Sea Dragon Announces Q4 and Full Year Results


Calgary, Canada – April 12, 2013 Sea Dragon Energy Inc. (“Sea Dragon” or the “Company”) (TSXV: SDX) is pleased to announce its financial and operating results for the three months and year ended December 31, 2012. All dollar values are expressed in United States dollars unless otherwise stated.

2012 Highlights:

  •   Increased oil sales during the last three months of 2012 by 28% to 1273 bopd as compared to 991 bopd during the same period in 2011
  •   Increased Netbacks during the last three months of 2012 by 43% to $5.3MM ($45.09/bbl) as compared to $3.7MM($40.75/bbl) during the same period in 2011
  •   Reduced 2012 G&A costs by 22% to $4.7MM from $6.0MM in 2011
  •   Completed the acquisition of National Petroleum Company Shukheir Marine Ltd. (“NPC SHM”)

    as of December 1st.2012, thus adding circa 500 bopd from the Shukheir Bay and Gamma oil

    fields in the Gulf of Suez

  •   Exited the year with production of 1665 bopd, cash and cash equivalents of $5.7MM and

    working capital of $6.6 MM and no net debt

  •   Realized a net loss of $28.1MM, due to an impairment loss on the Company’s Kom Ombo asset.

    Subsequent to year-end:

  •   Production is currently 1911 boepd
  •   Collected $6.2MM in outstanding accounts receivable, thus reducing the Company’s receivables

    to $3.5MM, equating to two months of production

  •   Paid back $1.0MM of debt, with a current cash balance of $5.1MMand nill net debt
  •   Successfully completed the AASE#14 well as a Kareem Formation producer in NW Gemsa initially

    contributing 1333 boepd of new production

  •   Successfully drilled the AASE#16 well as a new Kareem Formation water injector
  •   Finalized the West Al Baraka Development Lease and placed the West Al Baraka#2 well on

    extended production testing

  •   Completed the gas conservation project in the NW Gemsa concession with condensate, NGL and

    sales gas commencing in February, 2013 and adding some 180boepd of net production

  •   During the first quarter of 2013 additional testing results from West Al Baraka field were significantly lower than anticipated. These results are an indicator of impairment for the Kom Ombo concession and as a result the carrying amount will be tested for impairment in the

    subsequent period.

Three months ended December 31

$000′s except per unit amounts 2012 2011

Twelve months ended December 31

2012 2011

Financial

Oil sales Royalties Operating costs Netback (1)

12,353 (6,496) (578)

5,279

9,527 (4,713) (1,100) 3,714

(14,389) 6,125 11,939 75,663 3,000 68,877 1,892 376,459

44,998 (23,804) (3,680)

17,514

(28,108) 5,658 6,645 52,006 3,000 41,250 8,355 376,459

41901 (21,407) (3,007)

17,487

(12,838) 6,125 11,939 75,663 3,000 68,877 8,024 376,459

Net loss
Cash and cash equivalents
Cash and cash equivalents plus working capital
Total assets
Debt 3,000

(6,447) 5,658 6,645

Shareholders’ equity
Capital expenditures
Weighted average outstanding shares

52,006

41,250 1,358 376,459

Drilling

Gross wells (number of wells) Success rate (%)

Net wells (number of wells) Success rate (%)

Company Gross Reserves (2)

1 2 100 100

0.1 0.2 100 100

10 9 80 89

2.6 2.1 62 76

Proved
Natural gas (mmcf) 2,532 2,664 2,532 2,664 Oil and liquids (mbbl) 3,370 3,815 3,370 3,815

Total oil equivalent (mboe)

Proved plus probable Natural gas (mmcf) Oil and liquids (mbbl)

3,792 4,259 3,897 3,839

5,894 6,608

3,792 4,259 -

- 3,897 3,839 5,894 6,608

Total oil equivalent (mboe)

Proved plus probable plus possible Natural gas (mmcf)
Oil and liquids (mbbl)

