May 09, 2013 at 17:00 PM EDT
Winstar Reports First Quarter 2013 Production, Funds Flow, Net Income, as well as Transaction Update

CALGARY, May 9, 2013 /CNW/ - Winstar Resources Ltd. ("Winstar" or the "Company") (TSX: WIX) management and Board of Directors present the operating and financial results for the three months ended March 31, 2013 plus an update on the announced April 25, 2013 transaction.

The first three months of 2013 were a turbulent time for Winstar's field operations in Tunisia and a demanding period for Winstar's Special Committee and Board of Directors.   The operating and financial results for Q1 2013 are skewed, due to an unpredicted mid-January to mid-February 2013 disruption in production due to a labour dispute in Southern Tunisia.

During the first quarter of 2013, Winstar was subjected to a 29 day period when no production occurred from its three 100% owned and operated southern concessions in Tunisia, namely Sanrhar, Chouech Essaida and Ech Chouech. These three concessions generate greater than 80% of Winstar's production. This unprecedented event was initiated by a three day strike and disruption of production, beginning January 16, 2013. For reasons including but not limited to security and control, the production interruption which began on January 16 was extended until February 11, 2013 (refer to Winstar's February 21, 2013 News Release). During this period, Winstar produced exclusively from its 45% owned and operated Sabria concession which equated to approximately 188 barrels of oil equivalent per day ("boepd") as compared to 1,200 to 1,400 boepd produced immediately prior to the strike.

On February 15, 2013 production resumed at the Chouech Essaida and Ech Chouech concessions, slowly ramping up over several weeks to 1,400 boepd (refer to Winstar's March 13, 2013 News Release).  The Sanrhar concession capable of 70 to 90 boepd remains shut-in as of the date of this report, but is expected to be back on line by mid-May.   Winstar estimates the cost of lost production at approximately $2.5 million in potential Q1 2013 cash flows. The effects of this strike and loss of production have resulted in operating and financial results which are at a minimum 50% of the Company's performance as compared to Q1 2012.

Winstar's ability to retain a strong cash reserve and grow shareholder value is materially affected by long periods of lost production.

Production during the month of April 2013 has averaged 1,420 boepd.  This production level, if unchanged until June 30, 2013 is expected to yield improved financial and operating results for Q2 2013.

Subsequent to the end of Q1, the diligent efforts of Winstar's Special Committee, the Board, management and third party advisers beginning in earnest during Q4 2012 came to fruition on April 25, 2013 when Winstar announced that Kulczyk Oil Ventures ("KOV") and the Company had reached an agreement for the sale of all the issued and outstanding shares of Winstar (see April 25, 2013 News Release).

The transaction offers, among other things, the opportunity for Winstar shareholders to choose between cash in the form of $2.50 per Winstar share or 7.555 KOV shares for each Winstar share, subject to a maximum of $35 million in cash being paid to Winstar shareholders in aggregate.  Details of the transaction in the form of an Information Circular and Arrangement Agreement are expected to be mailed to shareholders on before the end of May 2013. All shareholders are encouraged to review these documents and consult their financial advisors. A shareholder vote to approve the transaction is required and scheduled for June 20, 2013 at Winstar's Special and Annual Meeting of Shareholders to be held in Calgary.

Q1 2013 Summary

  • Working Capital at approximately $11.7 million up 13% over the year ended 2012.
  • Funds from continuing operations of $2.8 million or down 76% over Q1 2012.
  • Production of 849 boepd or down 62% over Q1 2012.
  • Net Earnings of $325,000 down 61% over the same period in 2012.

Investor Conference Call

A conference call focused on discussing Q1 2013 results will be held on:

Date:  May 10, 2013
Time: 8:00 a.m. Mountain Daylight Time (10:00 a.m. Eastern Daylight Time)
Dial-in:   North American participants (toll free) 1-866-544-4631 
Participants outside North America  1-416-849-5571

Shortly after the conclusion of the call, a replay will be available by dialing 1-866-245-6755 or 1-416-915-1035. The pass code is 577494. The replay will be available until December 31, 2013. Thereafter, a copy of the call can be accessed through a link on Winstar's website at www.winstar.ca

Q1 2013 Operational and Financial Highlights from Continuing Operations

During Q1 2013, the Company generated the following operational and financial results:

  • Oil and gas production during Q1 2013 was 849 boepd (sales of 849 boepd), which was 62% lower than the Q1 2012 of 2,192 boepd (sales 1,853 boepd).
  • Funds from continuing operations during Q1 2013 were $US 2.8 million ($0.08 per share), a 76% decrease over Q1 2012, reflecting 62% decreased production and an 18% reduction of after tax field operating netbacks.
  • After tax operating netback was $63.01/boe for the first quarter of 2013 which is 18% lower than $76.48/boe recorded in first quarter 2012.

