Diaz Posts '09 Financial, Reserves Summary
Diaz Resources reported its year end results and reserves summary. 2009 was a difficult year for Diaz and gas-weighted junior oil and gas companies generally. The North American economy moved into recession during the second half of 2008 and 2009 and had two significant effects on the Company. They were:
- A drop in natural gas consumption, particularly in the US, leading to an over supply and downward pressure on natural gas prices, and
- A tightening of capital markets available to the Company to raise additional investment funds.
In addition, a number of the Company's US natural gas wells declined, at higher than anticipated rates.
As a result, Diaz revenues were significantly reduced and operating cash flows available for reinvestment were greatly reduced compared with prior years.
Diaz anticipated that 2009 would be a challenging year and the management worked to ensure that the Company came through the year successfully. Hence, Diaz focused on the reduction of balance sheet leverage, put in place fixed gas price contracts for half of the Company's 2009 gas production, and refocused the Company's exploration and development activities on heavy oil projects.
The results of these efforts were:
- Asset dispositions -- $4.4 million was raised from the sale of properties in Canada and in the United States,
- Financing -- the Company closed a financing, raising $926,000 at the end of 2009,
- 2009 Fixed Gas Price Contracts -- Diaz received approximately $925,000 in additional revenue from fixed gas price contracts during 2009,
- Oil Development -- Diaz commenced a heavy oil development program in the Lloydminster area, participating in the successful drilling of three wells during Q4 2009
- Heavy Oil Exploration -- the Company acquired prospective acreage on a number of oil development projects in Alberta and Saskatchewan.
As a result of the above actions, Diaz reduced its net current bank debt from $8.5 million in January 2009 to approximately $5.8 million at the end of the year. The Company plans to continue to rationalize non-core assets with the sale of its remaining U.S. producing assets, which, being principally natural gas, will be marketed when natural gas prices recover to what management regards as an acceptable level.
With the improvement in the financial condition of the Company, available capital was redirected into its heavy oil exploration and development activity in East Central Alberta and West Central Saskatchewan.
Revenue for 2009 decreased to $7.0 million compared with $15.1 million for the prior year. Cash flow from operations for 2009 decreased to $1.9 million or $0.03 per share compared with $7.7 million or $0.12 per share for the prior year. Diaz reported a loss for 2009 of $14.3 million or ($0.21) per share versus a loss of $4.1 million or ($0.06) per share in the prior year, as it took an impairment write down against its oil and gas assets of $11.4 million during Q1 2009.
Capital expenditures for 2009, totaled $4.4 million compared with $7.8 million in the prior year. Capital expenditures and debt retirement were financed from cash flow from operations and the sale of two oil and gas properties.
At December 31, 2009, Diaz had net current debt of $5.8 million versus $8.5 million at the beginning of the year. Diaz also had convertible debentures outstanding of $7.1 million (face value) that mature on March 26, 2012.
The Company's total production for the year ended December 31, 2009, decreased 28% to 642 BOEd compared with the prior year average of 886 BOEd. For the fourth quarter, total production declined 39% to 532 BOEd compared with 871 BOEd in Q4 2008.
In Canada, production for the year decreased 21% as a result of the sale of production from the Carmangay (Q1) and Parkman (Q4) fields and a significant drop in production from the Leahurst and Big Bend fields. In the U.S., production rates for the year fell by 45% as mature well production declines combined with the abandonment of the Black Owl field.
Reserves and Reserves Values
The independent engineering evaluation of Diaz's properties assigned proved reserves, before royalties, of 1.6 million BOE and total reserves, before royalties, of 3.8 million BOE at December 31, 2009. These reserve estimates result in a before tax present value of estimated future net revenues, discounted at 10%, of $52.4 million.
Exploration and Development
Due to the drop in natural gas prices during the fall of 2008, Diaz changed its exploration focus exclusively to oil prospects. During 2009, Diaz acquired 18,707 acres (14,048 net acres) in Alberta and Saskatchewan resulting in a substantial portfolio of development projects on the Lloydminster oil play in Alberta as well as the Shaunavan, Bird Bear, and Viking oil plays in Saskatchewan.
During Q4 2009, Diaz drilled three Lloydminster heavy oil horizontal wells which are now on production. Subsequent to year end Diaz participated in drilling three additional horizontal on the same prospect at Lloydminster, Alberta and anticipates placing them on production early in the second quarter of 2010.
The Company anticipates steady growth in the North American economy during 2010.
As a result oil prices should continue to firm as industrial activity recovers. Due to current high natural gas storage levels and significant volumes of gas being developed on North American shale gas projects there is still considerable uncertainty as to when natural gas prices will recover to satisfactory levels. To mitigate the uncertainty in natural gas prices, Diaz has put in place fixed gas price contracts for approximately half of the Company's anticipated 2010 gas production, at prices in excess of $5.75 per Mcf. Diaz has also closed an equity financing raising approximately $1,263,500 net of commissions to fund its ongoing Lloydminster heavy oil development drilling program.
Due to this potential ongoing weakness in the gas sector Diaz will continue to direct its efforts towards heavy oil development during 2010. The Company will continue to focus on its Lloydminster heavy oil development program and if results are successful Diaz would exit 2010 with almost half of its production derived from oil sales.