 due to well workovers and pipeline repairs which were conducted in earlier quarters during 2003. Additionally, for the first time, the company has recognized operating expenses from Balmoral of $383,749 representing its interest in September, 2004, Balmoral operating costs. The majority of these costs are one-time expenditures related to maintenance and recertification of the production facility.

Royalties for the quarter ended Sept. 30, 2004, increased 16 per cent to $74,508 from $64,355 in the same quarter of 2003. Royalties for the nine-month period ended Sept. 30, 2004, increased 10 per cent to $224,034 from $204,419 in the same period of 2003. The increase is a reflection of higher gas and oil prices.

General and administrative expenses increased to $796,202 from $224,120 for the three months ended Sept. 30, 2004, and 2003 and increased to $1,768,350 from $710,828 for the nine months ended Sept. 30, 2004, and 2003. The significant increase relates mainly to the addition of four full-time employees, one consultant and expenses due to intensified activity in the United Kingdom North Sea operation.

Depreciation and depletion expense decreased for the three months ended Sept. 30, 2004, to $75,503 from $142,746 for the same quarter last year. For the nine-month period ended Sept. 30, 2004, depreciation and depletion expense decreased to $176,942 from $417,769 for the same period last year. The decrease was due to depletion rates based on a lower cost base.

During third quarter of 2004 the company had a significant foreign exchange loss of $1,416,967 as the Canadian dollar strengthened against the British pound. However, the third quarter losses did not override significant gains recognized by the company in first half of 2004 when both the pound and the U.S. dollar were strengthening against the Canadian dollar. Accordingly, the cumulative gain of $556,107 was recorded for nine months ended Sept. 30, 2004. The foreign exchange loss of $10,556 and $21,473 for three and nine months ended Sept. 30, 2003, respectively were nominal and resulted from the company's operations in the United States.

A compensation expense of $6,486,000 has been recognized for the quarter ended Sept. 30, 2004, as a result of 3.45 million stock options granted to directors, officers, employees and consultants to acquire common shares at an exercise price of $3.46 per share. During the first and second quarter of 2004, 200,000 and 920,000 stock options were granted to directors, officers, employees and consultants with an exercise price of $2.30 and $1.91 per share, respectively. As a result, the company recognized respective expense of $300,000 for the first quarter and $1.17-million for the second quarter of 2004. All stock options vest immediately on the date of their grant.

Net loss for the three months ended Sept. 30, 2004, was $8,543,214 versus a loss of $220,511 for the same period last year. For the nine months ended Sept. 30, 2004, net loss amounted to $8,414,479 versus a loss of $455,919 for the comparative period of 2003.

Funds flow to/from operations decreased for the three months ended Sept. 30, 2004, to $1,182,954 from $29,235 for the same period last year. For the nine months ended Sept. 30, 2004, funds flow from operation decreased to $152,986 from $68,850 for the same period last year. The decrease relates primarily to a significant increase in general and administrative expenses as compared with the same periods of 2003, a large foreign exchange loss recorded in third quarter and additional operating costs related to the Balmoral. Operating costs from Balmoral were disproportionate for the period because no oil volumes were nominated for lifting in September, 2004.

Total gross proceeds from financing activities during the period totalled $92.7-million.

During the nine-month period, the company's agents exercised the overallotment option in connection with the company's December, 2003, public offering. Gross proceeds of $4,546,740 were raised representing 4,133,400 units at a price of $1.10 per unit. Each unit consists of one common share and one-quarter common share purchase warrant. Each common share purchase warrant entitles the holder to purchase one common share at $1.65 per share until Jan. 16, 2006.

On April 15, 2004, the company closed a private placement of 19 million special warrants. The private placement consisted of 3,285,000 special warrants issued at 0.84 pound sterling for gross proceeds of 2,759,400 pounds sterling, and 15,715,000 special warrants issued at $2.02 for gross proceeds of $31,744,300, for total gross proceeds of $38.38-million. Each special warrant is exercisable into a unit consisting of one common share and one common share purchase warrant exercisable for an additional common share at 0.99 pound sterling or $2.38, for a maximum of 19 million common shares. The warrant may be exercised within 21 business days after the earlier of receipt of the final prospectus qualifying the issuance of the common shares or the third business day after the expiry of the four-month Canadian hold period.

