The revenues were decreased primarily due to a 48% decrease in oil prices and a 36% decrease in natural gas prices. A shift in the product mix towards natural gas was made in the second half of 2008 and as a result, on a volume basis, the oil and liquids to natural gas production ratio for the first quarter of 2009 was 35% to 65% compared to a ratio of 48% to 52% in the prior year.
In the first quarter of 2009, on a revenue basis, oil and liquids generated 44% of revenues compared to 62% in the same period of the prior year.
Gross royalties were 27.3% of revenues for the first quarter of 2009 compared to 20.4% for the same period in 2008. By product, gross royalties were 25.8% for light oil, 29.7% for natural gas, 11.2% for heavy oil, and 22.7% for liquids. For the first quarter of 2008, gross royalties were 15.4% for light oil, 24.7% for natural gas, 22.7% for heavy oil, and 28.1% for liquids. Net royalties were 18.2% for the first quarter of 2009 compared to 18.0% for the same period in 2008. Galleon’s first quarter of 2009 corporate net royalty rate as a percentage of revenue is 9.1% lower than the gross royalty rate due to a significant GCA credit received in first quarter of 2009 for eligible capital expenditures and capital retirement relating to prior periods.
Gross royalties for light oil as a percentage of light oil revenue increased by 10.4% in first quarter of 2009 mainly due to a reduced number of light oil wells qualifying for a royalty holiday in the first quarter 2009 compared to first quarter of 2008. Most royalty holiday incentives in Alberta were terminated December 31, 2008 with the implementation of the NRF. Under the NRF oil royalty calculations are substantially based on par price. In the first quarter of 2009, January par price was significantly higher than the par prices for February and March. Light oil royalties for January were 31.7% of light oil revenues compared to light oil royalties in March 2009 of 20.8% of light oil revenues. This also contributed to the increased royalty rate in first quarter of 2009.
Gross royalties for natural gas as a percentage of natural gas revenue increased by 5% for first quarter of 2009 compared to the same period in first quarter of 2008 due to an increase in natural gas royalty rates under the NFR and to an over accrual of natural gas royalty credits in fourth quarter of 2008 relating to prior periods.
Gross royalties for heavy oil as a percentage of heavy oil revenue decreased by 11.5% as a result of the reduced production volumes and lower heavy oil prices in first quarter of 2009 compared to first quarter of 2008.
Gross royalties for liquids as a percentage of liquids revenue decreased by 5.4% in first quarter of 2009 compared to first quarter of 2008 as a function of reduced commodity prices.
Operating costs were $17.3 million or $10.70/BOE for the first quarter of 2009 compared to $17.5 million or $11.28/BOE for the same period of the prior year. This represents a decrease year over year of 5% on a per unit basis.
In the Eastern Montney natural gas project, operating costs were $7.14/BOE in first quarter of 2009 compared to $5.35/BOE in the same period prior year. Operating cost increases in first quarter of 2009 compared to first quarter of 2008 were related to emulsion trucking, water trucking and equipment rentals associated with the increased emulsion storage requirements. In addition, operating costs of around $1.00/BOE were recorded in first quarter of 2009 related to prior periods. Operating costs are expected to average between $6.00/BOE and $7.00/BOE in 2009 in this area.
Eaglesham operating costs for the first quarter of 2009 were $6.17/BOE a decrease of 16% compared to $7.33/BOE in first quarter 2008. Decreased operating costs in first quarter of 2009 compared to first quarter of 2008 are mainly due to the Eaglesham oil battery coming on production with an increased ability to handle emulsion trucking costs were significantly reduced. Operating costs at Eaglesham are expected
to reduce further in 2009, with the installation of electricity at the plant and well sites.
Operating costs at Puskwa were $3.97/BOE in first quarter 2009 compared to $9.00/BOE in the same period of 2008. Operating costs were higher in first quarter of 2008 due to the expansion of the water flood operations which resulted in temporary water trucking and pump equipment rental costs which have now been largely eliminated.
Operating costs at Kakut were $4.17/BOE in first quarter of 2009 a decrease of 48% compared to $8.01 in the same period prior year. Due to production increases, the natural gas plant was expanded in fourthh quarter of 2008 which resulted in significantly lower operating costs on a per BOE basis.
