Magnus Energy Inc.
TSX VENTURE : MEI.A
TSX VENTURE : MEI.B

Magnus Energy Inc.

May 24, 2006 15:07 ET

Magnus Energy Releases 2006 First Quarter Results

CALGARY, ALBERTA--(CCNMatthews - May 24, 2006) - Magnus Energy Inc. (TSX VENTURE:MEI.A)(TSX VENTURE:MEI.B) ("Magnus" or the "Company") announced today its financial results for the first quarter of 2006.

Highlights

- Major light oil discovery at Antler in Southeast Saskatchewan

- The Company has over 127,000 gross acres and an inventory of more than 300 potential gross drilling locations

- Proved plus probable reserves of 1,299.5 MBOE at March 31 for a 10% discounted cash flow value of $25.163 million

- Raised $10.1 million of equity and approved a $24 million capital expenditures budget for 2006

- 10 wells (net 6.5) drilled or in progress during the first quarter

- Closed acquisition of KVR Resources Ltd.

The Company's first production began in January, 2006 with a well at Antler in Southeast Saskatchewan. The well was drilled by Magnus and was followed by production from three more Antler wells in February and March. An initial 67 BOE per day of production was also added from the acquisition of KVR Resources Ltd. ('KVR') on January 31, 2006. The first quarter production for the Company averaged 91 BOE per day with the month of March averaging 153 BOE per day. At March 31, 2006 the Company had an estimated 500 to 600 BOE per day of production waiting to be tied in. This includes 2,000 MCF per day (333 BOE) of natural gas from six wells drilled at Paradise Valley in East Central Alberta and 200 to 250 BOE per day from half a dozen wells in Central and Southern Alberta which were drilled by KVR in the fourth quarter of 2005. Wet conditions in the first quarter of 2006 in East Central Alberta delayed the tie-in of new gas production until after break up.

At March 31, 2006 the Company had a cash and working capital balance of $2,547,813 and short term debt of $4,250,000 for a net debt position of $1,702,187.

The Company drilled 10 (net 6.5) wells in the first quarter and operated all but one well. The capital spent on these wells was $7.35 million which also included $1.1 million on land and $1.9 million towards equipping and facilities to tie in wells drilled in the fourth quarter of 2005. The Antler property accounted for 46% of the capital investment in the quarter and will continue to be the primary area for expenditures as the Company develops this highly prospective discovery. The Company has a $24 million capital program for 2006 which is expected to meet all flow-through requirements for 2006 and management anticipates reaching an exit production level of over 900 BOE per day (450 BOE from Antler) by year end. As of March 31, 2006 the Company has $6.1 million of eligible exploration expenditures left to spend in 2006.

Murray Stewart, President and Chief Executive Officer, commented, "Magnus is progressing as planned. We now have the necessary land position from which to grow the Company. Our focus continues to be creation of shareholder value through the exploration and development of our land base, adding production and reserve value. In the first quarter of 2006, we saw an 82% increase to our established reserve value. Current production is approximately 175 BOE per day and we anticipate the exit rate for the second quarter to be 600 to 700 BOE per day. Pipeline work is currently underway at our Paradise Valley gas field in Alberta, as well as tie ins for the remaining KVR wells at Leahurst, Killam, and Richdale."

Magnus has drilled seven oil wells at a 50% working interest into a new light oil field in the Antler area of southeast Saskatchewan. The wells produce 38.4 degree API sweet crude oil from the Devonian Torquay Formation. Currently, four of the seven wells have been completed and equipped for production. Just prior to break-up when the Antler wells were shut-in due to road bans, the total production from the four wells previously completed was steady at 75.5 BOPD gross (37.7 BOPD Magnus share). Our two best wells at this time are producing at 42.8 BOPD gross (21.4 BOPD Magnus share) and 20.1 BOPD gross (10.1 BOPD Magnus share) for a total from these two wells of 62.9 BOPD gross (31.5 BOPD Magnus share). Please note that these two wells are six kilometres apart.

Magnus has three other wells that are completed and will be on production by the end of May. The Company is currently building a central battery and will flowline the Company's existing wells in order to avoid shut-down of production for road bans in the future. On the Company's lands that lay within the light oil field as currently mapped, Magnus has an inventory conservatively estimated at more than 237 gross (132.5 net) drilling locations. In addition, the potential of waterflooding this field looks very promising, which could significantly increase production and reserves.

Magnus is planning a major development drilling program for the Antler area with 18 wells budgeted for the remainder of 2006. The Company has contracted two drilling rigs and arranged for the necessary material and equipment to effectively and efficiently service this play on the Company's acreage. The Magnus team has been involved in multi-well programs in the past and this expertise provides Magnus with the ability to develop Antler in a cost effective manner and to optimize development costs as activity levels escalate. Magnus estimates that production from its Antler lands will be at 450 BOED net by the end of 2006.

Mr. Stewart further remarked, "The Antler/Sinclair discovery in the Torquay has the potential to rank with the top conventional fields found in the Prairie Provinces in terms of original oil in place and recoverable reserves. The Magnus acreage in the Antler discovery gives the Company a platform for tremendous organic growth with potentially over 237 gross drilling locations with each well anticipated to produce on average from 20 to 40 barrels of oil per day gross. This is premium light oil at shallow depths in a year round operating area where the netbacks are further improved by the royalty and tax incentives offered in Saskatchewan. The Company's new wells in Antler are classified as Vertical Deep Oil Wells and qualify for royalty/tax incentive volumes that range from approximately 50,000 to 100,000 barrels per well."

The Company reported that it has filed its audited financial statements and related Management Discussion and Analysis for the quarter ended March 31, 2006 with Canadian securities regulatory authorities on SEDAR. This information may be accessed electronically at www.sedar.com.

About Magnus Energy

Magnus is a junior oil and gas company focused on the acquisition, exploration, exploitation and development of oil and natural gas properties in Western Canada.

READER ADVISORY

This press release includes forward-looking statements and assumptions respecting the Company's strategies, future operations, expected financial results, financial sources, commodity prices, costs of production and quantum of oil and natural gas reserves and discusses certain issues, risks and uncertainties that can be expected to impact on any of such matters. By their nature, forward-looking statements are subject to numerous risks and uncertainties that can significantly affect future results. Actual future results may differ materially from those assumed or described in such forward-looking statements as a result of the impact of issues, risks and uncertainties whether described herein or not, which the company may not be able to control. The reader is therefore cautioned not to place undue reliance on such forward-looking statements. The Company disclaims any intention or obligation to update or revise these forward-looking statements, as a result of new information future events or otherwise.

29,511,093 Class A Shares

1,044,000 Class B Shares

The TSX Venture Exchange has not reviewed and does not accept responsibility for the adequacy or accuracy of this release and has neither approved nor disapproved the contents of this release.

Contact Information

  • Magnus Energy Inc.
    Murray M. Stewart
    President and Chief Executive Officer
    (403) 233-4963
    (403) 262-9920 (FAX)
    Email: stewartm@magnusenergy.ca
    or
    Magnus Energy Inc.
    Stewart Larsen
    Chief Financial Officer
    (403) 233-4960
    (403) 262-9920 (FAX)
    Email: larsen@magnusenergy.ca
    or
    Magnus Energy Inc.
    Suite 1650, AMEC Place
    801 - 6th Avenue S.W.
    Calgary, Alberta T2P 3W2
    Website: www.magnusenergy.ca