Three months ended March 31
2013 2012 % change
Sales and prices
Oil and liquid sales (boepd) 649 1,150 (44)
Natural gas sales (mcf/d) 1,203 4,216 (71)
Average daily boe sales 6:1 (boepd) 849 1,853 (54)
Average oil and liquid price ($/bbl) 111.24 122.95 (10)
Average natural gas price ($/mcf) 14.83 14.47 2
Financial (US $ thousands, except per unit amounts)
Petroleum and natural gas sales 8,101 18,422 (56)
Funds from continuing operations 2,750 11,334 (76)
Per share- basic & diluted                          0.08 0.32 (75)
Net (loss) earnings from continuing operations (10) 743 (101)
Per share- basic & diluted                                 -   0.02 (100)
Field operating netback after tax ($/boe) 63.01 76.48 (18)
Capital expenditures                       1,585 5,852 (73)
Working capital at period end 11,681 3,753 211
Common shares (thousands)
Weighted average during period  -
  - basic 35,844 35,781 -
  - diluted 35,885 35,959 -
Outstanding at period end 35,844 35,791 -

Production versus Sale
In Tunisia, oil sales are recognized when oil is loaded onto tankers.  As a result, the Company's sales and production volumes may not be equal. Winstar was overlifted at December 31, 2012 and March 31, 2013. The Company's production during Q1 2013 was less than the net overlifting liability at December 31, 2012.  As such, Winstar is overlifted by 2,100 boe at quarter end.

   
Three months ended March 31,
2013 2012 % Change
Total production 76,438 199,466                       (62)
Boepd 849 2,192
Total sales 76,438 168,625                       (55)
Boepd 849 1,853

Production

Three months ended March 31,
2013 2012
Oil and liquid Natural gas Total Oil and liquid Natural gas Total
(bbl/d) (mcf/d) (boepd) (bbl/d) (mcf/d) (boepd)
Tunisia
 Chouech Essaida/Ech Chouech 490906641 1,276 3,882 1,923
 Sabria 147297196 137 334 193
 Sanhrar 12-12 76 - 76
Total production 6491,203849 1,489 4,216 2,192

In Q1 2013, Winstar's commodity mix was 34% natural gas and 76% crude oil which are consistent with 2012.

Business Environment: Tunisia
Former President (1987-2011) Zine el Abidine BEN ALI's reign was plagued by corruption and stymied economic performance of the country. The stunted economy resulted in high unemployment among the country's growing ranks of university graduates. The grievances of the educated young people contributed to the January 2011 change of government.  The rapid change in government increased the perceived business risk of the country and sent Tunisia's economy into a tailspin as tourism and investment declined sharply. Two years later, as the economy slowly recovers, Tunisia's government faces challenges reassuring businesses and investors, bringing budget and current account deficits under control, shoring up the country's financial system, bringing down high unemployment, and reducing economic disparities between the more developed coastal region and the impoverished interior.

Winstar is confident that the people of Tunis will ultimately choose a progressive government.  Winstar recognizes Tunisia as one of the best oil and gas opportunities in world for small exploration companies.  Hopefully, the labour unrest of the past few months will be eliminated by establishing open channels of communication and recognizing the newly acquired individual rights.   Members of the union are employees of Winstar and the Company strives to provide a positive work environment which supports productivity, dignity and self esteem and the pursuit of personal goals.

Outlook
Winstar continues to work to re-establish production from its shut-in concession.  Presuming no new equipment failures, a minimum daily gas sales equal to 750 mcfd as set by STEG, the Tunisian State Electrical and Natural Gas company, and no incremental production from Chouech Essaida Sil #10, Winstar anticipates it will exit May 2013 at around 1,450 boepd.  During the month of June, STEG is anticipated to nominate for 1,000 - 2,000 mcfd which, with associated condensate production, should increase Winstar's production to the 1,900 boepd level.

Chouech Essaida Silurian #10 (CS Sil #10)
Surface pumping during April has removed approximately 10% of the estimated water that invaded the CS Sil #10 Triassic oil zone.  The well is starting to generate hydrocarbon shows in the form of flareable solution gas and trace oil.  We anticipate that the well should show significant improvement in the next 30 days but it is impossible to quantify when this well will become a flowing oil producer.

