HOUSTON, TEXAS — (Marketwire) — 11/15/12 — Caza Oil & Gas, Inc. (“Caza” or the “Company”) (TSX: CAZ)(AIM: CAZA), is pleased to provide its unaudited financial and operational results for the three-months ended September 30, 2012.
Unaudited Third Quarter Financial Results
Third Quarter Operational Results and Recent Events
W. Michael Ford, Chief Executive Officer commented:
“Caza continued its positive operational and financial performance in the third quarter of 2012.”
“The proceeds from the sale of the San Jacinto property opened several doors for the Company, especially on the exploration front. Management used a portion of the proceeds to drill the Caza Ridge and Forehand Ranch horizontal Bone Spring test wells at our Copperline and Forehand Ranch prospects respectively. We are very pleased to report that oil and natural gas from the Caza Ridge well are already going to sales, and we continue to be impressed with the well–s production results. We also look forward to fracture stimulating the Forehand Ranch well and bringing it online in December. The Caza Ridge well alone has made up for and surpassed any decreases in production, revenue and cash flow caused in this quarter by the sale of the San Jacinto assets and will provide a substantial increase to our oil to natural gas ratio in the fourth quarter.”
“The horizontal Bone Spring play has proven to be a successful venture for Caza thus far, as we also participated as a non-operator in the Bradley 29 and Quail 16 State horizontal Bone Spring wells. Knowledge gained from the successful results of these wells has de-risked some of Caza–s acreage position in the play, while also providing the Company with valuable information for future drilling from the Company–s inventory of Bone Spring prospects. In addition to Copperline, Forehand Ranch, Quail Ridge and Bradley 29, Caza has five other horizontal Bone Spring prospects under lease including: Lynch, Lennox, Mad River, Two Mesas and Azotea Mesa. This gives the Company approximately 3,300 net acres in the play with many potential drillsite locations.”
“In addition, positive reports continue to come from elsewhere in the Bone Spring play. In order to build on the momentum created by the Company–s recent successes, management is preparing the Lennox prospect in Lea County, New Mexico for drilling as early as mid-January 2013.”
Copies of the Company–s unaudited financial statements for the third quarter ended September 30, 2012, and the accompanying management–s discussion and analysis are available on SEDAR at and the Company–s website at .
About Caza
Caza is engaged in the acquisition, exploration, development and production of hydrocarbons in the following regions of the United States of America through its subsidiary, Caza Petroleum, Inc.: Permian Basin (West Texas and Southeast New Mexico) and Texas and Louisiana Gulf Coast (on-shore).
In accordance with AIM Rules – Guidance Note for Mining, Oil and Gas Companies, the information contained in this announcement has been reviewed and approved by Anthony B. Sam, Vice President Operations of Caza who is a Petroleum Engineer and a member of The Society of Petroleum Engineers.
ADVISORY STATEMENT
Information in this news release that is not current or historical factual information may constitute forward-looking information within the meaning of securities laws. Such information is often, but not always, identified by the use of words such as “seek”, “anticipate”, “plan”, “schedule”, “continue”, “estimate”, “expect”, “may”, “will”, “project”, “predict”, “potential”, “intend”, “could”, “might”, “should”, “believe”, “develop”, “test”, “anticipation” and similar expressions. In particular, information regarding the depth, timing and location of future drilling, intended production testing and the Company–s future working interests and net revenue interests in properties contained in this news release constitutes forward-looking information within the meaning of securities laws.
Implicit in this information, are assumptions regarding the success and timing of drilling operations, rig availability, projected revenue and expenses and well performance. These assumptions, although considered reasonable by the Company at the time of preparation, may prove to be incorrect. Readers are cautioned that actual future operations, operating results and economic performance of the Company are subject to a number of risks and uncertainties, including general economic, market and business conditions and could differ materially from what is currently expected as set out above. In addition, the geotechnical analysis and engineering to be conducted in respect of certain wells may not be complete. Future flow rates from wells may vary, perhaps materially, and wells may prove to be technically or economically unviable. Any future flow rates will be subject to the risks and uncertainties set out herein.
For more exhaustive information on these risks and uncertainties you should refer to the Company–s most recently filed annual information form which is available at and the Company–s website at . You should not place undue importance on forward-looking information and should not rely upon this information as of any other date. While we may elect to, we are under no obligation and do not undertake to update this information at any particular time except as may be required by securities laws.
