Operations – Libya:
The Libyan National Oil Corporation ("NOC") officially announced that the Company's third new field wildcat exploration well C1-47/02 is an oil discovery, its third announced oil discovery in Area 47. The Company carried out extended flow tests showing a combined maximum measured flow rate of about 23,570 barrels of oil per day (gross) from 188 feet of perforations. Measured API gravity of the crude oil ranged from 40 to 44 degrees.
The Company spudded its seventh well A2-47/02 on October 7, 2007, with its second contracted drilling rig KCA DEUTAG T-19. The well is targeting the Lower Acacus Formation and will appraise the Company's first oil discovery A1-47/02 located 5.1 kilometers to the east. The well is expected to be drilled to a depth of 10,400 feet.
The Company drilled and cased its sixth new field wildcat exploration well F1-47/02 in 40 days. The well is located 8.2 kilometers northeast of the Company's A1-47/02 oil discovery and 3.1 kilometers northwest of the A1-NC3A oil discovery. The well was drilled to a depth of 10,300 feet and found indications of hydrocarbons in the Lower Acacus Formation. The well is currently being flow tested with the drilling rig in order to accelerate the testing program of drilled wells.
The Company drilled and cased its fifth new field wildcat exploration well E1-47/02 in 45 days. The well is located 17.5 kilometers east of the Company's D1-47/02 well, which is currently testing. The well was drilled to a final depth of 9,639 feet and found indications of hydrocarbons in the Lower Acacus Formation. The well is awaiting flow testing, which will commence with the service rig following the completion of the D1-47/02 testing program.
Flow testing at the Company's fourth new field wildcat exploration well D1-47/02 was delayed due to a "fishing" operation to recover stuck tubing in the wellbore. The fishing operation was successful and preparations are underway to resume testing of up to three remaining intervals in the well.
The acquisition phase of the Company's 1,225 square kilometer 3D seismic survey in the eastern part of Area 47 is approximately 65% complete and is on track for a mid-December completion.
The Company has submitted preliminary appraisal reports to the Area 47 Management Committee ("Area 47 MC") and the Libyan National Oil Corporation ("NOC") for its second and third oil discoveries at B1-47/02 and C1-47/02, respectively.
In the offshore Aquitaine Maritime Permit, the Orca 1 exploration well was drilled and abandoned in the third quarter. Although the well encountered a thick sandstone formation, no hydrocarbons were discovered. Evaluation of the data gathered from this well, together with further seismic evaluation, should provide a better understanding of any potential of the remaining structures on the permit.
Vermilion Exploration SAS, a wholly owned subsidiary of Verenex, holds a 22.5% interest in the Aquitaine Maritime Permit following the drilling of the Orca 1 well. The net cost of VEX's participation in drilling the well is approximately $5.2 million based on an estimated final gross well cost of US $55 million.
Funds flow from operations in the third quarter of 2007 was $0.6 million compared to $0.5 million for the third quarter of 2006. The increase is a result of higher interest revenues on invested funds offset by reduced production in France after the sale of the producing assets in May 2007.
The Company had a net loss of $11.7 million in the third quarter of 2007 compared to a net loss of $0.3 million in the third quarter of 2006. The 2007 loss resulted primarily from a $10.0 million non-cash impairment write-down on the France assets and a $1.5 million foreign exchange loss on the Company's US dollar cash positions due to the strengthening Canadian dollar.
The Company had a working capital surplus of $110.8 million at September 30, 2007 compared to $40.6 million as at December 31, 2006, including cash and term deposits amounting to $130.7 million (December 31, 2006 - $49.4 million) net of restricted cash amounting to $8.9 million (December 31, 2006 - $13.6 million). The increase in working capital is due to the July 2007 equity financing which provided net proceeds of $110.0 million, partially offset by increasing operational accruals in Libya.
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