Frontera Resources Corporation (London Stock Exchange, AIM Market – Symbol: FRR; OTCQX Market, U.S.A. – Symbol: FRTE), an independent oil and gas exploration and production company, today released financial resultsfor the third quarter of 2009 and also provided an update of operations at its Shallow Fields Production Unit located within its Block 12 license area in the country of Georgia.
Drilled and completed three new wells at Mtsare Khevi Field.
Preparations underway to install gas sales related infrastructure at Mtsare Khevi Field.
Currently drilling one new well at Mirzaani Field with logging operations underway.
Recently passed one million hours worked without injury milestone, following more than 600 consecutive days of safe operations.
Raised approximately $7.6 million through equity placement in September. Proceeds are funding continued investment at the Mirzaani and Mtsare Khevi fields within the Shallow Fields Production Unit.
Results for the three months ending September 30, 2009 reflect a net loss of $13.4 million, or $0.17 per share on a fully-diluted basis. This loss compares to a net loss of $10.4 million, or $0.14 per share for the corresponding three months of 2008. Increase in net loss due primarily to a $3.4 million non-cash derivative expense associated with the issuance of warrants as part of the September equity placement.
Received payment of $1.9 million in September for crude oil sales that will be reflected in fourth quarter results.
Shallow Fields Production Unit
Since September, progress has been made in executing the work programs and gas-sales related infrastructure investments announced in connection with the company’s September equity placement. These activities are aimed at increasing oil and gas production from the Mirzaani and Mtsare Khevi fields, two of four undeveloped fields within the Shallow Fields Production Unit. Frontera believes that successful completion of these work programs will increase Frontera’s total daily production in Georgia to as much as 1,000 barrels of oil equivalent per day (boepd). Current daily production is approximately 250 barrels of oil per day.
At the Mtsare Khevi Field, the next phase of drilling operations began as planned in September and is scheduled to be completed prior to year end. Three of four new planned wells were drilled, completed and placed into production in continuation of the development drilling campaign that commenced in August 2008. The fourth well is expected to be completed in December, which would bring the total wells drilled in the program to 18. Ongoing work is designed to develop both oil and gas reservoirs associated with the Akchagil formation, situated between 200 meters and 350 meters in depth.
Oil production operations are currently focused on maintaining and increasing current daily production rates. To mitigate anticipated natural well decline rates and enhance the low recovery characteristics of the Akchagil’s oil bearing reservoirs, investments are also underway to implement pump optimization programs, waterflood and frac-stimulation initiatives prior to year end. Current daily oil production is approximately 100 barrels per day from eight of the wells drilled to date and these production engineering initiatives are expected to help maintain and increase production from month to month.
The remaining nine wells are classified as gas wells, and efforts to commence gas production and associated sales from these wells are also underway. Current plans call for installation of new infrastructure for the transportation of as much as 100,000 cubic meters of gas per day (589 boepd) to a pipeline within twelve kilometers of the field. This work is expected to be completed early in the first quarter of 2010.
At the Mirzaani Field during the month of October, the Mirzaani #1 well commenced drilling in the underdeveloped southeastern portion of the field and reached a planned total depth of approximately 1,500 meters during the second week of November. While drilling, the well encountered multiple known field reservoir horizons associated with the Lower Pliocene age Shiraki formation between 1,000 meters and 1,500 meters, as well as multiple associated oil shows. An eighteen meter core sample was taken in one of these reservoir horizons in order to provide a fresh understanding of the field’s reservoirs. Open-hole logging operations are currently underway, and once associated analysis is complete, the well is expected to be completed and tested in approximately two weeks.
Frontera’s next well at the Mirzaani Field, the Mirzaani #5, is planned to commence in early December at a location situated in an undeveloped area of the field known as Mirzaani Field Northwest. The well is expected to reach a total depth of 1,250 meters by the end of December and is located 600 meters northwest of the Mirzaani #2 discovery well that Frontera drilled earlier this year. The new #5 well is planned to appraise the recent field extension discovery.
While technical complications associated with cementing and completion of the Mirzaani #2 well have prevented sustained production from being achieved, the data obtained from the well established the presence of potentially significant undeveloped oil reserves in both the previously undeveloped Mirzaani Field Northwest area and in the Mirzaani Field proper. This data provided the technical basis for drilling both the #1 and #5 wells.
Based on analysis of programs to date at both fields, Frontera estimates the two fields contain over 50 million barrels of prospective resources within the Shallow Fields Production Unit. New reserve reports are expected to be completed following the current work programs.
Frontera’s Shallow Fields Production Unit is located in the central portion of Block 12 and represents what the company believes to be an extensive trend of low-cost, low-risk undeveloped oil and gas reserves. Containing four discovered yet undeveloped or underdeveloped fields that have additional exploration potential, objectives are considered to be traditional, well-known reservoirs of Pliocene and Miocene age that are situated at depths from 10 meters to 1,500 meters.
