Iteration Energy capital expenditures are expected to be slightly below funds from operations for 2009. As a result production is expected to average between 17,000 to 17,500 boed which represents about a 5% increase over 2008.
Iteration Energy currently has around 850 boed of production shut-in due to low commodity prices. With the recent increase in crude oil prices, Iteration Energy will begin to reactivate some properties with the resulting production expected to be brought back on stream by the third quarter of 2009.
Iteration Energy expects to drill around 25.0 net wells in 2009 with a proportionately higher level of spending directed at oil opportunities in the Manyberries, Lloydminster and Peace River Arch areas.
Capital expenditures for 2008 included around $660 million of acquisitions. Funds from operations are expected to decline about 55% from 2008 levels, primarily due to lower commodity prices. The operating netback is expected to fall from 2008 levels due to lower commodity prices and slightly higher operating costs partially offset by lower royalty rates.
Operating costs are expected to average around $12.60 per boe for 2009 about 10% higher than 2008 levels. The increase in part is due to prior period costs included in 2009 partially offset by cost reductions. Operating costs for the last nine months of 2009 are expected to average around $11.50 per boe. Royalty rates are forecasted to be around 18% for the year with the third and fourth quarters expected to be at lower rates (around 16%) due to the Alberta royalty incentive program (the company expects to be at the 50% royalty credit level based on the 2008 production associated with Alberta crown properties).
The average royalty rate for 2009 would be about a 10% reduction from 2008 levels. G&A expense is expected to average $1.95 per boe in 2009. Interest expense is expected to be based on an average interest rate of about 6% due to increased borrowing costs. Year-end debt is expected to decline to about $225 million as the proceeds from the equity financing completed May 6, 2009 were all applied to debt repayment and for the last nine months of 2009, funds from operations are expected to exceed capital expenditures.
Production was essentially in line with projected levels, however due to lower natural gas prices and higher operating expenses, the operating netback was lower than projected which resulted in lower funds from operations. Net debt was higher than projected due to lower funds from operations and higher than expected capital expenditures. Capital expenditures exceeded forecast levels largely due to cost overruns on projects that were started in the fourth quarter 2008.
Average daily production for the three months ended March 31, 2009 was 18,165 boed, an increase of 7,275 boed from production for the three months ended March 31, 2008. This 67% increase is primarily due to the inclusion of production from the Cyries acquisition that closed March 7, 2008, for the entire quarter ended March 31, 2009. In the previous year, Cyries production was only included for the period from March 8 to 31, 2008.
