Aurora Oil & Gas Corporation Announces Year-End 2007 Results

TRAVERSE CITY, Mich., March 7 /PRNewswire-FirstCall/ -- Aurora Oil & Gas Corporation (AMEX:AOG) today reported revenues of $28.5 million for the year ended December 31, 2007, representing a 27% increase from the same period in 2006.

William W. Deneau, Chairman and Chief Executive Officer, commented, "This proved to be another year of growth for Aurora. Our revenues are at an all- time high; our South Knox project is online and producing our first operated New Albany shale gas; we announced a very viable acreage position in the Woodford shale; and we met all of our bank covenants for year-end. We believe 2008 offers some exciting catalysts that continue those themes -- increased revenues, increased drilling and production on our New Albany shale properties, and our first exploratory drilling on our Woodford shale acreage."

2007 Financial Review

Oil and natural gas production revenues totaled nearly $27 million on sales of over 3.2 billion cubic feet of natural gas equivalent (Bcfe) for the year. This equates to an average of 8.8 million cubic feet of natural gas equivalent (Mmcfe) per day, an increase of approximately 21% over the previous year. The weighted average sales price of $8.33 for the period includes $3.9 million in realized gains on financial hedges which covered between 5,000 and 7,000 Mmbtu per day during the year. Over the past two years, the Company has achieved nearly $7 million in realized gains as a result of its natural gas hedging program.

Expenses totaled $32.8 million, a 35% increase from 2006. The largest driver of the increase, other than expanded operations, was a one-time expense of $3.4 million recognized as a result of the early termination of the Company's mezzanine debt. Excluding this item, 2007 expenses increased only 21% over the $24.3 million reported in 2006.

Production and lease operating expenses ("LOE") increased from $6 million in 2006 to $8.8 million in 2007. On a per Mcfe basis, Aurora again proved its abilities as a cost-efficient operator in 2007. Operated LOE was $2.64 per Mcfe in 2007. Non-operated LOE was $2.91 per Mcfe. In addition, a selection of Aurora's operated properties continued dewatering which increased LOE on a per Mcfe basis. Excluding those properties, specifically Arrowhead and Chandler, Aurora's operated LOE was $2.51 per Mcfe in 2007.

For the year ended December 31, 2007, the net loss totaled $4.4 million or ($0.04) per basic and diluted share, as compared to a net loss of $1.9 million or ($0.02) per basic and diluted share in 2006. Though considered a non-GAAP measure, excluding the one-time expense of $3.4 million and stock-based compensation of $2.2 million, the net income for the full year 2007 would have reached $1.25 million or $0.01 per basic and diluted share.

Additional detail on the financial results can be found in the Company's Form 10-K filed March 7, 2008. This form can be retrieved from the Securities and Exchange Commission or via the Company website at http://www.auroraogc.com/SEC_Filings.htm. Selected annual and quarterly historical financial data are provided for reference below.

2007 Drilling Activities

Over the past several years, the Company's drilling activities have been focused primarily in the Antrim shale of northern Michigan, with selected exploratory and development wells in the New Albany shale of southwestern Indiana. This focus continued in 2007, as the Company drilled or participated in 101 gross (59.13 net) wells with a 92% completion rate. Of the 101 (59.13 net) wells drilled or participated in, 53 (31.65 net) wells were in the Antrim shale, 27 (11.17 net) wells were in the New Albany shale, and the 21 (16.32 net) remaining wells were drilled in Other project areas. A summary of 2007 drilling activity is provided below:

Drilling Activities
- FY 2007 Operated Non-Operated Total
Gross Net Gross Net Gross Net

Producing 23 22.92 38 10.49 61 33.41
Waiting on Hook-Up 6 6.00 11 3.45 17 9.45
Resource Assessment 9 6.95 5 2.01 14 8.96
Temporarily Abandoned 1 0.31 0 0.00 1 0.31
Dry 6 6.00 2 1.00 8 7.00
Total 45 42.18 56 16.95 101 59.13

A summary of the Company's well inventory at the end of 2007 is as follows:

Well Status as of
December 31, 2007 Antrim Antrim New Albany New Albany
Operated Non-Operated Operated Non-Operated
Gross Net Gross Net Gross Net Gross Net

Producing 203 193.65 390 93.75 2 2.00 25 1.25
Waiting on
Hook-Up 4 4.00 15 3.00 6 5.31 1 0.05
Res. Assessment 20 19.97 5 1.09 14 7.37 8 2.19
Total 227 217.62 410 97.84 22 16.68 34 3.49

