President's Message
A Change in Focus
The sale of Sharon’s US assets in exchange for common shares of Magnum Hunter Resources, a rapidly growing US exploration company, marked a turning point in the business plan and focus of the Company.
On September 30, 2009 Sharon received 2.3 million Magnum Hunter shares in exchange for all of its US assets. The market value of the shares increased to $6.9 million by March 31, 2010 and subsequent to the Company’s year end have continued to increase in value. During June and July 2010, Sharon sold a total of 311,000 Magnum Hunter shares to realize $1.5 million and Sharon is now in an enviable position, for a growth oriented junior exploration company, with:
- • Significant cash position.
- • Substantial and highly liquid holding in Magnum Hunter Resources.
- • Growing inventory of oil focused prospects.
- • Ongoing joint venture relationship with two related junior exploration companies which will allow Sharon
to minimize overhead costs and maximize the amount of expenditure used to grow its production and reserves base.
Highlights of the Company’s assets are:
- Magnum Hunter share holdings
Magnum Hunter is a fast growing US based exploration company focused primarily on Eagle Ford shale prospects in south central Texas and on the Marcellus fractured shale play in Ohio, West Virginia and Kentucky. Magnum Hunter is currently drilling its first horizontal well on its Eagle Ford property and as a result of this activity at the writing of this report, Magnum’s share price has increased substantially.
To date Sharon has sold 311,000 shares at an average price of $4.77 per share, realizing $1.5 million. Sharon’s remaining share holdings have a market value of in excess of $9.0 million at the date of this report. Sharon plans to continue to prudently sell a portion of these shares to fund its ongoing activities.
- Oil Prospects
Sharon has participated in a joint venture in Alberta and Saskatchewan, with a related partner, for the past six years. Initially the joint venture focused on gas prone prospects in south central Alberta, but with changes in gas economics in early 2009, the Company has concentrated on the acquisition of heavy oil prospects.
As a result the Company has acquired interest in oil prospects on 14 tracts of land, totaling 15,836 acres (3,295 net acres). Many of the prospects have beenidentified from the interpretation of older wells log evaluation, which indicate the possibility of bypassed oil play.
Canadian Exploration
During the past year, Sharon participated in the acquisition of a land base in east central Alberta and adjacent areas of west central Saskatchewan. Some prospects with oil potential of particular note are:
Lloydminster, Alberta:
The Company acquired a 20% working interest in 2000 acres of land near an active developing oil play at Lloydminster. The adjacent section to the north of 400 acres of these lands is currently being developed. A well has been drilled, 250 meters north of Sharon’s lease line, and is currently on production at a rate of 65 Bopd. This successful well to the north has reduced the risk of the lands and Sharon and its partners are now planning to drill at least one horizontal well on the property during this year. Horizontal wells in this area have commenced production at rates of 50 to 100 Bopd. Sharon also has a 20% interest in approximately 1,600 acres on three other blocks of land, with potential for Lloydminster oil accumulations. The following map indicated the relative thickness of vertical wells already in the lands. The property next to a current development is Section 7-48-01 W4.
Shaunovan, Saskatchewan Prospects
Sharon has a 20% working interest in approximately 8,100 acres (1,633 net acres), located in the lower Shaunovan fairway of west central Saskatchewan. One well is planned on the property in the next year. The following map of Sharon’s holdings in the lower Shaunovan area indicates the recent land sale values received by the Saskatchewan Government for sections adjacent to Sharon’s.
Birdbear, Saskatchewan Prospects
Sharon currently holds an average working interest of 17% in 2,250 acres (386 net acres) of land located in west central Saskatchewan. One 480 acre block immediately offsets a Birdbear pool which is being actively developed. Sharon plans to participate in a seismic program on this acreage to assist in defining a drilling location.
The Diaz/Tuscany Joint Venture
The management of Sharon has determined that the most economic way for Sharon to increase its Canadian oil production and reserve base is to operate and explore through a joint venture with two related junior oil and gas companies; Diaz Resources Ltd. and Tuscany Energy Ltd.
The companies will share their overhead and technical expenses in order to operate existing property and to identify and explore for new reserves. The companies have agreed to acquire new prospects initially on the basis of Sharon 25%, Diaz 45% and Tuscany 30%.
Management believes this would keep operating overhead expenditures to a minimum and allow the companies to commit more dollars to land acquisitions and exploration and development activities. This will allow the growth in production and reserves at the lowest cost per barrel of new reserves.
Reserves and Reserve Values
The independent engineering evaluation of Sharon’s properties assigned proved reserves before royalties of 115.6 MBOE and total reserves before royalties of 182.2 MBOE at March 31, 2010. These reserve estimates result in a before tax present value of estimated future net revenues, discounted at 10%, of $3.2 million CDN. There is no assurance that this represents the fair value of the assets.
Business Outlook
After the completion of the sale of the U.S. properties and the Parkman oil pool, Sharon has significantly increased its financial flexibility. Over the last few months oil prices have stabilized at relatively high levels and natural gas prices have recovered from the very low prices of the Fall of 2009. Sharon plans to use its strong financial base to focus its efforts on the development of oil prospects in Alberta and Saskatchewan.
On behalf of the Board,
R.W. Lamond, President and Chairman of the Board
July 14, 2010