-- Total Current Production at 12.2 Million Cubic Feet Per Day Net
DENVER and CALGARY, Alberta, Nov. 8 /PRNewswire-FirstCall/ -- Storm
Cat Energy Corporation (Amex: SCU; TSX: SME) today provided an
operations update and announced third quarter 2007 financial and
operating results. During the quarter the Company drilled 28 wells
bringing the total number of wells drilled during the first nine
months of 2007 to 67. Current net production is 12.2 million cubic
feet per day (MMcf/d) from producing properties in Wyoming's Powder
River Basin (PRB) and from the Arkoma Basin in Arkansas
(Fayetteville Shale). Total net sales increased 8.5% quarter-to-
quarter to 808.2 million cubic feet (MMcf) during the third quarter
2007 from 745.0 MMcf in the second quarter 2007. PRB production
growth in the third quarter was adversely impacted by force majeure
production curtailments and abnormally low Rockies gas prices.
Year-over-year production increased 117.6% to 808.2 MMcf in the
third quarter 2007 from 371.5 MMcf in the second quarter 2006.
Operations Update (all figures in U.S. Dollars) During the third
quarter, Storm Cat built upon its first half production growth, but
was impacted negatively by production curtailment on a portion of
its PRB gas production due to force majeure events on important
Rocky Mountain pipeline infrastructure and abnormally low Rockies
gas prices. The force majeure events related to a September 16,
2007 fire on the Cheyenne Plains gas pipeline which reduced Rockies
take-away capacity, further deteriorating Rockies gas prices. In
light of these events, the Company partially curtailed its
production and activity in the PRB. The pipeline operator returned
the pipeline to full capacity on November 7, 2007. Curtailed
production from the PRB at September 30, 2007 was 14.7 MMcf/d gross
and 7.7 MMcf/d net. Coming out of curtailment, production currently
is 21.5 MMcf/d gross and 11.9 MMcf/d net. Because of the price
environment and curtailment, Storm Cat made the decision to delay
additional well completions and pipeline hookups during the third
quarter. Barring those elections, the Company estimates that
production from the PRB would currently be 23.7 MMcf/d gross and
13.4 MMcf/d net. The Company drilled and completed 25 wells during
the quarter bringing its year-to-date total to 63. The total well
count is now 380 wells, of which 339 are Company-operated. Storm
Cat expects to add approximately 44 additional wells during the
remainder of 2007 and exit the year producing approximately 17.0
net MMcf/d in the PRB. Storm Cat successfully drilled and began
completion operations during the third quarter on the first two of
its three Company-operated horizontal wells budgeted in 2007 in the
Fayetteville Shale. The Company hydraulically fractured both the
Kamalmaz 1-13H well and the Vaughn 1-18H well, employing
approximately 60,000 barrels of fluid and 1.25 million pounds of
sand over five stages per well. The Company is presently conducting
post-frac well cleanup and is encouraged by gas rates observed in
the limited flow-back period. The third well, the Files 1-12H,
commenced drilling during the third quarter. The Company has
subsequently completed drilling to its planned depth and ran
casing. Completion of the Files well is scheduled in the fourth
quarter. In addition, in early October, Storm Cat reached an
agreement with an unrelated third party gatherer for the
construction of field gathering, compression and a transportation
lateral to connect to the Ozark pipeline. Subject to retained
rights of the parties in the agreement, the pipeline is expected to
be completed and operational in March 2008. Finally, current net
production associated with the Company's non-operated wells in the
play is 0.3 MMcf/d net. In Elk Valley, located in South-Eastern
British Columbia, the Company has nine producing wells, including
five wells drilled in 2006, in the de-watering and evaluation
stage. The Company remains encouraged by observed water and
associated gas production rates and expects to disclose its
progress on the project at year-end 2007. In Alberta, during the
third quarter, the Company drilled and completed one well targeting
the Ellerslie Sand. The well is undergoing production and pressure
testing. At present, the Company is evaluating additional prospects
in the immediate area. Storm Cat Chief Executive Officer, Joe
Brooker, said, "During the quarter we advanced our Fayetteville
Shale acreage completing two of our three 2007 budgeted wells.
Further, with a pipeline agreement in place in the Fayetteville we
should begin to realize cash flow from this area by late first
quarter 2008. Despite the difficult price environment and
curtailments in the PRB we anticipate delivering on the
expectations for both year end rate and reserves in the PRB. Rate,
cash flow and reserves are the key components that will create
shareholder value" Storm Cat President and Chief Operating Officer
Keith Knapstad commented, "From an operational stand point the
third quarter represented continued progress in our three core
areas. In the PRB, we are well positioned to ramp production into
year-end and achieve our estimated exit rate of 17.0 net Mmcf/d. We
reached the goals we set in the Fayetteville having now drilled and
completed Company operated wells. Post stimulation we saw favorable
gas rates during limited flow-back periods. In Elk Valley, we
continue to be encouraged by water and gas production rates.