Well Status as of
December 31, 2007 Other Total
Gross Net Gross Net

Producing 29 14.53 649 305.18
Waiting on Hook-Up 5 2.30 31 14.66
Res. Assessment 7 6.48 54 37.10
Total 38 20.31 734 356.94

2007 Production Activities

Total company production during 2007 averaged 8.8 net Mmcfe per day, a 21% improvement over the previous year. A summary of production for 2007 and 2006 is provided below:

Estimated Production
by Play/Trend (net mcfe) 2007 2006
Daily Daily
Total Average Total Average

Antrim Shale 2,975,715 8,153 2,353,691 6,448
New Albany Shale 57,186 157 28,517 78
Other 174,254 477 271,219 744
Total 3,207,155 8,787 2,653,427 7,270
Operated 2,292,429 6,281 1,963,860 5,380
Non-operated 914,726 2,506 689,567 1,890
Total 3,207,155 8,787 2,653,427 7,270

During the fourth quarter of 2007, Aurora's operations were focused largely on installing the necessary infrastructure and processing facilities in its South Knox project area. Our wholly-owned subsidiary, Bach Services & Manufacturing, L.L.C. ("Bach") provided the management and labor for this project. In less than 90 days, Bach completed the gathering system and pipeline which included trenching over 10 miles and installation of 20 miles of poly-pipe and 10 miles of steel pipe. Also, they designed and installed the processing and compression facility. The entire sales outlet was completed and Aurora began its initial natural gas production by year-end, providing an important increase to the Company's production.

Update on Acreage

During 2007, Aurora engaged in several transactions involving purchase and sale of properties, as well as traditional leasing efforts in its target regions. The most significant area of leasehold acquisition activity occurred with the Company's Woodford shale properties. As was announced in September 2007, Aurora has been actively building an acreage position of over 30,000 net acres in the Woodford shale natural gas play of Oklahoma. The identified target area is focused in central Oklahoma, which has been experiencing a significant increase in leasing and drilling activity. It is positioned among geological provinces with active Woodford shale development, with average depths over 5,000 feet and organic shale thickness up to 300 feet. We currently have expended approximately $8.0 million for an 89% working interest in over 37,000 gross acres in this play.

Following is a summary of the Company's entire acreage inventory on December 31, 2007.

Acreage by Play/Trend 2007 2006
Gross Net Gross Net

Michigan Antrim Shale 310,141 156,481 290,730 154,643
New Albany Shale 833,365 443,456 811,628 441,351
Woodford Shale 37,325 33,219 14,365 12,785
Other 102,352 79,059 100,057 81,112
Total 1,283,183 712,215 1,216,780 689,891

Update on Proved Reserves

Aurora's year-end 2007 proved reserves increased from year-end 2006 by 14 Bcfe to 167 Bcfe. Of the 167 Bcfe, approximately 70% is considered proved developed, of which 9% is waiting on hook-up. The remaining 30% of total proved reserves is considered proved undeveloped.

Successful drilling activities during 2007 replaced 1,500% of proved reserves at a cost of less than $1 per Mcfe, adding 48 Bcfe in proved reserves - 24 Bcfe in the Antrim shale and 24 Bcfe in the New Albany shale, respectively. The Company also recorded a downward revision of 34.5 Bcfe. This revision was primarily due to lower realized production levels from certain Antrim projects. A summary of the proved reserves reconciliation is provided below:

Proved Reserves
Reconciliation of Reserves (Bcfe)

Proved Reserves as of December 31, 2006 153.45
Revisions of previous estimates -34.53
Purchases of minerals in place 2.94
Extensions and discoveries 48.04
Production -3.20
Sales of minerals in place -0.10
Proved Reserves as of December 31, 2007 166.60

Aurora's pre-tax PV-10 increased 20%, from $159 million in 2006 to $190 million in 2007. If the benefit of financial hedges and pipeline revenues were included in the SEC evaluation, the PV-10 would improve by $7.2 million and $17.1 million, respectively, for a total pre-tax PV-10 value of $214 million.

Though the SEC method is the required metric for our Form 10-K, a typical economic PV-10 valuation of proved reserves would incorporate market-based pricing (i.e. December 31, 2007 NYMEX forward curve for 4 years, then held constant for the remaining asset life), hedges, and pipeline revenue. Using these inputs, Aurora's pre-tax PV-10 approaches $275 million.

