President's Message
May 12 , 2010The strategic plan which Diaz intends to implement during 2010 focuses on:
In furthering this plan, three horizontal oil wells were drilled at Lloydminster, during the quarter, and are expected to be placed on production in the second quarter.
During the quarter, Diaz acquired oil and gas leases on four additional prospects, in Saskatchewan, resulting in the Company’s heavy oil prospect inventory increasing to seven projects.
Diaz also completed an equity financing, raising $1.3 million. This financing, coupled with cashflow, enabled the Company to closely maintain its level of bank debt, which now stands close to the lowest level in eight quarters.
Exploration and Development
With the decline of natural gas prices in Canada, to unacceptable levels, Diaz has changed its exploration focus exclusively to oil prospects.
Lloydminster Drilling Program
Lloydminster, Alberta – Working Interest 50%
Diaz has a 50% working interest in 7 heavy oil wells (3.5 net wells). The Lloydminster field is the primary development focus of the Company. Four are currently on production at rates varying from 15 to 60 bopd. Three new wells were drilled during Q1 2010 and are expected to be on production early in Q2 2010.
Diaz believes the Lloydminster heavy oil play may support up to 35 wells on its section, with initial production rates of approximately 60 Bopd per well. On the next page is a gross pay map of the Lloydminster pool, showing Diaz’s four producing wells and the three horizontal wells drilled during Q1 2010. Diaz believes the project has very attractive economics with oil prices in the range of $80 per barrel, the Alberta drilling royalty credit and a 5% royalty for the first year of production.
Diaz currently plans to continue development drilling at the Lloydminster field starting in the summer of 2010.
Lloydminster field development economic assumptions include:
The following Lloydminster gross pay map includes average production for January 2010 for Sections 30 and 19.
Lloydminster, Alberta – Lands
In addition to Section 18-48-1W4 Diaz has acquired an 80% WI in 2,000 acres of prospective lands in the Lloydminster area.
The following map shows the acquired lands with bypassed zones in comparison to Section 19-48-1W4.
Saskatchewan Oil Plays
Diaz has acquired an interest in 14,208 acres in Saskatchewan on the Birdbear, Shaunavon, Viking and other heavy oil developments.
Below is a map showing Diaz’s land position in its South Shaunavon oil play.
Financial
Revenue for the first quarter ended March 31, 2010 decreased to $1.7 million compared with $2.2 million for Q1 2009. Cash flow from operations for the first quarter of 2010 decreased to $384,000 or nil per share compared with $614,000 or $0.01 per share for Q1 2009. Diaz reported a loss for the first quarter of $1.5 million or ($0.02) per share versus a loss of $9.8 million or ($0.15) per share in Q1 2009. The Company took an impairment of $11.4 million in Q1 2009.
Net capital expenditures in Q1 2010 totalled $2.1 million compared with $836,000 in Q1 2009. Capital expenditures were financed with cash flow from operations and the proceeds of an equity financing.
Production
The Company’s total production for Q1 2009 decreased 33% to 532 BOEd compared with the prior year Q1 2009 average of 791 BOEd. However, production for the quarter equalled the previous quarter, Q4 2009, average rate. With the addition of new production from the Lloydminster heavy oil field in Q1 2010 and new wells coming on stream in Q2 2010 we anticipate oil production rates should increase going forward.
Business Outlook
We expect oil prices to hold above $75 per barrel (WTI) during 2010 as industrial activity in North America recovers. Due to current high natural gas storage levels and significant volumes of gas being developed on North American shale gas projects there is still considerable uncertainty as to when natural gas prices will improve to satisfactory levels. To mitigate the uncertainty in natural gas prices, Diaz has put in place fixed gas price contracts for approximately half of the Company’s anticipated 2010 gas production, at prices in excess of $5.75 per Mcf.
The Company will continue to focus on its Lloydminster heavy oil development program and if results are successful Diaz should exit 2010 with almost half of its production derived from oil sales.On behalf of the Board,
R.W. Lamond, Chairman
D.K. Clark, Chief Operating Officer