6,544 7,248 3,988 3,940

6,993 8,829

6,544 7,248 -

- 3,988 3,940 6,993 8,829

Total oil equivalent (mboe) 7,658 9,486 7,658 9,486

Three months ended December 31

$000′s except per unit amounts 2012 2011

Twelve months ended December 31

2012 2011

Net present value of future cash flows after tax ($000′s) (3)

Proved

5% discount rate 10% discount rate 15% discount rate

Proved plus probable

5% discount rate 10% discount rate 15% discount rate

Proved plus probable plus possible

5% discount rate 10% discount rate 15% discount rate

45,015 38,433 33,499

77,290 62,115 51,593

105,255 82,754 67,259

56,630 45,015 46,856 38,433 39,883 33,499

97,327 77,290 73,336 62,115 57,194 51,593

148,252 105,255 109,300 82,754 83,389 67,259

-

- 56,630

46,856 39,883

-

- 97,327

73,336 57,194

-

- 148,252

109,300 83,389

- -

Reserve life index (years) (4)
Proved 8.2
Proved plus probable 14.1 20.0 14.1

12 20

11.8 8.2

(1) Netback is a non-GAAP measure that represents sales net of all operating expenses and government royalties. Management believes that netback is a useful supplemental measure to analyze operating performance and provide an indication of the results generated by the Company’s principal business activities prior to the consideration of other income and expenses. Management considers netbacks an important measure as it demonstrates the Company’s profitability relative to current commodity prices. Netback may not be comparable to similar measures used by other companies.

(2) Company gross reserves are gross working interest reserves before the deduction of royalties as determined by the Company’s independent reserves evaluators.

(3) As determined by Ryder Scott, the Company’s independent reserves evaluators. Estimated values of future net revenue disclosed do not represent fair market values.

(4) Calculated by dividing the Company’s gross reserves by the 2012 fourth quarter production rate

(5) Disclosure provided herein in respect of BOEs may be misleading, particularly if used in isolation. A BOE conversion ratio of 6 Mcf:1 Bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

CEO’s Message:

In 2012, the Company closed on the acquisition of the shallow offshore Shukheir Marine concession in the prolific Gulf of Suez area in Egypt, thus adding circa 500 bopd to its production from the Shukheir Bay and Gamma fields, with significant upside potential once we firm up new drillable loctions. With the capital markets remaining difficult, the Company was able to conclude this acquisition with a cash consideration of only $250,000 after working capital adjustments.

The following highlights the results of our 2012 activities,

  •   Exited the year with production of 1665 bopd compared to 1012 bopd in December, 2011
  •   Reduced 2012 G&A costs by 22%
  •   Exited the year with cash and cash equivalent of $5.7 million and no net debt.

    Through the use of its existing cash flows, the Company continued to exploit its reserves in the NW Gemsa and Kom Ombo concessions. The Company participated in the drilling of 10 wells with a success ratio of 80%. As well, the solution gas conservation and hydrocarbon extraction project in NW Gemsa was completed and gas and liquids sales commenced in February 2013 adding to the peak production being almost double over a 1-year period.

    In 2013, the Company intends to continue to consolidate its reserve and production base in Egypt through exploration and appraisal drilling of existing properties, the acquisition of new properties and participation in concession bid rounds. The recently acquired Shukheir Marine concession holds significant upside potential which is currently being evaluated for future appraisal.

    The Company is also continuing to search for attractive acreage in Africa, which could add significantly to the Company’s resources and reserves, and contribute towards its diversification strategy.

    Year in Review:

    North West Gemsa

    The 2012 activity was directed towards continued development/appraisal drilling and waterflood expansion. The program was successful with six wells drilled and completed, four producers and two injectors. Two additional wells have, thus far, been drilled in 2013.