However, until we achieve and maintain lower water levels in the
wellbores, allowing unrestricted production flow from all producing
coal seams, we will not be able to fully evaluate the commercial
viability of the project." Financial Overview (all figures in U.S.
Dollars) For the quarter ended September 30, 2007 Storm Cat
reported oil and gas sales revenue of $4.2 million, a 91.7%
increase over third quarter 2006 sales of $2.2 million. Sales
volumes increased to 808.2 MMcf for the third quarter 2007 from
371.5 MMcf in the second quarter 2006, an increase of 117.6%.
Increased volumes are attributed primarily to successful
development of our properties. The Company's average sales price
for natural gas decreased 11.9% to $5.17 per thousand cubic feet
(Mcf) in the third quarter 2007 from $5.87 per Mcf in the third
quarter 2006 inclusive of hedges. The Company reported a net loss
of $30.7 million, or $0.38 per share, for the third quarter 2007,
as compared to a net loss of $3.8 million, or $0.05 per share, in
the same period in 2006. The extraordinary net loss is primarily
attributable to a $25.0 million impairment on the Company's U.S.
assets and a $2.8 million impairment on the Company's Canadian
assets. The first impairment charge of $25.0 million relates to the
ceiling test comparing the U.S. Full Cost pool to discounted future
net revenues of proved reserves in the PRB using flat pricing based
on the September 30, 2007 market price for natural gas of $1.9855
per MMBtu at the Colorado Interstate Gas (CIG) - Mainline index
including any contribution of hedging on future net revenues. At
that date, the U.S. Full Cost pool exceeded the ceiling value by
$25.0 million and the Company elected to take an impairment. The
SEC permits a re-measurement, under certain criteria, if prices
recover subsequent to the end of the reporting period and before
filing the quarterly report. While the market price did, in fact,
exceed the price necessary to avoid an impairment for a short time
during such period, the Company is of the opinion that a recovery
of price was not sustained sufficiently to warrant avoidance of the
impairment. There are indicators suggesting a sustained improvement
of market prices in the Rocky Mountain producing region upon the
commencement of natural gas deliveries on the Rockies Express
pipeline that is schedule to commence service in January 2008,
however, the timing of such recovery is not within the price
recovery measurement time constraints as set by the SEC. The second
impairment charge of $2.8 million is attributable to the Company
evaluating a portion of its Alberta, Canada unproved properties
using the lower of cost or market test. Lease operating expenses
increased approximately $1.08 million to $1.73 million in the third
quarter of 2007 from $0.65 million the third quarter of 2006. This
increase resulted primarily from additional wells added through the
Company's successful drilling program and from an acquisition the
Company made in the third quarter of 2006. On a per Mcf basis,
lease operating expenses increased by 90.7% from the third quarter
of 2006 to the third quarter of 2007. The higher costs are
primarily related to fuel and generator costs associated with new
wells in development areas where the electrical infrastructure is
not yet installed. These higher operating costs are anticipated to
be short lived as the electrical grid is built out to the well
locations. Salaries and related benefits and taxes in the third
quarter of 2007 totalled $0.80 million. Additionally the Company
recorded a write-down for bad debt reserve of $0.08 million and
$0.52 million for amortization of deferred financing costs was
reclassified from general and administrative expense to other
expense. Stock-based compensation decreased by $1.37 million from
the three months ended September 30, 2006 to the same period in
2007 due to the full expensing of legacy stock options in 2006 and
the reclassification of certain stock-based compensation from the
equity method to the liability method in 2007. In the third quarter
of 2006, $0.46 million of internal costs were capitalized.
Beginning in 2007, Storm Cat discontinued the capitalization of
internal costs. Weighted average shares outstanding for the third
quarter 2007 increased to 81.0 million as compared to 68.6 million
in the third quarter 2006. The increase in average shares
outstanding is attributed to the private placement the Company
completed in Canada in September 2006 as well as the exercise of
outstanding warrants and options. Storm Cat's fixed-price natural
gas hedges are summarized as follows (As of 10/4/07): 2007 -
783,666 MMbtu at weighted average price $6.18 CIG 2008 - 3,941,617
MMbtu at weighted average price $6.91 CIG 2009 - 2,368,452 MMbtu at
weighted average price $7.33 CIG 2010 - 1,298,061 MMbtu at weighted
average price $6.91 CIG Chief Financial Officer Paul Wiesner
commented "The third quarter was extremely challenging due to
record low price realizations per Mcf in the Rockies. We have 80%
of our mid-year 2007 forecasted PDP production stream hedged at
attractive CIG pricing for the remainder of 2007 and all of 2008.
