Total production during the first quarter of 2009, averaged 2,547 boe per day, an increase of 20% from the 2,115 boe per day recorded in the same period of 2008. The increase in production was primarily due to additional production on-stream from two new horizontal wells at Pouce Coupe in late 2008 and a Slave Point well at Petitot in late February 2009.
Funds flow from operations decreased 50% to CAD2.5 million from CAD5.1 million in the same period in 2008. The increase in net loss and decrease in funds flow from operations were mainly due to a sharp decline in commodity prices.
The decrease in production revenue was primarily due to the deterioration of commodity prices. During the quarter, the average price for natural gas was CAD5.63 per Mcf, a 32% reduction from the CAD8.29 per Mcf realized last year. Grey Wolf Exploration’s realized oil and natural gas liquid price also decreased by 48% to CAD43.19 per boe compared to CAD82.57 per boe in 2008.
Commodity prices continued to deteriorate and funds flow from operations declined substantially in the first quarter of 2009. The company has responded to this situation by limiting capital expenditures and selecting those that would immediately improve production and cash flows for the company. The majority of the CAD4.7 million of capital expenditures were spent on the tie-in of the Petitot well, which was placed on production in late February 2009.
From April to December 2009, the company has a fixed price derivative contract of 6,000 GJ/day at CAD5.90 per GJ (about CAD6.79 per Mcf based on the company’s realized heating value), which is well above the current level of gas prices. If market prices continue at their current level, this derivative contract will certainly improve the cash flows of the company for the remainder of the year and the company will dedicate the majority of the 2009 cash flows to the reduction of debt.
Based on the 2008 year end reserves, the bank increased Grey Wolf Exploration’s revolving credit facility to CAD60 million on March 20, 2009. As at March 31, 2009, CAD51.2 million was drawn on the facility and the company had a working capital deficiency of CAD5.3 million for total debt of CAD56.5 million.
Corporate Update:
The company is continuing with its previously announced review of strategic alternatives under the direction of a special committee of independent directors and with the assistance of its financial advisors, CIBC World Markets Inc. and Peters & Co. Limited. The company has opened a data room and provided information to a number of interested parties and is in the process of seeking transaction proposals. The committee is endeavoring to determine a specific course of action by the end of this month but the timing and outcome of the process will be dependent on market conditions and the proposals which the company receives.
