Candax Energy Inc. Announces Year End Financial & Operating Results

Candax Energy Inc. Announces Year End Financial & Operating Results 
TORONTO, ONTARIO -- (Marketwired) -- 03/27/14 -- Candax Energy Inc.
("Candax" or the "Company") (TSX:CAX), a company focused on mature
oil field development in Tunisia, today announced financial and
operating results for the year ended December 31, 2013. The audited
financial statements, notes and MD&A pertaining to the period are
available on the System for Electronic Document Analysis and
Retrieval ("SEDAR") at www.sedar.com and by visiting www.candax.com.
All monetary figures reported herein are U.S. dollars unless
otherwise stated. 
Selected Operational & Financial Highlights 


 
--  Production, net of royalties, increased in 2013 to 437 bopd from 371
    bopd in 2012 as a result of production improvements on Ezzaouia and the
    continued success of the gas cycling program on El Bibane; 
--  Revenue for the year was $16.5 million compared to $8.7 million in 2012.
    The increase in revenue reflects a revenue recognition policy whereby
    revenues are only recognized when crude oil inventory is sold. During
    2013, two crude oil liftings took place, which increased revenue by 90%
    when compared to the prior fiscal year; 
--  Total Proven plus Probable Net Reserves (2P) of oil declined by 14% from
    the previous year to 2.55 MMbbls; 
--  The Company reported a loss for the year ended December 31, 2013 of $41
    million ($0.04 per common share) compared to a loss of $13.7 million
    ($0.01 per common share) for 2012. The 2013 loss includes costs related
    to a workover campaign on Ezzaouia of $1.5 million and impairment
    charges on El Bibane of $32 million and on Belli and Al Manzah of $1.5
    million; 
--  As at December 31, 2013, Candax held cash and cash equivalents of $11.1
    million; and 
--  As at December 31, 2013, Candax had total loans and borrowings of $37.8
    million, with a current portion of loans and borrowings of 3.3 million. 