Boe may be misleading, particularly if used in isolation. A Boe conversion ratio of 6 Mcf:1 bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the well head.
1. Basis of Presentation
Caza Oil & Gas, Inc. (“Caza” or the “Company”) was incorporated under the laws of British Columbia on June 9, 2006 for the purposes of acquiring shares of Caza Petroleum, Inc. (“Caza Petroleum”). The Company and its subsidiaries are engaged in the exploration for and the development, production and acquisition of, petroleum and natural gas reserves. The Company–s common shares are listed for trading on the TSX (symbol “CAZ”) and AIM stock exchanges (symbol “CAZA”). The corporate headquarters of the Company is located at 10077 Grogan–s Mill Road, Suite 200, The Woodlands, Texas 77380 and the registered office of the Company is located at Suite 1700, Park Place, 666 Burrard Street Vancouver, British Columbia, V6C 2X8.
Caza–s functional and presentational currency is the United States (“U.S.”) dollar as the majority of its transactions are denominated in the currency.
The condensed consolidated financial statements (the “Financial Statements”) were prepared in accordance with IAS 34 – Interim Financial Reporting using accounting policies consistent with International Financial Reporting Standards (“IFRS”).
These Financial Statements should be read in conjunction with the Company–s audited annual consolidated financial statements as at and for the year ended December 31, 2011, which outline the Company–s significant accounting policies in Note 2 thereto, as well as the Company–s critical accounting judgements and key sources of estimation uncertainty, which have been applied consistently in these Financial Statements. The note disclosure requirements of annual consolidated financial statements provide additional disclosures to that required for interim unaudited condensed consolidated financial statements.
These Financial Statements were approved for issuance by the Board of Directors on November 13, 2012.
2. Exploration and evaluation assets (“E&E”)
Included in the $4,163,255 additions to E&E are the costs incurred during the three month period ended September 30, 2012 for the drilling of the Caza Ridge 14 State #3H and the Forehand Ranch 27 State Com # 1H. During the year ended December 31, 2011, the Company expensed $6,339,995 of exploration and evaluation costs of which $2,594,801 related to the Marian Baker et al, No 1 drilled during the three months ended March 31, 2011 that did not encounter hydrocarbons as well as an impairment to the valuation of the Las Animas prospect in the amount of $1,146,226. The balance of the costs expensed related to other leasehold and prospect expenditures that have expired or no longer provide value for the Company.
3. Petroleum and natural gas properties and equipment
Future development costs of proved undeveloped reserves of $21,758,600 were included in the depletion calculation at September 30, 2012 (December 31, 2011 – $30,722,900). The Company did not note any indications of impairment as at September 30, 2012. The Company performed an impairment test at March 31, 2012 to assess whether the carrying value of its petroleum and natural gas properties exceeds fair value. An impairment in the amount of $2,688,506 was required to be recorded as at March 31, 2012 primarily due to changes in the estimates of expected future natural gas prices used in determining the fair value. The March 31, 2012 impairment was recognized using a 16% discount rate (December 31, 2011 – 16%).
On July 18, 2012, the Company sold the San Jacinto property which includes the Caza Elkins 3401 and 3402 wells for consideration of $5,947,500 net of the Company incurred brokerage fees in the amount of $152,500 associated with the sale. There were also several other small properties that were disposed during the quarter resulting in aggregate of $6,408,390 net of accumulated depletion from Development & Production Assets, $272,989 of E&E assets and $99,850 of decommissioning costs which were also associated with the disposals. The resulting impact of these sales is a loss on disposal of $634,019. The Company had an 85% working interest in the Caza Elkins 3401 with a 63.75% net revenue interest. In all subsequent wells on the San Jacinto property, including the Caza Elkins 3402 well and the remainder of the leases, Caza had a 75% working interest and a 56.25% net revenue interest. The closing date of the transaction was July 31, 2012.