Although we are bullish regarding long term natural gas prices,
hedging allows us to protect our cash flow in the short term so we
can continue to develop our core areas. The impairment of $25.0
million is a required calculation of the full cost accounting
method that requires flat pricing; this quarter's price being
$1.9855. Strip pricing at the end of the quarter would have yielded
a value in excess of our book basis and is in our opinion, more
indicative of the discounted value of the future cash flows from
the properties." Financial and operations tables accompany this
release. Please reference the Company's filing on Form 10-Q with
the Securities and Exchange Commission and with Canadian securities
regulators on SEDAR for important notes to the financial
statements. About Storm Cat Energy Storm Cat Energy is an
independent oil and gas company focused, on the exploration,
production and development of large unconventional gas reserves
from fractured shales, coal beds and tight sand formations and,
secondarily, from conventional formations. The Company has
producing properties in Wyoming's Powder River Basin, and Arkansas'
Arkoma Basin and exploration and development acreage in Canada. The
Company's shares trade on the American Stock Exchange under the
symbol "SCU" and in Canada on the Toronto Stock Exchange under the
symbol "SME." Forward-looking Statements This press release
contains certain "forward-looking statements", as defined in the
United States Private Securities Litigation Reform Act of 1995, and
within the meaning of Canadian securities legislation, relating to
proposed new wells, production rate and reserves expectations,
commodity prices and new sources of cash flows, and infrastructure
improvements affecting the Company's operations. Forward-looking
statements are statements that are not historical facts; they are
generally, but not always, identified by the words "expects,"
"plans," "anticipates," "believes," "intends," "estimates,"
"projects," "aims," "potential," "goal," "objective,"
"prospective," and similar expressions, or that events or
conditions "will," "would," "may," "can," "could" or "should"
occur. Forward-looking statements are based on the beliefs,
estimates and opinions of Storm Cat's management on the date the
statements are made and they involve a number of risks and
uncertainties. Consequently, there can be no assurances that such
statements will prove to be accurate and actual results and future
events could differ materially from those anticipated in such
statements. Storm Cat undertakes no obligation to update these
forward-looking statements if management's beliefs, estimates or
opinions, or other factors, should change. Factors that could cause
future results to differ materially from those anticipated in these
forward-looking statements include, but are not limited to, the
volatility of natural gas prices, the possibility that exploration
efforts will not yield economically recoverable quantities of gas,
accidents and other risks associated with gas exploration and
development operations, the risk that the Company will encounter
unanticipated geological factors, the Company's need for and
ability to obtain additional financing, the possibility that the
Company may not be able to secure permitting and other governmental
clearances necessary to carry out the Company's exploration and
development plans, and the other risk factors discussed in greater
detail in the Company's various filings on SEDAR
(http://www.sedar.com/) with Canadian securities regulators and its
filings with the U.S. Securities and Exchange Commission, including
the Company's Form 10-K for the fiscal year ended December 31,
2006. NO STOCK EXCHANGE HAS REVIEWED OR ACCEPTS RESPONSIBILITY FOR
THE ADEQUACY OR ACCURACY OF THIS NEWS RELEASE. SELECT OPERATING
DATA (UNAUDITED) Select Operating Data: Three Months Ended
September 30 2007 2006 Net Sales Volume: Natural Gas (MMcf) 808.2
371.5 Natural Gas Sales $4,181 $2,181 Average Sales Prices: Natural
Gas (per Mcf) $5.17 $5.87 Additional Data (per Mcf): Gathering and
transportation $0.72 $1.05 Operating expenses: Lease operating
expenses $1.77 $0.93 Ad valorem and property taxes $0.37 $0.81
Impairment $34.36 $5.38 Depreciation, depletion, amortization and
accretion expense $3.24 $2.26 General and administrative expense,
excluding stock-based compensation and capitalized overhead $1.49
$4.83 Stock-based compensation $(0.72) $2.12 CONSOLIDATED BALANCE
SHEETS (Stated in U.S. Dollars and in thousands, except per share
amounts) September 30, December 31, 2007 2006 ASSETS CURRENT
ASSETS: Cash and cash equivalents $4,745 $5,299 Accounts
