arcan results, page-6

More good news from Arcan. It's ready to fly. We need to do the merger now! I am sick of us going nowhere.

Wiggling

Recent drilling program results exceed production expectations

CALGARY, ALBERTA--(Marketwired - May 12, 2014) -

NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES OF AMERICA

Arcan Resources Ltd. (TSX VENTURE:ARN) ("Arcan" or the "Corporation") increased production in the first quarter of 2014 by approximately seven percent, generated a 51 percent increase in funds from operations and reduced costs, as compared to the fourth quarter of 2013.

"The results from the first quarter 2014 are reflective of our ongoing improvements in production, cost management and capital efficiencies" said Chief Executive Officer Terry McCoy. "We continue to pursue strategic initiatives, such as non-core asset sales, that will help reduce our debt in order to increase the pace of development and capitalize on these improvements and efficiencies."

"Arcan's production rose to 3,740 barrels of oil equivalent ("BOE") per day in the first quarter of 2014. This was above our target of 3,600 BOE per day. The elevated production was based on the four new wells that Arcan completed this winter and are performing above our high case expectations. These production rates were achieved despite third party facility issues and severe weather conditions that negatively impacted January production, resulting in average production of 2,868 BOE per day. First quarter production also compensated for the sale of Arcan's Virginia Hills property at the end of 2013 which had contributed approximately 234 BOE per day. We believe this production growth will continue in the second quarter of 2014, and anticipate average production of approximately 4,000 to 4,200 BOE per day. Based on initial production results from the four new wells that commenced production during the first quarter of 2014, as well as continued waterflood response, Arcan is raising its annual average production guidance range to 3,500 to 3,800 BOE per day from 3,400 to 3,800 BOE per day. Furthermore, based on the successful results of our recent drilling campaign, we anticipate expanding next winter's drilling program scheduled from September to 2014 to March 2015 to include eight to ten offsetting wells that will target these higher production rates."

Arcan's netbacks improved by 40 percent during the quarter to $60.20 over the fourth quarter of 2013 as a result of higher production and improved prices for crude oil, liquids and natural gas. Funds from operations also increased 51 percent over the fourth quarter of 2013 to $10.5 million. The Corporation's capital spending program remained on target during the quarter, with Arcan investing $16.9 million in the successful winter drilling program. Arcan also continued to focus on lowering expenses, which resulted in reductions to operating costs of 12 percent to $16.40 per BOE and general and administrative ("G&A") expenses by 28 percent to $5.27 per BOE as compared to the fourth quarter of 2013.

"The significant production results from our winter drilling program, combined with improvements on all key metrics in the first quarter of 2014, are starting to build positive traction," said President Doug Penner. "We expect our drilling targets to maximize production rates from future wells. We anticipate moderate increases in production into 2015 as we ramp up new wells. This continued success is based on our long-term investment in both infrastructure and waterflood recovery techniques, as well as the improvements we have made to our drilling and fracturing processes."