 
"Candax's two key areas of focus in 2013 were shifting the Ezzaouia
field to a beam pump extraction methodology and the progressing of
our geosciences work in order to map out an optimum development
platform for the company's assets," said Benoit Debray, Chairman and
CEO of Candax. "The first area of focus will secure our near term
future by ensuring consistent cash flow, while the second area of
focus will clarify and help reduce risk, as we look to invest in the
future growth of the company. While there is still work to be done in
both areas, we made strong progress in 2013." 
Review of Key Operations 
Candax holds 100% equity in the El Bibane field, 100% equity in the
Robbana field and 45% equity in the Ezzaouia field with ETAP, the
Tunisian state oil and gas Company, as sole partner. The streamlining
of ownership interests has allowed the Company to develop its fields
according to its own vision of these assets' potential. El Bibane and
Robbana are operated from Tunis by Ecumed, a 100% subsidiary of
Candax. Ezzaouia is operated from Tunis by Maretap, a 50/50 joint
venture between ETAP and Ecumed. 
During 2013, Candax's geosciences team in Tunis performed a
Geological and Geophysical ("G&G") major action plan under the
supervision of the Geosciences Committee. A peer review of
intermediate results was performed in December 2013, leading to the
2014 production forecast and a strategic preliminary development plan
for the Company's three main assets (El Bibane, Robbana and
Ezzaouia). G&G work is ongoing in 2014 with the objective of
producing detailed development plans to support a drilling campaign
anticipated to commence by the end of 2014 or early in 2015. 
Producing Assets 
El Bibane 
The El Bibane field is located 16 kilometres offshore from the port
of Zarzis in the Gulf of Gabes, in approximately 20 metres of water
depth. The field was discovered by Marathon Oil Corporation in 1982,
but was not developed until 1998. Initially, the field produced at a
rate of 4,000 bopd. The reservoir is located in the Cenomanian Zebbag
fractured dolomite formation at approximately 2,150 metres below
surface. 
In 2011, Candax contracted Beicip-Franlab, a leading petroleum
consulting firm, to conduct a full-field compositional simulation
reservoir study. Results indicated that the oil-water contact had
moved up significantly due to past production of the gas cap. This
explained the very high water-cut observed on the two horizontal
wells, EBB-3 and EBB-4. 
In April 2012, a new production scheme was proposed by the Company to
the Tunisian authorities (Direction Generale de l'Energie, "DGE"). A
gas cycling pilot program was initiated, designed to increase
condensate recovery as well as the potential for oil recovery from
the El Bibane reservoir, by producing wet gas from EBB-5 and
reinjecting dry gas in EBB-4. The gas injection process started in
May 2012, which stabilized condensate production of over 200 bopd at
the onshore plant. These production volumes represented a 100%
increase over production recorded in 2011. 
In March 2013 Candax reviewed the results of the gas cycling pilot in
order to plan future actions. At this point, the Company decided to
increase the gas compression capacity at the El Bibane onshore
Central Processing Facilities (CPF) with the objective of increasing
the condensate recovery from the field. After the completion of an
engineering study, a lease-to-purchase contract was signed in May
2013 to commission a second gas compressor on the EBB CPF. The
compressor was delivered on site in December 2013 and is in the
process of being commissioned. Following the confirmation of gas
availability at various pressure levels and related gas-to-condensate
ratio, the Company expects that the second compressor should
significantly increase the current condensate production from the
field. The Company's short term objective is to produce in excess of
260 bopd in the second quarter of 2014, compared to an average
production of 235 bopd during 2013. 
Ezzaouia 
The Ezzaouia field is located on the Zarzis peninsula, in the
southern Gulf of Gabes. Marathon Oil Corporation discovered the field
in 1986 and brought it on stream in 1990. Candax is the sole partner
of ETAP with a 45% equity interest. The field is operated by Maretap,
a 50/50 (Ecumed/ETAP) joint venture company. Maretap does not own any
of the assets and operates on a cash call basis. Two reservoirs are
present in the Ezzaouia field: the late cretaceous Zebbag fractured
dolomite and the late Jurassic M'Rabtine sandstone. The Jurassic
M'Rabtine reservoir now contributes to most of the production from
the field. 
A reprocessing of the 3D seismic data in 2011, followed by a
structural reinterpretation and an update of the reservoir model in
2012, indicated that a significant volume of remaining reserves could
still be produced, mainly from the Jurassic reservoir. This provided
a strong incentive for the Partners to reconsider the Ezzaouia field
strategy and rejuvenate field production. 
In keeping with a new strategic approach towards this asset, the
Company's preliminary objective was to address the recurrent
mechanical failures observed on production wells, which had lead to
costly workovers. The results of an artificial lift optimization
study conducted in 2012 and several investigations in the production
wells made it clear that the jet pumping artificial lift system was
no longer effective for the Ezzaouia Jurassic reservoir in its
present state. Production of formation water, combined with some CO2
from produced gas, had induced heavy scaling in the jet pumps as well
as corrosion/erosion tubing integrity failures. This was proved in
2012/2013 through a coiled tubing jet blasting campaign, the
implementation of a scale prevention program and several remedial
workovers 
As a result, Maretap, with the support of its partners ETAP and
Candax, initiated workover programs in order to convert all Jurassic
producer wells from jet pumping to beam pumping methodology. 
In January 2014, the workover campaign was successfully completed on
all but one of the Company's Jurassic wells, which are now producing
by means of beam pumps. The lone exception is a well that is still
awaiting receipt of pre-ordered pumping equipment. Average gross
production for 2013 was 443 bopd (200 bopd net Candax) and the
forecast for 2014 is 713 bopd (321 bopd net Candax). 
The Company's secondary objective on the Ezzaouia asset was to start
the detailed geological review and reservoir modelling needed to
build the re-development plan of the Ezzaouia Jurassic. To do so, in
early September 2013, a joint geoscience study was initiated by the
Partners (ETAP, Ecumed / Candax) for the Ezzaouia Jurassic with the
objective to define the most appropriate scheme to produce the
remaining reserves. The Partners have budgeted the drilling of a new
well by the end of 2014. 
Robbana 
The Robbana field, located on the Djerba Island in the southern Gulf
