NuLoch Resources Inc. (NuLoch Resources), an oil and gas exploration and production company, has reported petroleum and natural gas revenues of CAD13 million for the year-end 2008, compared with the petroleum and natural gas revenues of CAD4.85 million in the previous year. It also reported net earnings of CAD1.4 million for the year-end 2008, compared with the net loss of CAD0.1 million in the previous year.
NuLoch Resources prudently decreased its capital program during fourth quarter of 2008 and has continued to restrict such expenditures in first quarter of 2009 to match its expected cash flow. Production, including some weather related downtime and shut-ins due to pressure testing, averaged about 500 boe/d in first quarter of 2009 and is anticipated to average 500 boe/d in second quarter of 2009.
Saskatchewan – Tableland
NuLoch Resources has 75 (30 net) sections of mainly contiguous land in southeast Saskatchewan that is prospective for Bakken / Sanish oil. Results from the company’s first well, drilled in the previous year, did not meet NuLoch Resources expectations. An intended follow-up location will utilize a different completion technique to reduce water infiltration from adjacent formations. A positive technical result joint with improved oil prices could direct to a high-impact development program at Tableland.
Alberta – Balsam
Two oil wells at Balsam (0.6 net) offer 140 boe/d of the company’s daily production. A result of a recent pressure study proposes that these wells may be in separate reservoirs. Additional pools of this size may be present on this trend.
Alberta – Southern – Enchant
The company’s first Mississippian gas well (one net) at Enchant, has recovered 110 MMcf of natural gas in its first 11 months of production since tie-in on May 6, 2008. The follow-up well (one net), on production ever since December 9, 2008, has improved from 86 MMcf of natural gas to March 31, 2009. Subject to well performance and pressure analysis, NuLoch Resources has intends to spud another 1,000 meter Mississippian gas well close to but firm timing has not been established.
NuLoch Resources previous year’s oil discovery well at Enchant has been a solid performer. Seven months after being tied-in, the well continues to flow crude oil and solution gas without artificial lift at daily rates of 40 boe/d. Multiple follow-up development sites are being considered but firm timing has not been established. The company has a 100% working interest in this prospect.
The net present value of NuLoch Resources proved and probable reserves for the year-end 2008, as estimated by independent engineers, stood at CAD29.9 million (before taxes and using a 10% discount factor). The company has 36,000 net undeveloped acres of mineral rights.
NuLoch Resources business has been affected by the global financial crisis and associated recession in three significant ways. Firstly, cash flow from operations has been decreased as sales prices for the company’s oil and natural gas production declined considerably over the last six months of 2008 and strength has not yet returned. Secondly, NuLoch Resources bank has decreased its accessible line of credit from CAD9 million to CAD5.7 million, mainly because of the aforementioned decline in sales prices. The bank also raised the interest rate charged on the facility to prime plus 2.25% reflecting increased tightening in the credit markets. Thirdly, equity markets for junior oil and gas producers have shrunk as investors seek liquidity elsewhere. While these three factors are anticipated to limit NuLoch Resources prospects for growth over the near-term, management believes that its accessible resources and prospects, along with the potential advantage of the Alberta economic stimulus program, are enough until a rebound in commodity prices it anticipates in the next six to 18 months.
NuLoch Resources considers there is sufficient supply of natural gas in North America that will reduce prices until at least the next winter heating season. Some of this downside risk has been lessen with the implementation of a fixed price natural gas sales contract at CAD4.08 per GJ at AECO (around CAD4.28 per Mcf) on 1,000 GJ/d for the period from April 2009 through October 2009. Oil sales prices have been left to float at market reflecting management’s belief in an earlier return to better supply and demand balance for that commodity.
Over the next three to four months, NuLoch Resources intends to carry on with minimal capital expenditures while it prepares its prospects and capital investment program.