Overview:
— Petroflow Energy said it is continuing to concentrate its capital expenditures in Oklahoma. It drilled 30 Hunton wells in 2008 compared to 24 wells in the previous year and put 30 wells on production
— Petroflow Energy production volumes increased by 91% for the year-end 2008 to an average of 2,633 boe per day from the 2007 average of 1,382 boe per day
— Petroflow Energy’s existing average production for the first quarter of 2009 is 3,697 boe per day
— Petroflow Energy added 5.8 million boes to its proved developed reserves
— Funds from operations grew by 1,135% to CAD12.6 million in 2008 from CAD1 million in 2007
— Funds from operations for the fourth quarter were negatively impacted by about CAD3 million due to a temporary influx of natural gas from the rocky mountain express pipeline system
— Petroflow Energy’s team continued to achieve low finding, development, and acquisition costs in 2008. With total capital expenditures in the year of CAD84 million, this represents FD&A costs of about CAD14.48 per boe based on applying all capital expenditures against incremental proved developed reserves added in the year
— Based on fourth quarter average production of 3,201 boe per day and proved plus probable reserves of 28.1 million boes, Petroflow Energy’s reserve life index was 24.1 years at year end 2008
— During 2008, Petroflow Energy average operating net back per boe was CAD31.29 per boe
— The company’s interest in the Juniper project, situated in the San Juan basin was sold in May 2008 for net proceeds of CAD28 million
— In light of the rapid drop in commodity prices, Petroflow Energy is suspending its drilling efforts for a short time. The company has undertaken to re-evaluate all the costs associated with its operations. Once the company has resolved these issues, the drilling program will resume
— Petroflow Energy has raised its bank line from CAD53.5 million to CAD110 million in 2008
— Subsequent to year end and in recognition of low commodity prices, Petroflow Energy renegotiated its bank debt covenants to provide greater assurance in meeting its ongoing financial commitments
Operational Update:
Oklahoma
The Hunton resource play in the State of Oklahoma is the company’s primary asset and opportunity for future growth. Petroflow Energy’s focus during 2008 was on drilling opportunities situated on the area of mutual interest lands acquired by Petroflow Energy under the terms of the farm-in agreement with Enterra Energy Trust (Enterra). Under the terms of this agreement, the company has the right to drill wells on the basis of paying, as a percentage of Enterra’s working interest, 100% of the capital costs in the property to earn a 70% working interest. These percentages are proportional to Enterra’s working interest on a property by property basis, and generally result in the company paying about 80% of total costs to earn a 56% net working interest.
The company’s right to drill is subject to meeting minimum drilling commitments. These include maintaining a two rig running commitment or drilling not less than thirty wells during any twenty-month period beginning January 1, 2008 (subject to normal force majeure clauses). Petroflow Energy is the operator during the drilling and tie-in process, with Enterra taking over operatorship once each well is put on production.
Petroflow Energy drilled 30 wells for the year-end 2008 compared to 24 wells in the earlier year. The company put 30 wells on production in 2008, compared to 24 wells in previous year. In the fourth quarter, the company drilled nine wells and put eight wells on production in 2008 compared to eight wells drilled and seven wells put on production in 2007.
New Mexico
The San Juan basin is one of the largest coal bed methane producing areas in North America and is situated in New Mexico. Petroflow Energy’s interest in the Juniper project, situated in this basin, was purchased in August of 2005. The company developed this property during the course of its ownership and in May 2008, sold this property for net proceeds of CAD28 million.
Texas
Petroflow Energy purchased an operated oil producing property in the Permian basin in Midland, Texas, in December of 2005. There was no drilling on this property during 2008. The Permian basin in Midland is considered to be a steady cash flow property and has a positive impact on the company’s overall operations. This property now produces on average 74 boes a day.
Canada (Alberta)
Capital expenditures in Canada were restricted to further testing of the company’s two potential coal bed methane wells. These wells stay prospective at this time.