Winstar's 2012 Special and General  Annual Meeting
Shareholders are cordially invited to attend Winstar's Special and General Annual Meeting on June 20, 2013, at 3 PM (MDT), which will be held in the Centennial Place Conference Center, located at third floor, 250 - 5 Street SW, Calgary, Alberta, Canada.

BOE
References herein to BOE mean barrels of oil equivalent derived by converting gas to oil in the ratio of 6,000 cubic feet (mcf) of gas to one barrel (bbl) of oil. BOE may be misleading, particularly if used in isolation. A BOE conversion ratio of 6 mcf: 1 bbl is based upon an energy conversion method primarily applicable at the burner tip and does not necessarily represent a value equivalency at the wellhead.

Non-GAAP Measures
Funds from operations are a non-GAAP measure, defined by the Company as cash flow from operating activities excluding:  the change in non-cash working capital related to continuing and discontinued operations, which is eliminated to show the net cash effect on income;  geological and geophysical expenses from continuing and discontinued operations, which are costs incurred for the purpose of generating future investment opportunities and are therefore not indicative of operational performance; and expenditures on asset retirement obligations and reclamation, which are also not indicative of operational performance.

The Company also presents:  Funds from operations per share, whereby amounts per share are calculated using weighted average common shares outstanding.

Management uses funds from operations to analyze performance and considers it to be a key measure as they demonstrate the Company's ability to generate the cash necessary to fund future capital investments. Winstar's determination of funds from operations may not be comparable to that reported by other companies nor should it be viewed as an alternative to cash flow from operating activities, net earnings or other measures of financial performance calculated in accordance with IFRS.

Field operating netback is a non-GAAP measure defined by the Company as revenue, plus international royalty income less royalty, operating expense and current income tax. Management considers field operating netbacks an important measure as they demonstrate the Company's profitability from field operations, before general and administrative costs, relative to current commodity prices.

Forward-looking Statements
This press release contains certain forward-looking statements. These statements relate to future events or future performance of the Company. When used in this press release, the words "may", "would", "could", "will", "intend", "plan", "anticipate", "believe", "estimate", "predict", "seek", "propose", "expect", "potential", "continue", and similar expressions, are intended to identify forward-looking statements. These statements involve known and unknown risks, uncertainties, and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. Such statements reflect the Company's current views with respect to certain events, and are subject to a number of risks, uncertainties and assumptions. Many factors could cause Winstar's actual results, performance, or achievements to materially differ from those described in this press release. Should one or more of these risks or uncertainties materialize, or should assumptions underlying forward-looking statements prove incorrect, actual results may vary materially from those described in other public disclosures made by the Company or this press release as intended, planned, anticipated, believed, estimated, or expected. Specific forward-looking statements in this press release include, among others, statements pertaining to the following: factors upon which Winstar will decide whether or not to undertake a specific course of action; and estimated volumes and timing of future production; business plans for drilling, exploration and development; and other expectations, beliefs, plans, goals, objectives, assumptions, information and statements about possible future events, conditions, results of operations or performance. The risks to which the Company is subject include those of the oil and gas industry in general, including operational risks in exploring for, developing and producing crude oil and natural gas; risks and uncertainties involving geology of oil and gas fields and deposits; volatility in global market prices for oil and natural gas; general economic conditions; competition; liabilities and risks, including environmental liability and risks inherent in oil and gas operations; uncertainties as to the availability and cost of financing and changes in capital markets; alternatives to and changing demand for petroleum products; and changes in legislation and the regulatory environment, including uncertainties with respect to the Kyoto Protocol. Furthermore, statements relating to "reserves" or "resources" are deemed to be forward-looking statements, as they involve the implied assessment, based on certain estimates and assumptions that the resources and reserves described can be produced profitably in the future. The forward-looking statements contained in this press release are expressly qualified in their entirety by this cautionary declaration. These statements speak only as of the date of this press release. The Company does not intend and does not assume any obligation, to update these forward-looking statements to reflect new information, subsequent events or otherwise, except as required by law.

Winstar Resources Ltd. is a Calgary-based junior oil and gas company, which explores for, develops, produces and sells crude oil, natural gas liquids and natural gas in Tunisia and Romania. Winstar's common shares trade on The Toronto Stock Exchange under the symbol WIX.

Winstar's consolidated Interim Financial Statements and Management Discussion and Analysis for the three month period ended March 31, 2013 can be obtained at www.winstar.ca.

SOURCE Winstar Resources Ltd.

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