Grey Wolf Exploration Inc. has reported summary financial and operating results for the quarter ended June 30, 2008.
For the three months ended June 30, 2008, the Company recorded net income of $855 thousand ($0.02 per share) compared to net income of $303 thousand ($0.01 per share) in the same period of 2007. The increase was due to higher commodity prices, lower stock compensation expense, offset by a loss on financial instruments. For the six months ended June 30, 2008, the Company recorded a net loss of $1.0 million compared to net income of $310 thousand in the same period last year The net loss for the six month period was mainly due to a $5.1 million loss on commodity derivative contracts (2007 - nil). Of this total, $3.9 million was unrealized.
For the second quarter of 2008, funds flow from operations of $6.9 million ($0.16 per share) increased by 38% from $5.0 million ($0.16 per share) received last year. For the first six months of 2008, funds flow from operations increased 51% to $12.0 million from $8.0 million in the same period in 2007. The increase in funds flow from operations for the three and six month periods was primarily due to the increase in commodity prices and higher gas cost allowance credits received from the Crown.
Total production during the second quarter of 2008 averaged 1,971 boe per day, a decrease of 14% from the 2,283 boe per day recorded in the same period of 2007. The Company's second quarter production revenue from crude oil, natural gas liquids and natural gas sales increased 28% to $13.0 million from $10.2 million for the same period in 2007. The upturn in commodity prices was the main contributing factor for the increase in gross revenues for the second quarter of 2008 despite there was a 14% decrease in production volumes. The decrease in production was primarily due to the effect of normal decline rate.
For the six months ended June 30, 2008, production revenues rose 40% to $24.1 million from $17.2 million in the prior year. The increase was attributed to the rise in commodity prices and higher production volume. The Company's production averaged 2,043 boe per day or 6% over the 1,928 boe per day recorded last year. The lower production volume for the first six months of 2007 was related to production curtailments resulting from issues at third party facilities.
Operating netbacks increased 51% to $45.24 per boe for the second quarter of 2008 from $29.98 per boe last year. The increase was the result of higher commodity prices and lower royalty expenses, partially offset by the increase in production commodity derivative loss and transportation expenses. Operating netbacks of $38.92 per boe increased by 33% from $29.37 per boe recorded in the first six months of 2007. There were two reasons that contributed to the increase in transportation expenses in the first six months of 2008, from April 2007 forward, the Company's gas production was redirected to a different receipt station and effective January 1, 2008, TransCanada Pipelines charged higher transportation rates to its customers. This increase in the transportation rate was approved by the Energy Utility Board.
Capital expenditures during the second quarter of 2008 were $4.9 million, a decrease of 45% from $8.9 million in 2007. For the first six months of 2008, the Company spent $22.5 million compared to $25.3 million in the prior year. The issue of flow-through shares in 2007 required the Company to incur $18.7 million in qualifying expenditures. As a result, capital expenditures during the first six months of 2008 were directed at exploration expenses. At June 30, 2008, all of the $18.7 million had been incurred. The Company participated in 6 gross (5.5 net) wells during the first six months of 2008 compared to 5 gross wells (2.92 net wells) for the same period last year. Grey Wolf achieved an overall drilling success rate of 100% (net 100%) compared to 100% (net 100%) in 2007.
As announced on August 5, 2008, Grey Wolf's first horizontal well in its Pouce Coupe Montney/Doig resource play tested at natural gas rates in excess of 10 million cubic feet per day ("MMcf/d"). The well continues to clean up frac fluid and is expected to be tied into a gas sales line within two weeks. We expect to produce the well between 3 and 4 MMcf/d while we monitor well performance. A second horizontal well in the Pouce Coupe area, this one owned 50 percent by Grey Wolf and partner operated, is scheduled to commence drilling within the next several weeks.
Grey Wolf also announced that it had entered into a non-binding letter of intent to sell its Ladyfern and Widewater minor properties. Proceeds will be used to pay down debt and increase flexibility to accelerate our horizontal development activity.
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