"The winter drilling program was the most successful in our history. Arcan's management team has clear, shared objectives and we are executing effectively on a well-defined plan. We continue to evaluate sales of our light oil assets, joint ventures and farm-outs to pay down our debt and address our outstanding debentures."
Three Months Ended
March 31, 2014 March 31, 2013 Dec 31, 2013
Financials ($000s except per share amounts)
Petroleum and natural gas revenue 31,492 31,200 25,811
Pumping and stimulation services revenue 380 987 1,815
Cash flow from operating activities 6,348 11,008 9,059
Funds from operations (1) 10,495 9,700 6,944
Per share basic and diluted (1) (2) 0.11 0.10 0.07
Loss (6,586 ) (2,966 ) (17,988 )
Per share basic and diluted (2) (0.07 ) (0.03 ) (0.18 )
Capital expenditures, net - cash 16,844 17,088 (2,024 )
Total assets 610,302 616,411 609,071
Total liabilities 391,135 370,741 383,368
Debenture face value 171,250 171,250 171,250
Shareholders' equity 219,167 245,670 225,703
Bank loan 150,751 149,898 159,423
Net debt and working capital (1) 325,280 317,788 313,311
Operating
Production:
Crude oil and NGLs (barrels ("bbls") per day) 3,635 4,080 3,433
Natural gas (thousand cubic feet ("Mcf") per day) 631 110 429
BOE per day(3) 3,740 4,098 3,504
Average realized price:
Crude oil and NGLs ($ per bbl) 95.27 84.93 81.36
Natural gas ($ per Mcf) 5.78 1.91 3.03
Combined price per BOE ($ per BOE) 93.57 84.60 80.07
Three Months Ended
March 31, 2014 March 31, 2013 Dec 31, 2013
Netback ($ per BOE)(1)
Petroleum and natural gas sales 93.57 84.60 80.07
Pumping and stimulation services revenue 1.13 2.68 5.63
Royalties (17.22 ) (13.65 ) (17.01 )
Production and operating expenses (16.40 ) (17.52 ) (18.58 )
Cost of sales for pumping and stimulation services (0.88 ) (5.25 ) (7.09 )
Consolidated operating netback ($ per BOE) (1) 60.20 50.86 43.02
Realized economic hedging gains (losses) - cash (9.89 ) 1.51 (2.33 )
Cash G&A (1) (5.27 ) (5.69 ) (7.37 )
Cash finance expenses(1) (12.83 ) (11.72 ) (13.88 )
Corporate netback (1) 32.21 34.96 19.44
Common Shares (000's)
Shares outstanding 97,860 97,860 97,860
Weighted average - basic and diluted(2) 97,860 97,860 97,860
Notes:
(1) The reader is referred to the section "Non-IFRS Measurements".
(2) Basic and diluted weighted average shares are the same as the Corporation incurred a loss in these periods.
(3) The reader is referred to the section "Legal Advisories".

FINANCIAL HIGHLIGHTS

Operating netbacks increased by 40 percent to $60.20 per BOE in the first quarter of 2014 from $43.02 per BOE in the fourth quarter of 2013, and increased 18 percent from $50.86 in the first quarter of 2013.

Funds from operations increased 51 percent to $10.5 million during the first quarter of 2014 over the fourth quarter of 2013. In year-over-year results, funds from operations increased eight percent from $9.7 million in the first quarter of 2013.

Arcan decreased the draw on its bank line by $8.7 million, reflecting its ongoing efforts to pay down debt. Arcan currently has $155.2 million drawn on its credit facilities, down from $159.4 million at the end of 2013, but slightly up from $149.9 million at this time last year. Arcan has completed its winter capital spending program and expects a restricted summer program will contribute to further reductions in the debt level.

Invested $16.9 million of capital ($16.8 million net of dispositions) during the first quarter of 2014 as part of the successful winter drilling program. The amount spent in the first quarter of 2014 was down from $21.6 million ($17.1 million net of dispositions) during the first quarter a year earlier. As budgeted, capital spending was higher than funds from operations of $10.5 million because Arcan has weighted its capital program to the winter months and expects capital spending to fall below funds from operations in the summer months of 2014.

Decrease in G&A expenses of 28 percent to $5.27 per BOE from $7.37 per BOE in the fourth quarter of 2013. G&A expenses were lower by seven percent from $5.69 per BOE in the first quarter of 2013.

Arcan eliminated the hydrochloric acid inventory held by its non-core subsidiary Stimsol Canada Inc. As a result, the Corporation held no acid inventory at the end of the first quarter of 2014. Furthermore, Arcan terminated its existing hydrochloric acid supply contract that contained a reservation fee to be paid by Arcan up to a maximum of $20.3 million if no additional hydrochloric acid was purchased over the period of the contract. In order to terminate this contract, Arcan agreed to pay the supplier thereunder $1.5 million on or before March 31, 2014 and $1.5 million on or before January 1, 2015. Furthermore, a portion of the proceeds from any sale of StimSol is required to be paid to the supplier.

OPERATIONAL HIGHLIGHTS

The Q1 2014 drilling program production results continue to exceed expectations from four new wells. The wells have average production rates of 388 BOE per day per well since they came on production and are currently producing approximately 350 BOE per day per well. Drilling and completing these four wells cost an average of $4.7 million each, which is down 23 percent from Arcan's cost of drilling and completing a well in 2012. Arcan anticipates drilling eight to ten offsetting wells during next winter's drilling program.