The proceeds from the company's warrants and stock options exercised during the nine-month period ended Sept. 30, 2004, amounted to $49,776,088 and $415,900, respectively. Assuming all outstanding warrants and stock options are exercised, the company would realize additional gross proceeds of approximately $37.2-million. During January, 2004, the company instructed its agent to transfer cash of $5,888,728 held in trust as at Dec. 31, 2003, into Oilexco U.K. subsidiary's account. The proceeds from above sources as well as cash available at the beginning of the nine-month period ended Sept. 30, 2004, were used to finance the U.K. North Sea drilling project of approximately $75.5-million for the nine months of 2004.

Oilexco is currently pursuing projects that may require additional financing. In general, Oilexco finances its domestic capital program through the use of internal cash flow. However, its projects in the U.K. North Sea require external financing. At the end of the period ended Sept. 30, 2004, the company had cash on hand of $39,649,623 with a net working capital of $34,678,603 and has no long-term debt.

Oilexco commenced the second phase of its Brenda appraisal drilling program on licence P1042 (100-per-cent working interest), block 15/25b in the Outer Moray Firth, targeting oil in the Paleocene Forties sandstone in July. The 15/25b-10 well, the first well of the second phase was drilled under a four-well drilling contract executed in June with Transocean, consisting of one firm well and three option wells commenced drilling operations on July 2 with the semi-submersible Transocean J.W. McLean. This well, the fourth Brenda appraisal well and sixth wellbore inclusive of sidetracks, was drilled approximately two kilometres west of the Oilexco appraisal well 15/25b-8 and 1.2 kilometres north of the Oilexco appraisal well 15/25b-9. The 15/25b-10 well was successful, flowing 3,351 barrels per day of 40-degree API oil from the Paleocene Forties sand on drill stem test. The oil flow was through a 48/64-inch choke at 387 pounds per square inch flowing wellhead pressure from 35 feet of perforations at the top of a 50-foot gross pay section. Upon completion of the 15/25b-10 well, Oilexco exercised its option with Transocean on two of the option wells, leaving one option well in the contract.

In April, 2004, the corporation applied for an "out-of-round" extension to block 15/25b. On Aug. 6, 2004, the DTI offered 100 per cent of an oil and gas production licence block 15/25e (east of longitude 0 degrees 52 minutes east) to Oilexco's wholly owned subsidiary, Oilexco North Sea Ltd. This new licence will cover the balance of the seismically defined limits of the Brenda oil accumulation in the adjacent block to the east, 15/25b. In addition, an out-of-round offer was also made to both Oilexco North Sea Ltd. and CNR International under a marriage arrangement for block 15/25f, west of the defined line of longitude. Oilexco has accepted both licence awards.

Also during August, 2004, the corporation's wholly owned subsidiary, Oilexco North Sea Ltd., agreed to acquire for cash the interests of Pentex Oil U.K. Ltd. in the currently producing Balmoral and Glamis light oil fields, and the Balmoral floating production vessel, block 16/21 in the Outer Moray Firth. The agreement to purchase was subject to, amongst other things, waiver of partners' pre-emptive rights, government and regulatory approvals, all of which have been satisfied. Closing of the transaction effective Jan. 1, 2004, occurred Sept. 16, 2004. The interests acquired are: 9.714 per cent in production licence 201, as it relates to the Balmoral field, the Glamis field and the second residual area within block 16/21a; 7.994 per cent in the unitization and unit operating agreement relating to the Balmoral field; and 7.910 per cent in the Balmoral floating production vessel (a production facility). Oil production relating to the interests purchased by the corporation in the Balmoral and Glamis fields amounts to approximately 245 barrels per day. The interests acquired by Oilexco North Sea are strategic to Oilexco's U.K. North Sea business plan. The Balmoral floating production vessel is located eight kilometres northeast of Oilexco's Brenda oil find located in the adjoining block, 15/25b. Oilexco views a subsea "tie back" to Balmoral as a logical option for early production of a portion of the Brenda oil accumulation, as there is in excess of 50,000 barrels per day of unused oil treating capacity on the Balmoral production facility. In addition, the Balmoral floating production vessel carries significant residual value as it can be remobilized to other locations upon decommissioning of the Balmoral producing field.