of Gabes, was discovered in 1988. The Robbana-1 well encountered two
hydrocarbon-bearing clastic reservoirs in the Cretaceous Upper
Meloussi formation. The field came on production in 1993 from the
discovery well and stopped producing in 2009. A peak monthly average
production rate of 410 bopd of 43 degrees API waxy oil with a low GOR
was recorded in May 1994. Cumulatively, the well produced 435,000
bbls before it was shut-in in 2009 after severely decreased
production. 
Candax initiated a light workover in April 2011 to check the
reservoir static pressure on Robbana-1. Measurements showed a
significant increase in reservoir pressure, which indicated potential
aquifer support. In July 2011, Candax reopened the well, which then
stabilized at approximately 50 bopd. A full workover was conducted in
2012 in order to re-perforate the two hydrocarbon-bearing horizons
and to optimize the beam pumping system. Unfortunately, the
re-perforation of the lower zone did not result in oil production
from that zone. When the well was reopened, production returned to
approximately 30 bopd, a level below the one at which the well was
producing before the workover. At the end of 2013, production
remained stable at an average of 27 bopd. 
The G&G study, started in 2013, is in its final stage and should lead
to a selection of a location and plan for drilling operation in 2015. 
Non-Producing Assets 
Belli 
The Belli field is located in the Grombalia Exploitation Permit
located approximately 60 km from the city of Tunis. Three Belli wells
were drilled in the early 1990's and produced a total of 8.6 million
barrels of oil from the carbonates of the Bou Dabbous Eocene
formation. The principal oil producer, the Belli-1 well, started
production in 1992 with a flow rate of 10,000 bopd under natural
flow. A few months later, water production started to gradually
increase until, in 1996, the well was shut-in with an oil rate of 50
bopd and a 97% water-cut while being produced by jet pumping. As the
Bou Dabbous carbonates are assumed to be oil-wet, it was presumed
that spontaneous imbibition had partially reloaded the fracture and
vugular porosity systems in the 17 years that the field has been shut
in. 
Preparations for an extended production test have been completed,
including a positive injectivity test on the water injection well,
Belli-3. A workover and testing program on Belli-1 was completed in
December 2013. Test results have revealed that the well, in its
current configuration, will not be brought back to commercial
production. The test procedures involved a workover to reperforate
the reservoir, a swabbing test of the formation and an extended well
test using Sucker Rods Pump (SRP). The SRP production test was halted
due to fluid segregation in the casing which prevented the small
volume of produced oil to flow through the tubing. Despite this
disappointing result, the Company intends to move forward with G&G
studies to explore the possibility of any remaining reservoir
potential. 
Al Manzah: 
This field, located close to Belli, produced 1.8 million bbls of oil
before being shut-in in 2007. It is anticipated that fluids have
partially resegregated, which would make modest volumes of oil
readily accessible. Candax has not yet planned any operations for
this field. 
Exploration Assets 
Deep Triassic 
Two prospects were identified by the former studies of the Middle
Triassic (Ras Hamia sandstones), in the Ezzaouia and El Bibane
concessions. The unrisked prospective gas resources have been
evaluated by Ryder Scott in 2007 at 1,806 BCF and 1,417 BCF
respectively (medium case). In 2012, Candax launched a study to
revisit the mapping and potential of the Triassic Ras Hamia
Reservoir. Candax has come to the conclusion that this play, given
the range of uncertainties embedded in the currently available data,
lacks sufficient evidence to warrant drilling an exploration well.
Further work will be completed in order to obtain and integrate
additional available geological data, especially regarding source
rock and reservoir facies evolution. 
On November 2, 2011, Dana Gas relinquished its right to participate
in future wells below the currently producing horizons of the El
Bibane and Ezzaouia concessions. As compensation for Dana Gas
relinquishing its rights, Candax has an obligation to make a lump sum
payment of USD$1 million in the event that a commercial discovery is
made at the Deep Triassic level. 
Madagascar 
Block 1101 is an onshore exploration permit located in northwest
Madagascar, covering 14,900 km2. 
On June 28, 2013, Candax announced that its subsidiary, Candax
Madagascar Limited ("CML"), reached an agreement to sell its 10%
working interest in Block 1101 in Madagascar to Oyster Oil & Gas
Limited ("Oyster"). 
On October 23, 2013, the Company received sale proceeds of
CAD$500,000, as per the agreement, which represented the last step to
reach completion pursuant to the Sale and Purchase Agreement dated
September 6, 2013. An additional CAD$500,000 is to be paid in a
combination of cash and shares of Oyster upon the drilling of the
first exploration well on the Block. In addition, Candax will be
compensated with future payments of up to CAD$3,000,000 from Oyster
upon the successful commercial development of the field. Through a
royalty agreement with East African Exploration Madagascar Ltd (EAX,
a wholly owned subsidiary of Afren Plc), Candax is also entitled to
receive a fourteen percent (14%) share of all net EAX production
proceeds, up to a cumulative total of USD$3.55 million US dollars as
well as a 0.33% share of all net EAX production proceeds up to a
cumulative total of USD$15 million. 
Outlook 
El Bibane 
The encouraging results of the gas-cycling pilot program encouraged
the Company to increase the gas compression capacity at the El Bibane
onshore Central Processing Facilities (CPF) in order to facilitate
the increase of condensate production from the field. 
A G&G study will be performed in 2014 by the geoscience team in Tunis
with the objective of improving the recovery rates on this complex
reservoir. 
Ezzaouia 
With the workover campaign now complete, the average total Ezzaouia
field production is expected to be approximately 700 bopd for 2014.
In the meantime, the Partners will continue to pursue joint G&G
studies within the field, with the objective of confirming
significant potential for recoverable reserves. The Partners have
budgeted for drilling a new well at the end of 2014. 
Year End Reserves 
Candax also announced an update to its net reserves as at December
31, 2013. 
Total Proven plus Probable Reserves (2P) of oil declined by 14% from
the previous year to 2.55 MMbbls. 
The net present value (NPV) of the future cash flows (escalated price
forecast, before tax and discounted at 10%, "PV10") attributable to
the 2P reserves is valued at $57.1 million (compared to $82.9 million
in 2012). This 31% decrease is due entirely to a re-assessment of the
El Bibane field. 
Overall results were as follows: 