    Production averaged 8674 bopd in 2012 (867 net to Sea Dragon) and is currently averaging 11200 boepd (1120 net to Sea Dragon, including 120 boepd of gas and liquids). Cumulative oil production from the Concession has now exceeded 10.9 million barrels. Water injection which began in 2011 in the Al Amir SE field was expanded to include the Geyad field in January 2012, with a continued positive pressure response to water injection being observed in several wells. The netback for NW Gemsa for 2012 is $25.5 per barrel.

    The NW Gemsa year-end independent reserves report supports the Company’s Gross Proven and Proved plus Probable reserves of 3.23 and 4.96 million barrels of oil equivalent, respectively.

    The Company’s $3.0MM capital expenditure program for 2013 includes, but is not limited to, the drilling of two development wells, three water injection wells, and completing the gas compression facilities.

Kom Ombo

In 2012 the Company’s exploration commitments were fulfilled, with the West Al Baraka Development lease receiving Government approval in January 2013 following the drilling of the West Al Baraka-2 discovery well. The Kom Ombo concession generated netbacks of $39.0 per barrel.

Gross production averaged 490 bopd in 2012 (245 bopd net to Sea Dragon) with current rates averaging 378 bopd gross (189 bopd net to Sea Dragon).

The Kom Ombo year-end independent reserves report estimates Company Gross Proven and Proved plus Probable reserves of 0.38 and 1.29 million barrels of oil, respectively. The Company’s $0.5 million capital expenditure program for 2013 is covering the monitoring of production performance of the West Al Baraka-2 well.

Shukheir Marine

Effective December 1, 2012, the Company acquired all of the issued and outstanding shares of National Petroleum Company Shukheir Marine Limited. The acquired assets include a 100% participating interest in the Shukheir Marine Concession which contains the Shukheir Bay and Gamma oil fields, both located in the shallow offshore Gulf of Suez, 300 Km SE of Cairo.

In December 2012, the Company installed a new water injection pump to replace the previous rental unit and in February 2013 a workover was successfully completed on the SHB-5 producer to replace a corroded tubing string, with production being restored at previous levels.

Production in 2012 averaged 486 bopd. The Shukheir Marine concession generated netbacks of $26.85 per barrel in December 2012.

The Shukheir Marine year-end independent reserves report supports Company Gross share of Proved and Proved plus Probable reserves of 0.18 and 0.30 million barrels of oil equivalent, respectively.

The Company’s $0.5MM capital expenditure program for 2013 includes minor fixed asset expenditures and well performance monitoring and stimulation plans.

Reserves:

Reserve estimates have been calculated in compliance with the National Instrument 51-101 Standards of Disclosure (“NI 51-101”). Under NI 51-101, proved reserves are defined as reserves that can be estimated with a high degree of certainty to be recoverable with a target of a 90 percent probability that the actual reserves recovered over time will equal or exceed proved reserve estimates, while probable reserves are defined as having an equal (50%) probability that the actual reserves recovered will equal or exceed the proved and probable reserve estimates. In accordance with NI 51-101, proved undeveloped reserves have been recognized in cases where plans are in place to bring the reserves on production within a short, well defined time frame. Proved undeveloped reserves often involve infill drilling into existing pools. Of the net present value of the Company’s reserves, 100 percent were evaluated by an independent third party engineer, Ryder Scott Company Canada (“Ryder Scott”) in their report dated February 21, 2013.

Total

Proved Plus

Company gross reserve reconciliation (mboe)

Proved

Probable

December 31, 2011 Reserves (mboe)

4,259

7,248

2012 Production (mbbl)

( 410)

( 410)

Net Additions (mboe)

( 879)

(1,111)

December 31, 2012 Reserves (mboe)

3,792

6,544

Year over year increase (decrease) in reserves

-11%

-10%

Production replacement

-214%

-271%

Company gross reserves

Natural Gas

Liquids

Oil

Total

Reserves Category

(mmcf)

(mbbls)

(mbbls)

(mboe)

Proved:

Proved Producing

1,280

87

1,817

2,117

Undeveloped

1,252

85

1,381

1,675

Total Proved

2,532

172

3,198

3,792

Probable

1,365

92

2,432

2,752

Total Proved Plus Probable

3,897

264

5,630

6,544

Possible

91

7

1,092

1,114

Total Proved Plus Probable Plus Possible

3,988

271

6,722

7,658

Net present value after income tax ($000′s)

Discount Factor

Reserves Category

0%

5%

10%

15%

Proved:

Proved Producing

30,496

27,073

24,459

22,399

Undeveloped

23,588

17,941

13,975

11,100

Total Proved

54,084

45,015

38,433

33,499

Probable

46,260

32,276

23,682

18,095

Total Proved Plus Probable

100,344

77,290

62,115

51,593

Possible

39,083

27,964

20,639

15,665

Total Proved Plus Probable Plus Possible

139,427

105,255

82,754

67,259

Reserves and Netbacks

Proved

Proved Plus Probable

Capital expenditures ($000′s)

8,355

8,355

Change in future development costs

2,197

(9,718)

Total costs

10,552

(1,363)

Net additions (mboe) excluding acquisitions

( 467)

( 705)

2012 Netback ($/bbl)

39.85

39.85

Net Asset Value

2012

2011

Net present value of oil and gas reserves, discounted at 10%, after income tax

$ 62,115

$ 73,336

Working capital

$ 6,143

$ 11,939

Net asset value

$ 68,258

$ 85,275

Shares outstanding (000′s)

376,459

376,459

Net asset value per share

$ 0.18

$ 0.23

The disclosures required in accordance with National Instrument 51‐101 of the Canadian Securities Administrators will be available in the Company’s Annual Information Form to be filed on the SEDAR website at www.sedar.com.

Certain statements contained in this press release constitute “forward-looking statements” as such term is used in applicable Canadian and US securities laws. These statements relate to analyses and other information that are based upon forecasts of future results, estimates of amounts not yet determinable and assumptions of management. In particular, statements concerning the 2013 drilling and capital expenditure programs of the NW Gemsa, Kom Ombo and Shukheir Marine Concessions and the results referenced or implied herein should be viewed as forward-looking statements.

Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions or future events or are not statements of historical fact and should be viewed as “forward-looking statements”. All reserves information contained herein as well as the net present value of such reserves should be considered as forward looking statements. Such forward looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such risks and other factors include, among others, costs and timing of exploration and production development, availability of capital to fund exploration and development and political, social and other risks inherent in carrying on business in Egypt. There can be no assurance that such statements will prove to be accurate as actual results and future events could vary or differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements contained in this news release.

Forward-looking statements are made based on management’s beliefs, estimates and opinions on the date the statements are made and the Corporation undertakes no obligation to update forward-looking statements and if these beliefs, estimates and opinions or other circumstances should change, except as required by applicable law. Although Sea Dragon has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward- looking statements, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. Investors are cautioned that such forward-looking statements involve risks and uncertainties. Actual results may differ materially from those currently anticipated. See Sea Dragon’s Annual Information Form for the year ended December 31, 2012 for a description of the risks and uncertainties associated with the Company’s business, including its exploration activities. The forward-looking statements contained herein are expressly qualified by this cautionary statement.

A “boe” conversion ratio of 6 Mcf of natural gas = 1 barrel of oil has been used and is based on the standard energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

NEITHER THE TSX VENTURE EXCHANGE NOR ITS REGULATION SERVICES PROVIDER (AS THAT TERM IS DEFINED IN THE POLICIES OF THE TSX VENTURE EXCHANGE) ACCEPTS RESPONSIBILITY FOR THE ADEQUACY OR ACCURACY OF THE RELEASE.

Said Arrata
Chairman, CEO and Director (403) 457-5035

Olivier Serra
Chief Financial Officer and Director +331 5343 9442

Tony Anton
President, COO and Director

(403) 457-5035

Brisco Capital Partners Corp. Investor Relations
(403) 262-9888

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