4. Decommissioning Liabilities
The following table presents the reconciliation of the beginning and ending aggregate carrying amount of the obligation associated with the retirement of oil and gas properties:
The undiscounted amount of cash flows, required over the estimated reserve life of the underlying assets, to settle the obligation, adjusted for inflation, is estimated at $1,187,167 (December 31, 2011 – $1,533,283). The obligation was calculated using a risk free discount rate of 2.5 percent and an inflation rate of 3 percent. It is expected that this obligation will be funded from general Company resources at the time the costs are incurred with the majority of costs expected to occur between 2012 and 2030.
5. Related Party Transactions
The aggregate amount of expenditures made to related parties:
Singular Oil & Gas Sands, LLC (“Singular”) is a related party as it is a company under common control with Zoneplan Limited, which is a significant shareholder of Caza.
Singular participates in the drilling of the Matthys McMillan Gas Unit #2 and the O B Ranch #1 and 2 wells located in Wharton County, Texas. Under the terms of that agreement, Singular paid 14.01% of the drilling costs through completion to earn a 10.23% net revenue interest on the Matthys McMillan Gas Unit #2 well and paid 12.5% of the drilling costs to earn a 6.94% net revenue interest on the O B Ranch #1 well. Under the terms of the agreement of the O B Ranch #2 Singular paid 9.375% of the drilling costs to earn approximately 6.8% net revenue interest. This participation was in the normal course of Caza–s business and on the same terms and conditions to those of other joint interest partners. Singular owes the Company $22,921 in joint interest partner receivables as at September 30, 2012 (December 31, 2011 – $492,240).
All related party transactions are in the normal course of operations and have been measured at the agreed to exchange amounts, which is the amount of consideration established and agreed to by the related parties and which is comparable to those negotiated with third parties.
6. Commitments and Contingencies
As of September 30, 2012, the Company is committed under operating leases for its offices and corporate apartment in the following aggregate minimum lease payments which are shown below:
7. Supplementary Information
(b) supplementary cash flow information
(c) cash and cash equivalents
The money market instruments bear interest at a rate of 0.1% as at September 30, 2012
(December 31, 2011 – 0.033%).
8. Financial Instruments
Credit Risk
Credit risk arises when a failure by counter parties to discharge their obligations could reduce the amount of future cash inflows from financial assets on hand at the consolidated statement of financial position date. A majority of the Company–s financial assets at the consolidated statement of financial position date arise from natural gas liquids and natural gas sales and the Company–s accounts receivable that are with these customers and joint interest participants in the oil and natural gas industry. Industry standard dictates that commodity sales are settled on the 25th day of the month following the month of production. The Company–s natural gas and condensate production is sold to large marketing companies. Typically, the Company–s maximum credit exposure to customers is revenue from two months of sales. During the period ended September 30, 2012, the Company sold 79.6% (September 30, 2011 – 62.5%) of its natural gas and condensates to a single purchaser. These sales were conducted on transaction terms that are typical for the sale of natural gas and condensates in the United States. In addition, when joint operations are conducted on behalf of a joint interest partner relating to capital expenditures, costs of such operations are paid for in advance to the Company by way of a cash call to the partner of the operation being conducted.
Caza management assesses quarterly whether there should be any impairment of the financial assets of the Company. At September 30, 2012, the Company had overdue accounts receivable from certain joint interest partners of $33,795 which were outstanding for greater than 60 days and $152,850 that were outstanding for greater than 90 days. At September 30, 2012, the Company–s two largest joint interest partners represented approximately 6% and 5% of the Company–s receivable balance (September 30, 2011 – 20% and 11% respectively). The maximum exposure to credit risk is represented by the carrying amount on the consolidated statement of financial position of cash and cash equivalents, accounts receivable and deposits.
Contacts:
Caza Oil & Gas, Inc.
Michael Ford
CEO
+1 432 682 7424
Caza Oil & Gas, Inc.
John McGoldrick
Chairman
+65 9731 7471 (Singapore)
Cenkos Securities plc
Jon Fitzpatrick
+44 20 7397 8900 (London)
Cenkos Securities plc
Neil McDonald
+44 131 220 6939 (Edinburgh)
VSA Capital Limited
Andrew Raca
+44 20 3005 5004
VSA Capital Limited
Malcolm Graham Wood
+44 20 3005 5012
M: Communications
Patrick d–Ancona
+44 20 7920 2330
M: Communications
Chris McMahon
+44 20 7920 2330