Cork Reports Nearly Nine-fold Jump in Production
Cork Exploration Inc. said that its 2006 exit production was 2,636 boed based upon average production from December 11 to December 31, 2006, an increase of 879% over Cork's December 31, 2005 exit production of 300 boed.
During the December 11 to December 31, 2006 period, the Corporation's production was subject to previously announced third party infrastructure capacity constraints and varied from a high of 3,185 boed to a low of 1,965 boed. On December 11, 2006, Cork completed the implementation of the first phase of its infrastructure de-bottlenecking program and commenced production from its significant development well, previously announced on December 7, 2006. The Corporation is currently implementing the second phase of its infrastructure de-bottlenecking program with completion expected by the end the first quarter of 2007. Cork estimates that at December 31, 2006, its exit production and constrained production totaled approximately 3,100 boed. Cork estimated that at December 31, 2006, it had additional behind-pipe production capacity of approximately 1,300 boed. In aggregate, the Corporation's production capacity at December 31, 2006 was estimated to be approximately 4,400 boed.
During fiscal 2006, Cork drilled 42 gross (24.7 net) wells with an additional 2 gross (0.7 net) wells drilling over December 31, 2006. Since inception in February 2005 to December 31, 2006, Cork has drilled or was drilling 52 gross (29.6 net) wells with 32 gross (19.4 net) wells on production at December 31, 2006. At December 31, 2006, the Corporation had 12 gross (5.7 net) wells awaiting completion and tie-in.
The Corporation estimates that its total capital expenditures for fiscal 2006 were approximately $105 million, subject to finalization of the annual financial statements. The increased capital expenditures reflected the continued acceleration of the Corporation's drilling program, the high percentage of promoted wells and higher than expected service costs. On December 20, 2006, the Corporation increased its available line of credit to $30 million. The Corporation negotiates increases in its line of credit on an ongoing basis concurrent with the growth of its production, reserves and net asset value. At December 31, 2006, Cork had $17.1 million drawn on its line of credit and an estimated working capital deficiency of approximately $14 million.
With an estimated aggregate exit production capacity of 4,400 boed at December 31, 2006, Cork added production in 2006 at approximately $25,600 per flowing boe. During fiscal 2006, 75% of the 42 gross wells drilled by Cork were on a promoted basis under related farm-in agreements. Under the terms of these agreements, Cork was required to pay 100% of the capital costs to drill and evaluate the wells to earn an average 62% working interest in the related lands. Cork currently controls 151 gross sections of developed, undeveloped and undeveloped right-to-earn lands with an average working interest of 59%. Cork's net undeveloped land position is currently approximately 40,700 net acres, including right-to-earn lands. Excluding any new farm-in agreements, the majority of the Corporation's 2007 drilling program will be dedicated to straight-up development and exploratory wells on currently earned lands. In 2007, however, Cork will continue to pursue new crown and freehold land purchases and potential farm-in agreements in its core areas.
In 2007, excluding any new farm-in agreements, Cork expects to transition from the exploration and land earning phase of the Corporation to the drilling of straight-up development and exploratory wells on currently earned lands. Cork's initial focus in 2007 will be to complete the previously mentioned infrastructure de-bottlenecking program and to tie-in the estimated 1,300 boed behind pipe production by the end of the first quarter of 2007, while directing its drilling efforts in the first quarter of 2007 to areas not affected by these infrastructure capacity constraints. Upon removal of the infrastructure bottleneck, Cork intends to resume drilling activity in the affected areas. The Corporation expects a normal decrease in drilling activity in the second quarter of 2007 due to spring break-up and anticipates a return to normal drilling levels in the third and fourth quarters of 2007. Cork has budgeted to drill 37 gross (22.3 net wells) in 2007 on a capital budget of $63 million. The Corporation expects to exit 2007 with production between approximately 5,000 boed and 5,500 boed, depending upon, among other factors, the timing of third party tie-ins, weather and other related risks. Average production for 2007 is expected to be between approximately 4,000 boed and 4,400 boed, reflecting the impact of first quarter infrastructure capacity constraints and the aforementioned tie-in, weather and other related risks.
Cork Exploration Inc. is a Canadian junior oil and gas company engaged in the exploration, development and production of natural gas in the Western Canadian Sedimentary Basin.
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