Cirrus Energy Corporation announces May 31, 2010 financial results

CALGARY, July 28 /CNW/ -- CALGARY, July 28 /CNW/ - Cirrus Energy Corporation (TSXV: CYR) ("Cirrus") announces its results for the third quarter ended May 31, 2010.
Production volumes of 1,678 boe/d (net to the Company's working interest)  were reported in the third fiscal quarter of 2010. Funds from operations of $2.3 million were recorded during the same quarter.

Financial Highlights


    
                                    Three months ended     Nine months ended
                                                May 31,               May 31,

    ($000s unless noted)               2010       2009       2010       2009
    -------------------------------------------------------------------------

    Production revenue                6,809        487     23,065      1,745
    Funds from operations (1)         2,323       (833)     9,636     (1,435)
      Per share (basic)                0.03      (0.01)      0.11      (0.02)
      Per share (diluted)              0.03      (0.01)      0.11      (0.02)
    Net loss                        (10,460)    (1,628)   (19,432)    (3,386)
      Per share basic and diluted     (0.12)     (0.02)     (0.23)     (0.04)
    Working capital (excluding
     restricted cash and borrowing
     base facility)                  48,350     36,844     48,350     36,844
    Restricted cash                  10,254      8,000     10,254      8,000
    Borrowing base facility
     (excluding deferred financing
     charges and including current
     portion)                        19,743          -     19,743          -
    Net working capital              38,861     44,844     38,861     44,844
    Total assets                    175,530    131,867    175,530    131,867
    Shareholders' equity            110,389     93,963    110,389     93,963
    Capital expenditures             10,403      6,259     37,946     41,478
    Average common shares
     outstanding (thousands)         88,228     72,527     88,228     72,527
    -------------------------------------------------------------------------
    (1) Funds from operations is a non-GAAP measure that represents net
        earnings adjusted for non-cash items and is equal to positive
        operating cash flow of $4.7 million ($5.0 million for nine months)
        less the net decrease in non-cash operating working capital
        items of $2.4 million (plus the net increase of $4.6 million for nine
        months). The Company evaluates its performance based on net earnings
        and funds from operations. The Company considers funds from
        operations a key measure as it demonstrates the Company's ability to
        generate cash flow necessary to fund future growth though capital
        investment and to repay debt.
    



Operating Highlights



    
                                  Three months ended       Nine months ended
                                              May 31,                 May 31,
                                                   %                       %
                                2010    2009  change    2010    2009  change
    -------------------------------------------------------------------------
    Working interest
     production
      Natural gas (mcf/d)(1)   8,991       -       -  10,083       -       -
      NGL's (bbls/d)(2)           59       -       -      20       -       -
      Crude oil (bbls/d)         120      95      26     107     102       5
      Total oil equivalent
       (boe/d)                 1,678      95   1,666   1,807     102   1,671
    Average prices
      Natural gas ($/mcf)       6.79       -       -    7.47       -       -
      NGL's ($/bbl)            70.36       -       -   70.36       -       -
      Oil ($/bbl)              73.51   54.98      34   72.53   62.21      17
    Operating costs ($/mcf)
     - The Netherlands          2.36       -       -    1.92       -       -
    Operating costs ($/bbl)
     - Trinidad                23.76   29.23     (19)  24.42   29.95     (18)
    General and
     administrative ($/boe)     6.96   66.34     (90)   6.78   66.63     (90)
    -------------------------------------------------------------------------
    (1) Based on total natural gas production from properties in The
        Netherlands averaged over the entire three and nine months,
        irrespective of production start date.
    (2) Based on total cumulative liquids volumes since the start of natural
        gas production, the first measured lift occurring in the current
        quarter.
    


Summary of Key Events

M07-A Field Production (Cirrus working interest - 42.75%)

Production performance from the M07-A01 well on the M07-A field continued as expected during the quarter. There was a planned shutdown of the third party L09-FF processing platform for general platform maintenance turn-around and to allow for a critical vessel to be repaired, which commenced during the fourth week of May, 2010. Production restarted on July 21, 2010 at increased gross rates of approximately 31.0 MMscf/d reflecting revised contractual off-take terms that were negotiated with the operators of the processing platform and the export trunk pipeline. Including the impact of the extended shutdown period, average working interest production sales from the M07-A field for the third fiscal quarter of 2010 was reported at 7.5 MMscf/d.

L08-D Field Production (Cirrus working interest - 25.479%)

Current average gross production rates of 6.8 MMscf/d from the L11b-A06 well in the L08-D field are reflective of the current pulsed, intermittent production regime. Average working interest sales of 1.5 MMscf/d were reported for the third fiscal quarter of 2010. Work on the overhaul of compression facilities on the L11b-A platform has been started although re-instatement of compression has been postponed pending future field development decisions. At current average rates production revenues are approximately equivalent to the operating costs of the production platform and the platform operator is reviewing ways to cut operating costs to maintain positive cash flow from the field for as long as possible.

M01-04 Drilling operations (Cirrus working interest - 47.5%)

The M01-04 exploration well on the M01-Delta prospect was spud on April 24, 2010 and drilled to a total depth of 3,880 meters. The primary Triassic reservoir target was encountered and, although interpreted as gas-bearing on logs, was of significantly poorer quality than expected with low porosity and no measurable permeability. The well was then plugged and abandoned. Total cost of the well is approximately (euro)5.7 million (approximately $7.7 million), net to Cirrus's working interest.

