Buffalo Resources Corp.

Buffalo Resources Corp.

January 14, 2008 09:00 ET

Buffalo Resources Provides Operational Update and Initial 2008 Guidance

CALGARY, ALBERTA--(Marketwire - Jan. 14, 2008) - Buffalo Resources Corp. ("Buffalo") (TSX VENTURE:BFR) is pleased to announce that the Company achieved its 2007 market guidance targets and provides the following operational update for the period to December 31, 2007.

Operational Update:

Initial estimates place Buffalo's December 2007 exit production rate at 4,200 boe/d with at least 250 boe/d ready to be brought on production from an additional four wells (3.0 net), including a discovery well at Expanse which is awaiting tie-in and three wells at Frog Lake which had been drilled and were awaiting completion at year-end. Buffalo's exit production rate was in line with the Company's prior market production guidance of between 4,200 and 4,500 boe/d resulting in daily average production for the 10 month financial year of approximately 2,900 boe/d. During 2007, Buffalo drilled a total of 29 (19.2 net) wells with a 92% success rate.

As a result of the change in year-end from February 28 to December 31, Buffalo's 2007 financial year included only 10 months and the final interim reporting period was for the four months from September 1, 2007 to December 31, 2007.

During this four month period to December 31, 2007, the Company carried out an active capital program that included drilling 14 (9.2 net) wells. Highlights by area are as follows:

Frog Lake:

The Company drilled nine (5.5 net) wells of which five wells were on production by December 31, 2007, three were awaiting completion and one is being evaluated. A further two wells were drilled in January 2008 with the result that at least five additional wells should be completed and placed on production by the end of January. A Holding Application has been submitted to the Alberta Energy Utilities Board for heavy oil drilling on Buffalo's Frog Lake lands and, upon approval, will allow Buffalo to proceed with the drilling of up to an additional 150 locations over the next two years.

Central Alberta:

A D&A well (0.6 net) was drilled at Malmo and a previously drilled well at Wetaskiwin (0.3 net) was brought on stream in December. At Killam North, the Company completed construction of its centralized oil battery, capable of handling 1,000 bbls/d of fluid and one MMcf/d of natural gas.

Peace River Arch:

Buffalo drilled four (3.1 net) wells. A discovery well was drilled at Expanse. A short term test indicated production capability from two zones at rates totalling in excess of 1 MMcf/d with associated liquids. Plans are underway to have this well tied-in and on stream before spring break-up. The Company owns nine sections of land in the area (7.5 net) and is planning to shoot 3-D seismic in the first half of 2008. At Cecil, two wells were drilled and cased before year-end and will be evaluated in early 2008. A well was drilled and cased at Valhalla (0.1 net) and should be completed in January 2008. A 30 square mile proprietary 3D seismic shoot at Clayhurst was initiated in December and completed in January 2008.

Asset Sales

Following the amalgamation of The Buffalo Oil Corporation and Choice Resources Corp., a number of properties were identified as non core. A process was implemented for the disposition of these assets and the first transaction closed in November 2007 with the Company receiving proceeds of $960,000. An offer for the sale of minor properties in Alberta is expected to close in January 2008. A conditional letter of intent has been executed for the sale of all of Buffalo's properties in Saskatchewan. This offer is expected to be finalized in January 2008. Proceeds from these dispositions will be applied to reduce the Company's bank debt.


An interim review was completed of the Company's credit facility by its banker to update for changes in commodity prices and oil and gas reserve additions. This resulted in an increase in the facility from $65 to $75 million with the next review scheduled for May 2008. At December 31, 2007, Buffalo had drawn approximately $52 million against this facility.

2008 Outlook:


The Board of Directors has approved a budget for 2008 which provides for the re-investment into capital projects of Buffalo's cash flow from operations and the proceeds from the sale of non core assets. The Company is planning a $28 million capital expenditure program as follows: $19 million on drilling and completions; $5 million on facilities; and $4 million on land and seismic. This program includes drilling a total of 34 wells (19.0 net) of which 18 (8.0 net) will be at Frog Lake in eastern Alberta, 9 (4.8 net) in central Alberta, 1 (0.8 net) in the Foothills of southern Alberta and 6 (5.4 net) in the Peace River Arch in northern Alberta, all on Company owned lands.

Buffalo expects to exit 2008 at a production rate in the range of 4,800 to 5,200 boepd. Based on expected price realizations in the last quarter of 2007 and assuming a West Texas Intermediate crude oil price of US $88 per barrel, a heavy oil price differential of US $36 per barrel and an AECO-C natural gas price of Cdn $6.13 per mmbtu throughout 2008, Buffalo's average realized selling prices for 2008 are forecast at $46.64 per barrel for oil and $6.46 per mcf for natural gas. These operating parameters should result in cash flow from operations of approximately $23.8 million in 2008. This cash flow is sensitive to changes in annual average operating parameters as follows:

Change Cash Flow Impact
------------- ------------------
Realized selling prices
- Oil $10 per bbl $6.1 million
- Natural gas $1 per mcf $3.5 million
Production volume 100 boe/d $0.7 million

Joint Venture Funding

The Company is currently exploring the formation of a joint venture to accelerate drilling of its large inventory of development and exploration projects. Pending successful conclusion of the joint venture discussions, Buffalo's capital program will be significantly expanded and 2008 guidance revised. In anticipation of this funding, Buffalo has licensed and is currently constructing the drilling location for its second Mississippian horizontal development well at Pincher Creek in southern Alberta where the Company has a 66% working interest in approximately 42 sections of land.

Buffalo is a Canadian junior oil and gas company engaged in the exploration, development and production of oil and gas reserves in Alberta. Buffalo has 65.7 million common shares issued and outstanding.

Certain information set forth in this press release contains forward looking statements. Readers are cautioned that the assumptions used in the preparation of such information, although considered reasonable at the time of preparation, may prove to be imprecise and, as such, reliance should not be placed on forward-looking statements. Buffalo's actual results, performance or achievements could differ materially from those expressed in, or implied by, these forward-looking statements and accordingly, no assurance can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do so, what benefits Buffalo will derive therefrom. Buffalo disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Barrels of oil equivalent (Boe's) may be misleading, particularly if used in isolation. A boe conversion ratio of 6 Mcf of gas = 1 Bbl of oil is based upon an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

The TSX Venture Exchange has not reviewed and does not accept responsibility for the adequacy or accuracy of this press release.

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