Financial Overview (all figures in U.S. Dollars)
For the year ended December 31, 2006 Storm Cat reported record oil and gas sales revenue of $9.4 million, a 124 percent increase over full-year 2005 sales. Sales revenue is a function of sales volumes and average sales prices. Sales volumes increased 132% between year-end 2005 and year-end 2006. The volume increase resulted primarily from acquisitions and successful drilling over the past year that produced new sales volumes that offset the natural decline in production from existing wells. The Company's average price for natural gas decreased 3% to $5.88 per thousand cubic feet (Mcf) in 2006 from $6.08 per Mcf in 2005.
The Company reported a net loss of $6.9 million, or $0.10 per share, for the full-year 2006, as compared to a net loss of $8.4 million, or $0.18 per share, for the full-year 2005. The net loss for the year reflected a $1.9 million impairment expense, incurred in the third quarter, related to the Company's Moose Mountain Saskatchewan Project, and higher general and administrative expenses, composed primarily of $2.8 million in non-cash employee stock compensation expense, increased Sarbanes-Oxley and audit fees of $0.3 million, increased Director and Officer insurance of $0.2 million and a one-time charge of $0.5 million related to the bank credit facility entered into during the year. Net income for 2006 also reflected a tax benefit of $1.6 million related the Canadian flow through shares.
Total assets increased 96% to $112.0 million in 2006 from $57.0 million in 2005. The book value of oil and gas properties increased 289% to $96.6 million at year-end 2006 from $24.8 million at year-end 2005.
Weighted average shares outstanding for year-end 2006 increased to 70.4 million as compared to 47.3 million at year-end 2005. The increase in average shares outstanding is attributed to the private placement the Company completed in Canada using, in part, the flow-through share structure, as well as the exercise of outstanding warrants and options.
Keith Knapstad, acting President and Chief Executive Officer commented: "Storm Cat achieved numerous milestones in 2006. We high-graded our asset portfolio through strategic purchases in the Powder River Basin, our core producing area, as well as with acquisition of quality acreage in the Fayetteville Shale play in the Arkoma Basin. We executed our drilling program, drilling 100 wells. We tripled year-end production, and nearly tripled our proven reserves to 28.7 Bcf, with approximately 9.5 Bcf of developed reserve additions coming through the drill bit. Entering 2007, Storm Cat is moving forward on the strong momentum built during 2006. We will continue an aggressive drilling program in the Powder River Basin, begin to advance our development in the Fayetteville Shale play and continue ongoing activities in Elk Valley and Canada."
Since October 2004, Storm Cat has acquired a significant and highly prospective acreage portfolio targeting unconventional gas. Through drilling and acquisitions in the Powder River Basin (PRB), net production increased 132% to 1,606.2 million cubic feet (MMcf) for the full year 2006 from 693.5 MMcf in the prior year. For the full-year 2006, the Company reported average daily net sales production of 4.4 million cubic feet per day (MMcf/d) as compared to 1.9 MMcf/d for the full year 2005. Net production from the PRB averaged 8.0 MMcf/d at year end.
As previously announced, year-end 2006 proven reserves, based on SEC pricing of $4.46 per thousand British thermal units, were 25.0 Bcf, probable reserves were 5.9 Bcf and possible reserves were 26.4 Bcf. Approximately 54% of the proven reserves were classified as proved developed. The 2006 estimated quantities of proven reserves are 150% higher than year-end 2005 proven reserves of 10.0 Bcf. In addition, Storm Cat increased proved developed reserves by 244% at year-end 2006. All reserve estimates are based on an evaluation of the reserves prepared by independent reservoir engineering consultants, Netherland Sewell and Associates, Inc.
In addition to the SEC reserve report, Storm Cat estimated year end proven, possible and probable reserves using available current strip pricing. Using current strip pricing, proven reserves are 28.7 Bcf, probable reserves are 9.0 Bcf and possible reserves are 28.2 Bcf.
The average realized sales price of natural gas was $5.88 per Mcf for the full-year 2006, down from $6.08 per Mcf in the prior year.
Storm Cat's fixed-price natural gas hedges are summarized as follows:
Fixed-priced Financial Hedges
-- 1.5 MMBtu/day
The Company drilled and completed 100 wells in 2006, 86 of which were in the PRB. These wells were primarily located within the Company's Northeast Spotted Horse acreage. Storm Cat currently has as many as three rigs running in the PRB and expects to drill approximately 150 wells on its various acreage positions during 2007.
The Company drilled and completed five wells in Elk Valley during 2006. These wells are currently on production and de-watering. The Company expects indicative results for these wells to be available late in the third quarter of 2007.
Storm Cat Energy is an independent oil and gas company focused on the pursuit, exploration and development of large unconventional gas reserves from fractured shales, coal beds and tight sand formations. The Company has producing properties in Wyoming's Powder River Basin, exploration and development acreage in Canada, Arkansas and Alaska. The Company's shares trade on the American Stock Exchange under the symbol "SCU" and in Canada on the Toronto Stock Exchange under the symbol "SME."
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