Third Quarter Results and Operations Review
Frontera Resources Corporation (London Stock Exchange, AIM Market – Symbol: FRR; Over-the-Counter Market, U.S.A. – Symbol: FRTA), an independent oil and gas exploration and production company, today announced results for the quarterly period ended 30 September 2007 and provided a review and update of its operations in Block 12, Georgia.
Highlights For Quarter Ended 30 September 2007
- Strong cash position with over $62 million in cash and marketable securities to carry out Block 12 work programs into 2008.
- Net loss of $5.9 million, or $0.08 per share, on a fully-diluted basis.
- Operating expenses of $5.0 million, an increase of $1.7 million from previous year.
Taribani Field Unit
Zone 9 development drilling commenced in the third quarter of 2007 as follows:
- Re-entry and re-completion of the Dino #2 well were finished in September; the well is now awaiting arrival of equipment for a frac-pac completion in December.
- A second well, T-#45, commenced and is currently drilling ahead. It is expected to reach total depth of approximately 2,400 meters in December, at which time it will also receive a frac-pac completion.
- Access road and drillsite location for a third well, Taribani South #1, was commenced in anticipation of drilling operations that are scheduled to commence in December.
Basin Edge Play Unit
- Drilling commenced at the “C” Prospect. The Lloyd #1 well is currently drilling ahead and is expected to reach total depth of approximately 2,700 meters in early December.
Mirzaani Field Area Production Unit
- Production operations continued at Mirzaani Field Area Production Unit at approximately 80 barrels per day.
Mirzaani Field Area Exploration Unit
- A farmout effort continues to seek a partner for drilling the Mirzaani Deep Prospect.
Steve C. Nicandros, President and Chief Executive Officer, commented:
“In the third quarter we continued to advance work across our portfolio of business units. Most significantly, we successfully commenced and progressed drilling operations in two of our four primary business units. This has positioned us for results from these operations in December and early 2008. Simultaneously, we have continued to maintain profitable production operations. As a result, our financial results reflect the expected investment to support this effort and, looking ahead, with our strong cash position we are well positioned to follow through and achieve the objectives we have targeted.”
Taribani Field Unit
The Taribani Field is a large, undeveloped oil field covering an area of approximately 80 square kilometers with productive horizons situated in Miocene and Pliocene age reservoirs. These reservoirs are located at depths between 2,200 meters and 3,500 meters. The independent consulting firm Netherland, Sewell & Associates has assigned 118 million barrels of P3 reserves from Zones 9, 14, 15 and 19 within the field. Additionally, Netherland, Sewell & Associates has assigned as much as 36 million barrels of unrisked resource potential associated with five deeper horizons in the field.
Frontera currently plans a thirty-six month, 20-well drilling program for Zone 9, which represents approximately 17 percent of identified Taribani Field reserves. As part of this program, location construction and drilling operations commenced during the third quarter for the initial three wells. The first of these wells – the Dino #2 – was recompleted during September. The drilling rig was mobilized to the second well location, T-#45, in September and commenced drilling on 10 October. This well is currently drilling ahead and is expected to reach an estimated total depth of 2,400 meters in December. At that time, specialized equipment will be mobilized to apply frac-pac completions to this well and the Dino #2 well. The third scheduled Zone 9 well for this year – the Taribani South #1 – is expected to commence drilling in December. Eight additional wells are planned for 2008.
Basin Edge Play Unit
Frontera’s Basin Edge Play Unit is located along the northern border of Block 12 and represents what the company believes is one of the newest and potentially most prolific exploration plays in the Upper Kura Basin. Netherland, Sewell and Associates estimate total unrisked resource potential to be in excess of one billion barrels of recoverable oil within the unit’s two major prospects (“B” and “C”). Of this total, prior to the acquisition of new seismic data suggesting an even larger structure, the “C” Prospect was estimated to contain as much as 500 million barrels of recoverable oil. Frontera’s primary reservoir targets are located in the Cretaceous age carbonate rocks, with secondary reservoir targets in the Miocene and Pliocene age clastic rocks as well as Jurassic carbonates.
During the third quarter, six kilometers of new access road and drillsite construction were completed for the Lloyd #1 well, a drilling rig was mobilized and drilling operations commenced on 17 September. The Lloyd #1 is currently drilling ahead and is expected to reach total depth in the primary objective in early December, after which well results will be evaluated.
At the Basin Edge “B” Prospect, Frontera completed new geologic field work that was integrated into the current interpretation and mapping of the prospect.
Mirzaani Field Area Production Unit
The Mirzaani Field Area Production Unit is comprised of three underdeveloped and undeveloped, shallow Pliocene-age fields with targeted normal pressure reservoirs situated between 400 meters and 1,500 meters deep. One of these fields, the Mirzaani Field, currently produces at nominal production levels sufficient to yield annual revenues of approximately $2 million per year at current oil prices.
