Winstar Resources’ Q1 2009 operational results are an extension of fourth quarter (Q4) of 2008. During Q1 2009, the company produced and sold 1,581 boepd (290 boepd in Canada, 75 boepd in Hungary and 1,216 boepd in Tunisia), which is comparable to Q4 2008 when Winstar Resources produced and sold 1,550 boepd. Current production is 1,750 boepd, which will hopefully increase further depending upon ongoing field work in Tunisia.
Q1 2009 funds from operations were CAD2.6 million, as compared to CAD5.3 million for the preceding quarter. Lower funds from operations during the period ended March 31, 2009, is attributable to: a CAD0.9 million decrease in oil and gas revenue (as the average sales price dropped to CAD54 per boe during Q1 2009, compared with CAD60 per boe during Q4 2008); and a CAD1.8 million increase in current tax expense (as Q1 2009 taxes are estimated at CAD0.2 million versus the recorded credit, in Q4 2008, of CAD1.6 million). If commodity prices remain in the range currently observed, Winstar Resources would sell its crude oil during Q2 2009 for a significant premium over Q1 2009.
The company reported a loss of CAD3.8 million for Q4 2008, which included CAD3.9 million of expenses related to the expiry of undeveloped land. As of March 31, 2009, the company recorded a negative working capital of CAD6.2 million, versus a positive working capital of CAD2 million as at December 31, 2008.
During Q1 2009, the company spent CAD10.4 million on capital expenditures (all in Tunisia) as compared to CAD19.5 million (all in Tunisia) in Q4 2008. Additional capital expenditures are dependent on internally generated funds from operations or the successful farming out of a select number of 100% assets, whereby third party capital is spent on Winstar Resources’ land base.
Production
Production, as expected, during Q1 2009 was consistent with the Q4 2008. Additional production is expected in Q2 with the commissioning of the gas sales line from Chouech Essaida to El Borma and with successful results of the current recompletions at Chouech Essaida.
Operational Update
Tunisia
During Q1 2009, Winstar Resources’ capital investment program continued to focus on the re-entry of the Sabria N3H well and the construction of the Chouech Essaida sales pipeline and related compression facilities. The re-entry operation at Sabria N3H consisted of drilling two new horizontal laterals from the existing wellbore. The Sabria N3H well is currently producing in a relatively stable condition at the rate of 160 – 170 boepd (gross). Winstar Resources, with its 45% net working interest, is the operator of the Sabria concession with its 55% working interest partner, l’Entreprise Tunisienne d’Activities Petrolieres (ETAP).
The Chouech Essaida gas sales pipeline and the associated compression and sales measurement facilities were completed and commissioned at the end of March, 2009. Gas started to flow in early April 2009. The gas line has a current capacity of 400,000 m3/d (14 mmscf/d) of gas and the two compressors have a combined capacity of 170,000 m3/d (6 mmscf/d).
Current production is limited to 35,000 m3/d (1.2 mmscf/d) due to technical issues and the associated reduced take-away capacity in the main gas sales pipeline operated by the Tunisian national utility company, STEG. These issues are being addressed by STEG and it is anticipated that gas sales from Chouech will gradually increase through the year as more capacity becomes available.
The interpretation of the 400 square kilometers of new, high quality 3D seismic acquired over Winstar Resources’ 100% working interest Chouech Essaida and Ech Chouech concessions has continued. The company is pleased and optimistic about the growing inventory of drilling opportunities that the new seismic has identified. Numerous opportunities exist in four main horizons: the Triassic, Devonian, Silurian and the Ordovician geologic horizons are all presenting strong leads and prospects.
Canada
Production from Winstar Resources’ properties in Alberta during the Q1 2009 averaged 290 boepd, compared to 336 boepd in the Q1 2008 and 297 boepd in Q4 2008. Production was impacted by natural declines in the various producing wells and some wells being temporarily shut in due to cold weather.
Investment in the company’s Canadian assets during 2009 will be limited to minor activities that are required to maintain existing production.
Hungary
Production during Q1 2009 averaged 75 boepd compared to none in the Q4 2008. The propane gas enrichment system installed early in early Q1 2009 continued to function well. Production is expected to continue to the end of May and then will be shut-in during the summer months with the expectation of re-starting by Q4 2009 if gas prices recover. Significant exploration upside has been identified in the company’s exploration permit and Winstar Resources is actively searching for a farm-in partner to evaluate this potential.
Romania
There were no field operations in the Satu Mare Exploration Permit during Q1 2009. The company is actively pursuing the accumulation and interpretation of available technical data with the intent to be ready for seismic and drilling operations in 2010.
Plans and Perspectives for 2009
For the balance of 2009, under a commodity price forecast of $45-$50 per barrel Brent, the company expects to limit further capital investment and will instead focus available funds to the repayment of its existing line of credit, the ramping up of gas sales from Chouech Essaida, re-establishing production from suspended wells at Chouech Essaida and Ech Chouech and improving individual well reliability and performance.
If additional funds become available, they may be directed to the repair of the well CS#8 and the drilling and testing of new well locations at Chouech Essaida and Ech Chouech.