M07-07 Drilling operations (Cirrus working interest - 42.75%)

Following the drilling of M01-04, the Noble Lynda Bossler jackup rig was moved to the M07-A production platform to drill the M07-07 well. The deviated M07-07 appraisal well was successfully drilled from the M07-A production platform to a total measured depth of 4,215 meters (true vertical depth 2,931 meters sub-sea). The well was spud on June 8, 2010 and reached total depth on July 21, 2010 on schedule and budget. As prognosed, the well encountered thickened Jurassic sandstones in a down dip location from their prior penetration in well M07-05ST drilled in 1996. Gas shows were encountered during coring and subsequent log interpretation indicates the reservoir target appears to be gas bearing.
The well will now be cased and tested prior to being completed and tied-in as a potential production well on the M07-A platform. This process is expected to take approximately 14 days at which time the rig will be released.

Borrowing base facility

As of July 28, 2010 RBS has indicated that, as a result of their preliminary work on the scheduled redetermination of the Amended Facility, there will be no further draws under the Amended Facility as it is now structured and the outstanding balance is repayable as follows:


    
             ---------------------------------------------------
             (000's)                Amount (euro)    Amount ($)
             ---------------------------------------------------

             July 31, 2010              3,484          4,512

             December 31, 2010          4,277          5,540

             June 30, 2011              5,217          6,757

             December 31, 2011          2,265          2,934
             ---------------------------------------------------

                                       15,243         19,743

             ---------------------------------------------------
             ---------------------------------------------------
    


RBS expects to complete their review and formalize the redetermination before July 31, 2010.

Working Capital

The Company is reporting May 31, 2010 working capital (including restricted cash, net of debt and before deferred financing charges) of $38.9 million. Included in this working capital is approximately $0.9 million of amounts payable related to the final billings on the subsurface production systems for the M1a development project (including variation orders) that had been previously scheduled for payment later in fiscal 2010 and reported as outstanding commitments at February 28, 2010. Working capital at July 28, 2010 is estimated to be approximately $30 million. Estimated costs of approximately $3.0 million (net to Cirrus's working interest) ((euro)5.0 million gross) are remaining on the M07-07 well to run production casing, complete and tie-in, which are expected to be incurred shortly. Once this well is complete, financial resources are expected to strengthen with the resumption of production in the M7-A field and the curtailment of the near term capital program.

Financial and operating highlights

The Company reported funds from operations of $2.3 million ($3.7 million in the immediately preceding quarter). Net loss for the quarter was reported at $10.5 million as compared to the net loss of $6.7 million in the immediately preceding quarter. The operating profit in both quarters has been offset by high depletion charges.

The Netherlands

Production sales in The Netherlands of 7.5 MMscf/d and 1.5 MMscf/d (net to the Company's working interest), were reported during the third quarter from M07-A field and L08-D field respectively (8.2 MMscf/d and 3.2 MMscf/d, respectively, in the previous quarter).
An average price of $6.79/mcf was recorded during the third quarter, compared to $7.63/mcf in the immediately preceding quarter. Operating expenses for the current quarter were recorded at $2.36 ($1.74 in the immediately preceding quarter). Operating expenses for the third quarter included a 2009 throughput adjustment of $0.4 million ($0.54/mcf) related to the M07-A field, specifically at the third party operated L09-FF platform. Royalty rates have remained constant during the first three quarters of fiscal 2010 and were reported at 10% during the third fiscal quarter. Operating netbacks of $3.77/mcf were recorded in the third quarter ($5.20/mcf in the immediately preceding quarter).

Trinidad

Operations in Trinidad remained relatively constant when compared to the preceding quarter with production sales in the current quarter reported at 120 bopd. This operation provided positive funds from operations during the current quarter with operating netbacks of $11.17/bbl. There has been relatively little change in recent quarters in the Trinidad operation due to the absence of an active capital program.

Outlook

With respect to the MSG-03 exploration well to be drilled on the Q16c-Bravo prospect, activities have continued with respect to permitting an onshore surface location near to the Port of Rotterdam. On current progress, this well is expected to be drilled during the first half of 2011. Agreement has been reached with Taqa Offshore B.V. whereby they will take a 10% interest in the Q16c-Bravo prospect and Cirrus will retain a working interest of 47.5%. Other partners in the prospect are Energy-06 at 2.5% and EBN at 40%.
Further information can be obtained from the Company's Interim Consolidated Financial Statements and Management Discussion and Analysis for the third quarter ended May 31, 2010 which have been filed with securities regulatory authorities in Canada. These documents are available on the System for Electronic Document Analysis and Retrieval at www.sedar.com.

Cirrus Energy Corporation is an international oil and gas Company headquartered in Calgary and currently has approximately 93.4 million fully diluted common shares outstanding.

Forward-Looking Statements

This press release may include forward-looking statements including opinions, assumptions, estimates and expectations of future production, cash flow and earnings. When used in this document, the words "anticipate", "believe", "estimate", "expect", "intent", "may", "project", "plan", "should" and similar expressions are intended to be among the statements that identify forward-looking statements. Forward-looking statements are subject to a wide range of risks and uncertainties, and although the Company believes that the expectations represented by such forward-looking statements are reasonable there can be no assurance that such expectations will be realized. Any number of important factors could cause actual results to differ materially from those in the forward-looking statements including, but not limited to, the volatility of oil and gas prices, the ability to implement corporate strategies, the state of domestic capital markets, the ability to obtain financing, changes in oil and gas acquisition and drilling programs, operating risks, production rates, reserve estimates, changes in general economic conditions and other factors more fully described from time to time in the reports and filings made by Cirrus with securities regulatory authorities.

The TSX Venture Exchange does not accept responsibility for the adequacy or accuracy of this release.

%SEDAR: 00021839E



David Taylor, President and Chief Executive Officer; Pamela Orr, Vice President, Finance and Chief Financial Officer, Cirrus Energy Corporation, Suite 208, 5 Richard Way SW, Calgary, Alberta, T3E 7M8, Canada, Website: www.cirrusenergy.ca, Telephone: [phone], Facsimile: [phone]

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