Douglas Cutts, President and Chief Executive Officer of Pulse Seismic reported the financial and operating results of Pulse for the year ended December 31, 2009. The audited consolidated financial statements, accompanying notes and MD&A will be filed March 15, 2010 on SEDAR.
Thanks to very good levels of seismic library sales and cash EBITDA(a) in the fourth quarter of 2009, a strong balance sheet, a lean cost structure and dedicated employees, Pulse came through 2009 financially intact and operationally strong. The Company also reduced its long-term debt by $6 million, added seismic data to the library and increased year-end working capital and cash balances.
The year end audited financial results were in line with the preliminary unaudited financial results announced in the Company's news release on January 25, 2010.
The Board of Directors is pleased to announce the appointment of Ms. Pamela Wicks as VP Finance & CFO of the Company effective March 10, 2010. Ms. Wicks has been employed with the Company, and its predecessors, since 1998 and has held the positions of Controller and most recently VP Finance.
Pulse's general economic and industry outlook encompasses two main groups of factors: industry activities, capital spending, drilling rates and forecasts, and commodity pricing in western Canada; and overall natural gas supply and demand fundamentals, including storage volume and drilling activity, in the United States. The first group of factors directly shapes the industry environment driving Pulse's seismic data library sales and customer demand for participation surveys, while the second group has a general
Western Canada -- Conditions appeared to be improving throughout the first two months of 2010. Commodity prices for oil and natural gas have been stronger than one year earlier. After bottoming at $1.96 per mcf (thousand cubic feet) at AECO (Alberta Energy Co. gas trading price) on September 4, 2009, the key domestic natural gas benchmark strengthened towards year-end and in 2010 has averaged approximately $5.65 per mcf into February, before trending lower again in early March ($4.36 per mcf on March 8, 2010).
Forecasts for oil and natural gas drilling have strengthened, albeit from very low levels. The number of active drilling rigs in western Canada in mid-February was up by more than 170 from the year-earlier level, making the highest rig-count since the first quarter of 2008. The Petroleum Services Association of Canada (PSAC), noting that fourth-quarter 2009 drilling activity was substantially higher than its original forecast, in late January issued a revised 2010 drilling forecast of 9,000 wells, an increase of 12 percent from its initial 2010 forecast issued in November. The Canadian Association of Oilwell Drilling Contractors (CAODC) previously predicted 8,523 wells for 2010. A number of investment banks have issued forecasts in the range of 11,000 wells or even higher. While moving in the right direction, these forecast numbers are well below the more than 16,300 wells drilled in 2008. Also positive was that Alberta's February and March auctions of oil and natural gas mineral leases raised $273.0 million and reportedly included lands focusing on the Cardium and Montney plays of which Pulse's data library covers various portions. Land sales are considered a leading indicator of oil and natural gas exploration and development activity.
Some investment banks are reporting higher 2010 capital budgets among some of their oil and natural gas clients and, accordingly, have modestly increased their forecasts for aggregate industry capital spending. To date there have been some press-released announcements of higher capital budgets and greater amounts of drilling, including by operators active in Pulse's core area, the Edson-Grande Prairie multizone corridor. Materially lower field service costs and Alberta's current drilling and royalty incentives, which can reduce the net costs of drilling and completing a deep horizontal well by several million dollars, are improving drilling economics. Some producers have stated these incentives, along with the recently announced Government of Alberta's "Competitiveness Review" of the energy sector's fiscal regime, will contribute to increased capital spending in 2010.
Western Canada's oil and natural gas industry is continuing to focus on a number of unconventional "tight" oil and natural gas plays. These are typically developed using horizontal wells completed with multiple hydraulic fractures. Such wells require high-quality 3D seismic and are forecast, according to Peters & Co.'s North American Energy Overview (Winter 2010) to increase from 7 percent to 16 percent of all wells drilled in western Canada in 2010. The overall trend is evidenced by the gradual increase in average drilling depth and average number of drilling days per well drilled in western Canada. The Pulse 3D data library contains high-quality 3D data required for unconventional drilling.
United States -- There are numerous "moving parts" determining natural gas prices in the United States, demanding caution in any forecast. On the positive side, overall natural gas storage volume fell back into the five-year average weekly band in late 2009 and steady to record weekly withdrawals have kept storage within this five-year range to date in 2010. As of early February the key Henry Hub natural gas spot price was higher than year-earlier levels. The Department of Energy's Energy Information Administration (EIA) reported in early February that it "expects this year's annual average natural gas Henry Hub spot price to be $5.37 per million Btu (MMBtu), a $1.42-per-MMBtu increase over the 2009 average of $3.95." This forecast was based on a slight year-over-year increase in overall natural gas consumption and a slight decline in natural gas production in the United States.
It is possible that natural gas production in the United States could hold steady or even increase, which would be bearish for prices. The current positive price signals could cause drilling rates to increase, increasing new well tie-ins and eventually offsetting price gains. In addition, it remains unclear whether the large unconventional shale gas plays that have yielded a succession of extremely productive horizontal wells will maintain or even increase production rates, or whether steep production decline rates will set in as some believe. The EIA also reported that the number of rigs drilling for natural gas increased during January by approximately 100 to a total of 861 at month-end. By mid-February, this figure had increased further to 891 natural gas rigs, according to Baker Hughes.
Pulse entered 2010 in a solid financial position with ample working capital, moderate long-term debt and a low cost structure. Approaching the end of the first quarter Pulse continues to experience poor visibility for its seismic data library sales and cash EBITDA for the second quarter and 2010 as a whole.
Accordingly, the Company is maintaining a cautious outlook for the year. Pulse will continue to focus its business development efforts, including participation survey marketing, in its core area, the Edson-Grande Prairie multi-zone corridor. The Company will also continue to seek opportunities to acquire attractively priced and high-quality existing 2D or 3D datasets. Pulse can draw on substantial unutilized borrowing capacity if required. With its extensive 2D and 3D seismic coverage, low data library maintenance costs and high-quality team of sales and technical personnel, Pulse is well-positioned to serve and benefit from any increase in customer demand through the
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