 
--  1P Reserves increased 84% from 0.67 million bbls to 1.24 million bbls 
--  2P Reserves decreased 14% from 2.95 million bbls to 2.55 million bbls 
--  3P Reserves (Contingent Reserves) were reported at 3.68 million bbls
    (not reported as at December 31, 2012) 

 
Field Results were as follows: 


 
--  Ezzaouia 2P Reserves increased from 1.01 million bbls to 1.39 million
    bbls 
--  Ezzaouia PV10 increased from $31.9 million to $42.9 million 
--  Robbana 2P Reserves increased from 0.32 million bbls to 0.34 million
    bbls 
--  Robbana PV10 increased from $6.5 million to $7.1 million 
--  El Bibane Reserves decreased from 1.63 million to 0.84 million 
--  El Bibane PV10 decreased from $44.4 million to $7.1 million 

 
The results of the independent engineering report, in particular the
reduction in Reserves on El Bibane and the increase in 1P Reserves,
reflect the company's de-emphasis on the higher risk drilling
prospects of El Bibane and focus on the lower risk development and
near term production possibilities of Ezzaouia and Robbana. 
The Company's December 31, 2013 independent engineering report was
prepared by Gaffney Cline & Associates and encompasses all of
Candax's producing properties in Tunisia. For the year ended December
31, 2012, Ryder Scott Company Petroleum Consultants prepared the
independent engineering report. Both reports were prepared in
accordance with NI 51-101 guidelines and additional disclosure on the
reserves and valuations is included in Candax's Annual Information
Form. 
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION AND
STATEMENTS 
This press release includes "forward-looking statements", within the
meaning of applicable securities legislation, which are based on the
opinions and estimates of Management and are subject to a variety of
risks and uncertainties and other factors that could cause actual
events or results to differ materially from those projected in the
forward-looking statements. 
Forward-looking statements are often, but not always, identified by
the use of words such as "seek", "anticipate", "budget", "plan",
"continue", "estimate", "expect", "forecast", "may", "will",
"project", "predict", "potential", "targeting", "intend", "could",
"might", "should", "believe" and similar words suggesting future
outcomes or statements regarding an outlook. Such risks and
uncertainties include, but are not limited to, risks associated with
the oil and gas industry (including operational risks in exploration
development and production; delays or changes in plans with respect
to exploration or development projects or capital expenditures; the
uncertainty of reserve estimates; the uncertainty of estimates and
projections in relation to production, costs and expenses; the
uncertainty surrounding the ability of Candax Energy Inc. to obtain
all permits, consents or authorizations required for its operations
and activities; and health safety and environmental risks), the risk
of commodity price and foreign exchange rate fluctuations, the
ability of Candax Energy Inc. to fund the capital and operating
expenses necessary to achieve the business objectives of Candax
Energy Inc., the uncertainty associated with commercial negotiations
and negotiating with foreign governments and risks associated with
international business activities, as well as those risks described
in public disclosure documents filed by Candax Energy Inc. Due to the
risks, uncertainties and assumptions inherent in forward-looking
statements, prospective investors in securities of Candax Energy Inc.
should not place undue reliance on these forward-looking statements.
Statements in relation to "reserves" are deemed to be forward-looking
statements, as they involve the implied assessment, based uncertain
estimates and assumptions, that the reserves described can be
profitably produced in the future. 
About Candax 
Candax is an international energy company with offices in Toronto and
Tunis. The Candax group is engaged in exploration and the production
of oil and gas in Tunisia and holds an interest in an exploration
permit in Madagascar.
Contacts:
Candax Energy Inc.
John Younger
President
647 926 6150
jyounger@candax.com
www.candax.com
 
 
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