Average production increased seven percent to 3,740 BOE per day during the first quarter of 2014, up from the previous quarter's 3,504 BOE per day. Production was down from 4,098 BOE per day in the first quarter of 2013. This was primarily due to the sale of Arcan's Virginia Hill property in the fourth quarter of 2013, which had contributed approximately 234 BOE per day of production. Arcan's production rates have remained relatively flat over the past six quarters, ranging from 3,500 to 4,100 BOE per day. Production was approximately 4,553 BOE per day during March 2014 and 4,500 BOE per day for April 2014.

Reduced operating costs by 12 percent to $16.40 per BOE in the first quarter of 2014 from $18.58 per BOE in the fourth quarter of 2013, and down six percent from $17.52 in the first quarter of 2013. Arcan expects further reductions in operating expenses as a result of the electrification infrastructure completed for Deer Mountain Unit #2. The Corporation is planning an extension of electrical service to the northern portion of Ethel and to the Ethel battery, expected to be completed in the second half of 2014.

Further reductions in operating costs are expected as Arcan has entered into an agreement to sell the Ethel oil sales pipeline for approximately $5.2 million, with closing expected in the second quarter of 2014. The 14.5 kilometre pipeline was constructed as part of the Ethel pipeline corridor in 2013. The final commissioning of the line is expected to be completed in the second half of 2014, when commissioned the pipeline is expected to reduce trucking and associated costs by an estimated $1.50 per BOE.

Waterflood investment continues as Arcan converted two wells at a combined cost of less than $1 million to support water injection in the southern portion of Ethel. Arcan has applied for further expansions to the Ethel and Deer Mountain Unit #2 enhanced recovery waterflood schemes.

OUTLOOK

Arcan remains focused on the efficient development of its long-life, conventional light oil play in the Swan Hills area of Alberta. Arcan is advancing its core objective of delivering sustainable and profitable production with capital programs designed within funds from operations and is doing so in an environment of limited access to capital. Arcan is also working to deliver further reductions in operating costs and is seeking to drive operating costs towards $15.00 per BOE by the end of 2014.

Arcan's management team has undertaken a careful and disciplined review of every aspect of drilling and completions operations. The resulting improvements have brought total well costs down to an average of $4.7 million per well from approximately $6.1 million per well and Arcan continues its efforts to drive these costs even lower.

The Corporation expects to reduce capital expenditures during the second and third quarters when well site access is typically more challenging due to wet weather conditions. Expenditures will increase again in the latter portion of the third quarter and throughout the fourth quarter of 2014. During the next two quarters Arcan will focus on upgrading its Ethel oil battery as well as extending electrical service from Deer Mountain through the northern portion of the Ethel Field to the Ethel oil battery.

Arcan anticipates drilling 5 gross (4.0 net) locations in the second half of 2014 as part of its winter drilling program which is scheduled to commence in September 2014. These wells are part of the Corporation's 2014/2015 winter drill period where Arcan plans to double its 2013/2014 winter program to drill a total of 10 gross (9.0 net) locations. The majority of next winter's expected drilling locations are in proximity to the four recent, highly successful wells. Arcan's forward drilling programs are being guided by thorough geological mapping of its assets based upon detailed reservoir and well performance models.

Arcan expects second quarter production to average between 4,000 to 4,200 BOE per day, and has updated its expectations for full-year production to average 3,500 to 3,800 BOE per day. Positive factors impacting 2014 production thus far include excellent initial production results from Arcan's latest drilling program, continued waterflood response and expansion of the amount of production supported by waterflood.

FINANCIAL STATEMENTS AND MANAGEMENT'S DISCUSSION AND ANALYSIS:

Arcan has filed its unaudited condensed interim consolidated financial statements and the accompanying management's discussion and analysis for the three month period ended March 31, 2014, with the Canadian securities regulatory authorities. These filings are available for review at www.sedar.com and www.arcanres.com.

ANNUAL AND SPECIAL GENERAL MEETING

Arcan's annual and special meeting is scheduled for June 24, 2014, at 3:00 PM in the McMurray Room of the Petroleum Club, located at 319 - 5th Avenue SW, Calgary, Alberta.

About Arcan Resources Ltd.

Arcan Resources Ltd. is an Alberta, Canada corporation that is principally engaged in the exploration, development and acquisition of petroleum and natural gas located in Canada's Western Sedimentary Basin.