Update on Capital Resources

As announced in September 2007, Aurora's Board of Directors retained Johnson Rice & Company, L.L.C. ("JRCO") to assist with investigating strategic alternatives. These alternatives, among other things, were to include revisions to our strategic plan, asset divestitures, operating partnerships, identifying additional capital sources, or a sale, merger, or other business combination. In conjunction with the information presented by JRCO, our Board of Directors has determined the best way to create value is as follows: (i) strengthen the management team; (ii) adjust the capital structure to improve capital availability; (iii) focus on drilling Aurora's undeveloped properties; and (iv) optimize Aurora's asset portfolio through a combination of asset divestitures, joint ventures, or farm-outs of our non-core assets. Effective today, the Company's Board of Directors has requested that JRCO conclude their evaluation efforts.

The Company has determined that its existing capital structure is not adequate to fund its anticipated growth. Currently, Aurora is able to maintain its operations through the existing cash balances and internally generated cash flows from sales of oil and natural gas production. However, management believes the best way to fund the Company's growth strategy is with project financing for its emerging plays in the New Albany shale and the Woodford shale. At this time, Aurora is in the process of negotiating several term sheets with certain recognized energy lenders offering project financing for at least two of its primary development opportunities.

Aurora's goal is to establish separate financing entities for each play while ensuring the financing structure is non-recourse to its parent entity. The current credit facilities are reserve-based loans which are appropriate for a mature development play like the Antrim shale. The Company is currently in discussions to improve its existing credit facilities and establish new facilities as described above. Currently, no project financing or amendments to existing credit facilities have been procured.

Management Comments

Mr. William W. Deneau commented further on Aurora's activities and prospects:

"The past six months have given our management team plenty of time to reflect not only on our past, but more importantly, our future. Though it may not be evident in the public forum, we have made some important strides in preparing our Company for a dramatic change in direction.

"I believe that the recent management changes highlight a turning point for Aurora. With a stronger management team, a new strategic vision, a sharp focus on developing the New Albany shale, and our anticipated new financing, we are building a solid foundation to begin developing our properties.

"We expect that our 2008 capital expenditure program will be moderate as we lay the groundwork for growth. Once we attain project financing for our properties, we expect to begin two drilling programs. First, we anticipate drilling continuously in the New Albany shale with one rig, capable of drilling approximately 20 wells annually. Each well will be drilled, tested and immediately hooked into our production system. This process will mitigate our operational risk and provide valuable information on the producibility and predictability of the resource. With success, we will add more rigs and grow our drilling program.

"Second, in the Woodford shale, we expect to begin a seismic and test drilling program across our leasehold. This program will generate the geoscientific data required to evaluate our acreage position and determine if it warrants a full-scale drilling program. Other operators in the Woodford have already moved up the learning curve on drilling and completion techniques, so our early efforts could quickly ramp to a substantial operation in that play.

"Finally, we expect that in each of those plays, given our extensive leasehold with multiple producible formations, we will create additional value as we optimize our asset portfolio. This may come in the form of joint ventures, farm-outs, asset trades, purchases or sales that help us create as much value as possible, as quickly as possible.

"We are excited for the potential that this new year brings, and believe that we will look back on this time as one in which we became a new, concentrated enterprise that will reap rewards for many years."

Conference Call Details

At this time, the Company has elected not to host a conference call. Instead, management anticipates hosting a conference call on or around April 30, 2008. At that time it is expected that more conclusive information may be shared about proposed changes in corporate and capital structure, anticipated capital expenditures, and upcoming events. In the interim, all questions may be directed to the Investor Relations contact below.

Selected Unaudited Quarterly Financial Data

The following table sets forth Aurora's quarterly unaudited statement of operations for the quarter ended December 31, 2007 and September 30, 2007, respectively. You should review this information together with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the audited consolidated financial statements and related notes included in Aurora's Form 10-K for the year ending December 31, 2007.

Three Months Ended
December 31, 2007 September 30, 2007
Statement of operations data
Revenues
Oil and natural gas sales $7,234,744 $6,957,069
Pipeline transportation and
marketing 324,214 181,441
Field service and sales 73,921 66,878
Interest and other income 45,736 28,655
Total revenue 7,678,615 7,234,043
Expenses
Production taxes 293,974 262,127
Production and lease operating
expenses 2,543,679 2,091,066
Pipeline and processing operating
expenses 99,077 82,986
Field services expense 63,657 58,000
General and administrative expenses 1,960,703 1,834,718
Oil and natural gas depletion and
amortization 1,524,059 721,585
Other assets depreciation and
amortization 624,939 628,983
Interest expense 1,287,255 1,244,363
Loss on debt extinguishment 0 3,448,520
Taxes, other (76,699) 95,773
Total expenses 8,320,644 10,468,121
Loss before minority interest (642,029) (3,234,078)
Minority interest in income of
subsidiaries (14,668) (20,216)
Net loss $(656,697) $(3,254,294)
Net loss per common share - basic
and diluted $(0.01) $(0.03)

Selected Historical Financial Data

The following tables set forth our December 31, 2007, 2006, and 2005, year-end selected financial data as of and for each of the periods indicated. The data as of and for the years ended December 31, 2007, 2006, and 2005, is derived from our audited consolidated financial statements for the periods indicated. You should review this information together with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and audited consolidated financial statements and related notes included in our Form 10-K for the year ending December 31, 2007.