During the third quarter of 2007, production at the Mirzaani Field continued at approximately 80 barrels per day. No oil sales were made of existing produced inventory in an effort to aggregate necessary volumes for efficient sale. The next expected sale of current inventory is planned during the fourth quarter of 2007. In addition, design was completed and locations were chosen for two new wells that target existing, undeveloped field reservoir objectives at the Mirzaani Field situated at approximately 1,200 meters in depth. These wells are designed to extend development of untapped portions of this field to increase production and book additional reserves. Rig procurement has taken longer than expected and, as a result, these wells are scheduled to be drilled within the next several months. Finally, new work progressed in the development of a plan to target ultra-shallow oil reserves situated from 20 meters to 500 meters in depth throughout the three fields within the unit.
Mirzaani Field Area Exploration Unit
The Mirzaani Field Area Exploration Unit is an area of new prospectivity situated beneath the existing shallow, Pliocene-age fields. In order to accelerate testing of the Mirzaani Deep Prospect in parallel with ongoing operations in other business units, an effort commenced during the second quarter of 2007 to seek a farmout partner with which to undertake new drilling operations at this important prospect within the next several months. This effort continued through the third quarter.
Block 12 Area-Wide Field/Prospect Inventory Development Unit
During the third quarter of 2007 technical work progressed within Frontera’s Block 12 Area-Wide Field/Prospect Inventory Development Unit. This unit is focused on evolving and prioritizing the company’s extensive inventory of prospects within Block 12, including 19 identified prospects and leads and five undeveloped fields.
FINANCIAL REVIEW – THIRD QUARTER 2007
For the three months ending 30 September 2007, Frontera incurred a net loss of $5.9 million, or $0.08 per share on a fully-diluted basis. This loss compares to a net loss of $3.0 million, or $0.05 per share for the corresponding three months of 2006. The increase in the net loss reported is due primarily to higher operating expenses and lower other income.
There were no crude oil sales during the third quarter in 2007 or the corresponding quarter in 2006. The next sale is expected to occur during the fourth quarter of 2007.
Operating expenses were $5.0 million during the three months ending 30 September, an increase of $1.7 million from $3.3 million in 2006. General and administrative expenses increased by $1.4 million in 2007. The increases are primarily attributable to supporting a ramp up of exploration and development activities in 2007 as compared to the same period in 2006.
Frontera incurred other expenses of $0.9 million during the third quarter of 2007 as compared to other income of $0.3 million in 2006. The decrease in other income was largely attributable to additional interest expense of $1.8 million as a result of completing a $67.0 million convertible note offering in May of this year.
For the nine months ending 30 September, Frontera incurred a net loss of $13.4 million, or $0.19 per share on a fully-diluted basis. This compares to a net loss of $8.1 million, or $0.13 per share for the first nine months of 2006. The increase in the net loss reported is due primarily to higher operating expenses and lower other income.
Revenues from crude oil sales during the first nine months of 2007 were $1.9 million, an increase of $1.1 million from $0.8 million during the same period last year. The increase in revenues was related to timing of crude oil sales, as crude oil produced in the last half of 2006 was not sold until January of 2007.
Operating expenses were $14.3 million during the first nine months of 2007, an increase of $4.4 million from $9.9 million in 2006. In 2007, Frontera incurred a $2.0 million non-cash charge related to the expensing of stock options in accordance with provisions of SFAS 123R, as compared to $2.2 million in the prior year. Field operating and project costs increased by $2.1 million this year owing to additional costs associated with the ramp-up of our work programs in Georgia and the production costs associated with the oil sold this year.
Frontera incurred other expenses of $0.9 million during the first nine months of 2007 as compared to other income of $1.1 million in 2006. The decrease in other income was largely attributable to additional interest expense of $2.6 million as a result of completing a $67.0 million convertible note offering in May of this year.
Frontera Resources Corporation
Vice President, Investor Relations and Corporate Communications
Brunswick Group LLP
Patrick Handley / Mark Antelme
+44 207 4045959
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.
2. The reserve information herein was determined by the independent consulting firm of Netherland, Sewell & Associates 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.
3. This release contains certain forward-looking statements, including, without limitation, expectations, beliefs, plans and objectives regarding the potential transactions, potential drilling schedule and ventures 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 results, availability and performance of needed equipment and personnel, seismic data, fluctuations in oil and gas prices, weather conditions, general economic conditions and the political situation in Georgia and neighbouring countries. There is no assurance that Frontera’s expectations will be realized, and actual results may differ materially from those expressed in the forward-looking statements.