Third Quarter 2009 Financial Results
For the three months ending September 30, 2009, the company incurred a net loss of $13.4 million, or $0.17 per share on a fully-diluted basis. This loss compares to a net loss of $10.4 million, or $0.14 per share for the corresponding three months of 2008. The increase in net loss is due primarily to a $3.4 million non-cash derivative expense associated with the issuance of warrants as part of the company’s $7.6 million equity placement in September.
There were no crude oil sales completed during the three months ended September 30, 2009. However, an advance payment of $1.9 million was received in the quarter for a crude oil sale of approximately 38,000 barrels in October, out of a total $2.4 million proceeds for such sale. There were no crude oil sales during the corresponding quarter in 2008.
Total operating costs and expenses decreased to $6.7 million for the three months ended September 30, 2009 compared to $7.7 million for the same period in 2008. Field operating and project costs decreased $0.6 million to $0.7 million during the three months ended September 30, 2009 as compared to $1.3 million for the three months ended September 30, 2008. Substantially all of the decrease was attributable to a decrease in expatriate and national staff in the 2009 period.
General and administrative expenses decreased $0.8 million to $5.4 million for the three months ended September 30, 2009 from $6.2 million for the comparable period in 2008. The decrease was generally attributable to a series of cost cutting measures instituted in the first quarter of 2009, primarily related to headcount reductions in Georgia and Houston. Implementation of cost reduction initiatives are ongoing in order to continue to bring down costs in line with the current focus on the Shallow Fields Production Unit.
Total other expense increased to $6.8 million in the three month period ended September 30, 2009 from $2.7 million in the three month period ended September 30, 2008. The $4.1 million increase is primarily attributable to an increase in interest expense of $0.1 million, an increase in derivative expense of $3.4 million, a $0.2 million decrease in interest income and a $0.4 million loss on sale of investments.
Steve C. Nicandros, Chairman and Chief Executive Officer, commented:
“I am pleased and encouraged with the continued progress of operations at our Shallow Fields Production Unit and I look forward to the results from our current work program. Together with implementation of plans to continue to reduce costs through the end of this year, we remain very focused on achieving increased cash flow generation from operations as we move into 2010.
In addition, as we continue to build a strong foundation for our company by focusing our near-term efforts on increasing cost-effective production from our Shallow Fields Production Unit, we are pursuing strategies designed to continue near-term investment at the Taribani Field Unit and the Basin Edge Play Unit. In this context, during the third quarter, we also commenced analysis of possible options related to restructuring our long-term debt that are designed to enhance Frontera’s ability to continue to pursue realization of the significant value that our historical investments have highlighted within our portfolio.”
Frontera Resources Corporation
Vice President, Investor Relations and Corporate Communications
Nominated Adviser and Broker:
Jeffrey Auld/Ryan Gaffney/Elijah Colby
+44 20 7050 6500
Notes to editors:
1. Frontera Resources Corporation is an independent Houston, Texas, U.S.A.-based international oil and gas exploration and production company whose strategy is to identify opportunities and operate in emerging markets around the world. Frontera has operated in Georgia since 1997 where it holds a 100 percent working interest in a production sharing agreement with the government of Georgia. This gives Frontera the exclusive right to explore for, develop and produce oil and gas from a 5,060 square kilometer area in eastern Georgia known as Block 12. Frontera Resources Corporation shares are traded on the London Stock Exchange, AIM Market – Symbol: FRR and via the Over-the-Counter Market, U.S.A. – OTCQX Symbol: FRTE. For more information, please visit www.fronteraresources.com. For more information regarding Frontera’s work at the Shallow Fields Production Unit, please visit: www.fronteraresources.com/Operations.php?link_id=43.
2. Information on Reserve Estimates: The prospective resources estimates contained in this announcement were determined in accordance with the petroleum resource definitions adopted by the Society of Petroleum Engineers (SPE), World Petroleum Council (WPC) and the American Association of Petroleum Geologists (AAPG) in 2000. Prospective resources are those quantities of petroleum which are estimated, on a given date, to be potentially recoverable from undiscovered accumulations. Gerard Bono, Frontera’s Vice President and Chief Reservoir Engineer, who is a member of the SPE, is the qualified person who reviewed and approved the statements in this announcement and the prospective resources estimates associated with the Mirzaani Field and Mtsare Khevi Field. These estimates are being reviewed by Netherland, Sewell & Associates and will be released as soon as practicable.
3. This release may contain certain forward-looking statements, including, without limitation, expectations, beliefs, plans and objectives regarding the potential transactions, potential debt restructuring, potential drilling schedule, well results and other matters discussed in this release, as well as reserves, future drilling, development and production. Among the important factors that could cause actual results to differ materially from those indicated by such forward-looking statements are: future exploration and development activities; availability and performance of needed equipment and personnel; the company’s ability to raise capital to fund the planned exploration and development programs; seismic data; evaluation of logs, cores and other data from wells drilled; fluctuations in oil and gas prices; weather conditions; general economic conditions; the political situation in Georgia and relations with neighboring countries; and other factors listed in Frontera’s financial reports, which are available at www.fronteraresources.com/Investors.php?link_id=23. There is no assurance that Frontera’s expectations will be realized, or that any potential transactions will be completed, and actual results may differ materially from those expressed in the forward-looking statements.