2007 2006 2005
Statement of Operations Data
Revenues:
Oil and natural gas sales $26,723,818 $21,591,811 $6,743,444
Pipeline transportation
and marketing 792,587 489,473 - Field service and sales 390,401 125,611 - Interest and other 549,149 220,592 666,850
Total revenues 28,455,955 22,427,487 7,410,294

Expenses:
Production taxes 1,123,070 877,319 506,635
Production and lease
operating expense 8,761,445 5,966,341 1,587,205
Pipeline operating expense 359,865 265,795 - Field services expense 321,753 90,913 - General and administrative
expense 8,029,122 7,531,718 3,435,507
Oil and natural gas
depletion and amortization 3,769,104 2,681,290 767,511
Other assets depreciation
and amortization 2,396,026 2,083,191 308,647
Interest expense 4,582,021 4,573,785 1,307,370
Loss on debt extinguishment 3,448,520 - - Taxes, other 19,021 250,884 29,651
Total expenses 32,809,947 24,321,236 7,942,526
Loss before minority interest (4,353,992) (1,893,749) (532,232)
Minority interest in (income)
loss of subsidiaries (67,841) (50,898) 15,960
Net loss $(4,421,833) $(1,944,647) $(516,272)

Net loss per common
share-basic and diluted $(0.04) $(0.02) $(0.01)

Weighted average common
shares outstanding - basic and diluted 101,633,162 82,288,243 40,622,000

Cash Flow Data
Cash provided by (used in)
operating activities $10,079,049 $5,467,910 $(2,404,739)
Cash used by investing
activities (61,100,489) (89,606,098) (39,869,326)
Cash provided by financing
activities 51,711,722 73,892,946 49,075,121

As of December 31,
2007 2006
Balance Sheet Data
Cash and cash equivalents $2,425,678 $1,735,396
Other current assets 8,901,774 11,306,797
Oil and natural gas properties, net
(using full cost accounting) 209,818,344 161,471,277
Other property and equipment, net 10,365,599 10,465,897
Other assets 23,160,273 27,407,825
Total assets $254,671,668 $212,387,192

Current liabilities $ 8,580,990 $ 18,040,082
Long-term debt, net of current
maturities 113,835,028 54,538,138
Minority interest in nets assets of
subsidiaries 112,661 77,873
Shareholders' equity 132,142,989 139,731,099
Total liabilities and
shareholders' equity $254,671,668 $212,387,192

About Aurora Oil & Gas Corporation

Aurora Oil & Gas Corporation is an independent energy company focused on unconventional natural gas exploration, acquisition, development and production with its primary operations in the Antrim Shale of Michigan, the New Albany Shale of Indiana and Kentucky, and the Woodford Shale of Oklahoma.

Cautionary Note on Forward-Looking Statements

Statements regarding future events, occurrences, circumstances, activities, performance, outcomes, beliefs and results, including future revenues, renegotiation of existing credit facilities, the procurement of new credit facilities, anticipated capital availability, anticipated capital expenditures, drilling results, and plans for future growth through drilling and production are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Although we believe that the forward-looking statements described are based on reasonable assumptions, we can give no assurance that they will prove accurate. Important factors that could cause our actual results to differ materially from those included in the forward-looking statements include the timing and extent of changes in commodity prices for oil and gas, drilling and operating risks, the availability of drilling rigs, changes in laws or government regulations, unforeseen engineering and mechanical or technological difficulties in drilling the wells, operating hazards, weather- related delays, the loss of existing credit facilities, availability of capital, and other risks more fully described in our filings with the Securities and Exchange Commission. All forward-looking statements contained in this release, including any forecasts and estimates, are based on management's outlook only as of the date of this release and we undertake no obligation to update or revise these forward-looking statements, whether as a result of subsequent developments or otherwise.

First Call Analyst:
FCMN Contact:

Source: Aurora Oil & Gas Corporation

CONTACT: Jeffrey W. Deneau, Investor Relations, Aurora Oil & Gas
Corporation, +1-231-941-0073

Web site: http://www.auroraogc.com/

2008-03-07 16:35:56 0307506 PRNEWSWIRE