receivable: Joint interest billing 1,548 1,932 Revenue receivable
630 2,121 Fair value of derivative instruments 3,637 2,670 Prepaid
costs and other current assets 3,575 1,445 Total current assets
14,135 13,467 PROPERTY AND EQUIPMENT (Full Cost Method), at cost:
Oil and gas properties: Unproved properties, net of impairments
57,911 54,873 Proved properties 57,048 46,446 Less accumulated
depreciation, depletion, and amortization (10,509) (4,764) Oil and
gas properties, net 104,450 96,555 Other property 1,160 1,057
Accumulated depreciation (684) (408) Total other property, net 476
649 Total property and equipment, net 104,926 97,204 OTHER ASSETS
Restricted cash 378 511 Debt issuance costs, net of accumulated
amortization 2,895 0 Fair value of derivative instruments 1,574 782
Total other assets 4,847 1,293 Total assets $123,908 $111,964
LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts
payable $2,393 $7,302 Revenue payable 890 2,063 Accrued and other
liabilities 5,394 10,011 Flow-through shares liability 0 1,233
Notes payable 0 7,500 Taxes payable 657 0 Interest payable 399 952
Stock-based compensation liability 608 0 Total current liabilities
10,341 29,061 Asset retirement obligation 1,541 1,871 Ad valorem
taxes payable 539 0 Bank debt 29,219 19,350 Series A & B
convertible notes 50,195 0 Total non-current liabilities 81,494
21,221 Total liabilities 91,835 50,282 STOCKHOLDERS' EQUITY Common
stock 69,756 69,518 Additional paid-in capital 4,746 4,910
Accumulated other comprehensive income 10,848 3,877 Accumulated
deficit (53,277) (16,623) Total stockholders' equity 32,073 61,682
Total liabilities and stockholders' Equity $123,908 $111,964
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (Stated in U.S.
Dollars and in thousands, except per share amounts) Three Months
Ended September 30 2007 2006 NATURAL GAS REVENUE: $4,181 $2,181
OPERATING COSTS: Gathering and transportation 581 390 Operating
expenses 1,733 645 General and administrative 621 2,582
Depreciation, depletion, amortization and accretion of asset
retirement obligation 2,616 840 Impairment 27,773 2,000 Total
operating costs 33,324 6,457 Operating loss (29,143) (4,276) OTHER
EXPENSE (INCOME): Interest expense 1,133 311 Interest and other
miscellaneous income (43) (93) Amortization of deferred financing
costs 522 0 Total other expense (income) 1,612 218 Net loss before
taxes (30,755) (4,494) Recovery of future income tax asset from
flow-through shares (40) (731) NET LOSS $(30,715) $(3,763) Basic
and diluted loss per share $(0.38) $(0.05) Weighted average number
of shares outstanding 81,029,861 68,581,241 CONSOLIDATED STATEMENT
OF CASH FLOWS (UNAUDITED) (Stated in U.S. Dollars and in thousands,
except per share amounts) For the Nine Months Ended September 30,
2007 2006 Cash flows from operating activities: Net loss (36,654)
(6,212) Adjustments to reconcile net loss to net cash provided by
(used in) operating activities: Recovery of future income tax asset
from flow-through shares (1,318) (731) Stock-Based compensation 607
2,238 Depreciation, depletion, and amortization 5,985 1,807
Accretion of asset retirement obligation 144 146 Asset Impairment
27,773 2,000 Gain on disposition of properties - 185 Amortization
of debt issuance costs 522 - Changes in operating assets and
liabilities: Accounts receivable 467 (427) Prepaid costs and other
current assets (563) (844) Accounts payable 122 (3,784) Accrued
interest and other current liabilities (790) 3,284 Net cash used in
operating activities (3,705) (2,338) Cash flows from investing
activities: Restricted cash 147 (259) Capital expenditures - oil
and gas properties (48,563) (56,446) Capital expenditures - other
assets (39) (145) Net cash used in investing activities (48,455)
(56,850) Cash flows from financing activities: Flow-Through shares
- 1,950 Issuance of common stock 243 19,483 Debt issuance costs
(3,417) - Proceeds from bank debt 2,369 27,500 Proceeds from Series
A & B Convertible Notes 50,195 - Net cash provided by financing
activities 49,390 48,933 Effect of exchange rate changes on cash
2,216 892 Net decrease in cash and cash equivalents (554) (9,363)
Cash and cash equivalents at beginning of period 5,299 29,502 Cash
and cash equivalents at end of period $4,745 $20,139 Supplemental
disclosure of cash flow information: Cash paid for interest (net of
amount capitalized) $3,616 $- Supplemental disclosure of non-cash
investing and financing activities: Accruals of oil and gas
properties $7,070 $15,841 DATASOURCE: Storm Cat Energy Corporation
CONTACT: William Kent, Director, Investor Relations of Storm Cat
Energy, +1-303-991-5070 Web site: http://www.stormcatenergy.com/
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