Drilling operations in Mountrail county, North Dakota, commenced on the Lund 42-9 well (Section 9, T.155N. R.92W.) on Aug. 30, 2004. This well was to test the potential of both the upper Cretaceous gas and Mississippian oil zones. Oilexco retained a 30-per-cent working interest in this well. The Lund 42-9 well encountered significantly anomalous gas shows in the upper Cretaceous and oil shows in the Mississippian. The operator was considering casing the upper Cretaceous to perform a completion that would exploit the gas reserves encountered in this well. Its decision however was to plug and abandon the well on Sept. 12, 2004, based on their desire to drill another test well with cores proposed in both the upper Cretaceous and Mississippian potential zones.

On Sept. 15 the semi-submersible Transocean John Shaw came on contract to commence drilling operations on the second well of the second phase of the Brenda appraisal program. This well 15/25e-11, located 1.5 kilometres northwest of the 15/25b-10 appraisal well was the first of three penetrations of a "well cluster" to be drilled from a central location. It was immediately followed by 15/25e-11Z, located 1.25 kilometres west of the 15/25e-11 bottom-hole location, and 15/25e-11Y located one-kilometre northwest of the 15/25e-11 bottomhole location. The objectives in the drilling of this well cluster under Oilexco's Brenda appraisal program were to define the western and northwestern limits of the "Brenda West" Paleocene Forties sand oil accumulation. The oil/water contact intersected by the 15/25e-11 wellbore was at a higher elevation than that intersected in the Oilexco 15/25b-10 well located 1.5 kilometres to the southeast. The difference in elevation suggests the 15/25e-11 "well cluster" is evaluating another oil accumulation, which may be separate from the "Brenda West" oil accumulation currently defined by the Oilexco wells 15/25b-9 and 15/25b-10. This additional accumulation was confirmed by the third wellbore of the cluster 15/25e-11Y, located one kilometre northwest of the 15/25e-11 location. The second wellbore of the cluster 15/25e-11Z, located 1.25 kilometres west of 15/25e-11, met its designed objectives in the appraisal program by successfully encountering oil-bearing Brenda Paleocene Forties sand pay near its western limit. Drill stem testing operations were not undertaken on the 15/25e-11Y wellbore. This was due to thin oil pay, limiting the future use of this vertical wellbore as a possible production well. Currently Oilexco is assimilating the results of the 15/25e-11 well cluster into its geologic/geophysical interpretation. Additional drilling north and up dip of this cluster may be warranted, as the thin oil column covering this broad area appears to be of potential significance.

Subsequent to the end of the period, Oilexco awarded Transocean a one-year firm contract for the provision of the semi-submersible drilling unit Sedco 712 commencing on or about March 1, 2005. The Sedco 712 will be used on Oilexco's 2005/2006 development and appraisal work program centred on Oilexco's Brenda oil accumulation in block's 15/25b and 15/25e located in the Outer Moray Firth area of the central U.K. North Sea, and on additional prospects and farm-in opportunities identified by Oilexco in its focus areas. The Sedco 712 is ideally suited for Oilexco's development and appraisal program; consisting of in-fill drilling, completions and installation of subsea trees. The drilling unit, currently stacked in Invergordon Scotland, had been working on development projects for a major multinational integrated oil company for several years until November of last year. Transocean has indicated the Sedco 712 will require 4.5 months of premobilization maintenance and refitting which will commence in November. The results to date in the North Sea are extremely encouraging and substantiate its belief that the North Sea offers tremendous opportunities for companies with its business model. All of Oilexco's future activities will be solely focused in the U.K. North Sea.

Future operations at Brenda will focus on the development of the Brenda East and Brenda West Paleocene Forties sand oil accumulations. Oilexco intends to file a development plan early next year (2005) with the U.K. Department of Trade and Industry for the development of these areas. Production will be tied back to the Balmoral floating production facility eight kilometres to the northeast, in which Oilexco holds a 7.91-per-cent equity interest. Oilexco's production engineering effort is currently focused on a design concept for a maximum initial production rate of 35,000 barrels of oil per day from Brenda. This production rate can be handled by the Balmoral production facility where the unused oil treating capacity is currently in excess of 50,000 barrels per day. First oil is targeted for the fourth quarter of 2005.

Independent engineering evaluation of Oilexco's U.K. North Sea reserves under National Instrument 51-101 has commenced. Completion of the report to be dated at Dec. 31, 2004, is scheduled for the first quarter 2005.

The interim report for the third quarter and nine months ended Sept. 30, 2004, for Oilexco is available on Stockwatch SEDAR files, at www.sedar.com.

WARNING: The company relies upon litigation protection for "forward-looking" statements.

© 2004 Canjex Publishing Ltd.

Join the InvestorsHub Community

Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.