Midnight Oil Exploration Ltd.

Midnight Oil Exploration Ltd.

August 12, 2008 02:38 ET

Midnight Expands Its Natural Gas Play Inventory and Announces Adoption of Shareholders' Rights Plan

CALGARY, ALBERTA--(Marketwire - Aug. 12, 2008) - Midnight Oil Exploration Ltd. (TSX:MOX) ("Midnight" or the "Company") today announces its financial and operating results for the three and six months ended June 30, 2008 and announces that the Board of Directors has adopted a Shareholders' Rights Plan.

Midnight's second quarter of 2008 was both active and highly successful from an operating and financial perspective. Operationally, we made tremendous progress on our high potential stacked sands and tight gas resource play in the Deep Basin where we advanced the play both technically and with significant additions to our growing land and prospect inventory. On the financial side, we had record funds from operations of $8.7 million and net income of $2.2 million for Q2 2008. Production increased to 1,908 boe/d for the quarter (despite shut-ins associated with planned turnarounds) resulting from the early success of our first well in our Deep Basin program.

As discussed in our Q1 2008 report, Midnight has identified and built a large land position to exploit the high potential multi-zone gas targets and the tight gas resource plays in the Deep Basin areas of Elmworth and Wapiti. Midnight is well experienced in these areas and has both the technical expertise and the business execution skills to succeed with this business plan.

Since our last report, Midnight has been successful in accumulating an additional 23,000 net acres of highly prospective mineral rights under crown sales and farmin agreements bringing our total exposure to the gas saturated horizons of the Deep Basin to over 56,000 net acres or over 87 net sections of land. We have delineated the prospective areas through our in-depth geotechnical and engineering analyses and we are now planning our drilling, completion and pipelining operations.

As reported in Q1 2008, at Elmworth, we drilled one gross (0.5 net) horizontal well targeting the multi-zone stacked sands in the vertical portion of the well and the tight gas sands of the Cadomin formation in the horizontal leg. Recognizing the potential for this well to benefit from the limited entry multi-stage fracs that we used successfully in our West Central operations, we applied this new and innovative technique with positive results. The combined rates resulted in initial production in excess of expected range of 3 - 5 mmcf/d. Midnight holds an average 45% working interest in two sections of land and plans additional drilling and down spacing to three to four wells per section in this area. In addition, we acquired six 100% working interest sections of highly prospective land offsetting this acreage. Midnight currently has 6 locations planned for this new acreage and plans to down space these lands after the initial drilling phase. Operations on these additional lands will be underway late in Q3 or early Q4 2008. Midnight's Elmworth program is the model for development of the high potential stacked uphole Cretaceous reservoirs and the tight sands of the Cadomin throughout our Deep Basin area.

At Red Rock, in Q1 2008, Midnight drilled two gross (2.0 net) successful multi-zone discovery wells that identified potential similar to our Elmworth well. These two wells validated our prospect interpretation of the high potential in the stacked sands and the aerial extent of our Cadomin tight gas play covering over 25 sections of land (16,000 net acres) we hold in this area. While spring break up forced us to delay completion of these wells, we expect to complete these wells during the second half of the year.

Following up on this success and based on our technical analysis we added to this opportunity base with an additional 10,000 gross acres (over 16 gross sections) of highly prospective mineral rights in West Wapiti. Similar to our Elmworth program, we are targeting both the high potential stacked sands and the tight gas resource play of the Cadomin.

In our West Central area, we hold a small working interest in a large and highly prospective landholding that keeps us involved and current on the activities and techniques of a wide range of industry partners and prospects including the high potential Montney plays.

At Red Earth, Midnight is slowing its capital program. During the second quarter we benefited from our earlier facility investment as Red Earth operating costs contributed to a 22% total reduction in operation costs from Q1 2008. Midnight's light oil asset base in Red Earth provides us with a solid financial footing through a predictable production profile and record commodity prices.

Historically, the second quarter has limited capital expenditures due to spring break-up. Although not a big quarter for capital expenditures or production growth, Midnight's activities during the second quarter were very significant to the long term benefit of our company. Midnight has put in place the key elements for sustained growth and success of our Company with our large opportunity base comprised of our high potential multi-zone gas targets overlying a large tight gas resource play.

During the second quarter in 2008, Midnight did not acquire any shares under its normal course issuer bid due to the preference to allocate capital to investments in our Deep Basin resource play.

Q2 2008 and YTD 2008 operational and financial highlights with comparative data are as follows:

(000's, except for per
share amounts) Q2 2008 Q2 2007 Q1 2008 YTD 2008 YTD 2007
Petroleum and natural
gas sales $ 15,576 $ 11,009 $ 11,243 $ 26,819 $ 21,903
Royalties 3,567 1,618 2,541 6,108 3,608
Operating expenses 1,883 1,781 2,154 4,037 3,957
Transportation expenses 114 312 207 321 501
Netback $ 10,012 $ 7,298 $ 6,341 $ 16,353 $ 13,837

G&A - cash charge 1,017 803 811 1,828 1,516
Interest 350 426 396 746 765
Other income (39) - (103) (142) -
Funds from operations $ 8,684 $ 6,069 $ 5,237 $ 13,921 $ 11,556
Per share - Basic 0.18 0.13 0.11 0.29 0.24
- Diluted 0.18 0.13 0.11 0.29 0.24
Net income (loss) $ 2,174 $ 51 $ 8 $ 2,182 $ (373)
Per share - Basic 0.05 0.00 0.00 0.05 (0.01)
- Diluted 0.05 0.00 0.00 0.05 (0.01)
Petroleum and natural
gas additions $ 4,695 $ 3,439 $ 11,632 $ 16,327 $ 16,021
Net debt 31,042 26,577 34,996 31,042 26,577
Total assets 172,905 161,537 169,706 172,905 161,537
Shares outstanding
Basic 47,423 47,828 47,423 47,423 47,828
Diluted 53,543 53,168 52,430 53,543 53,168

Average daily production
Natural gas (mcf/d) 5,799 5,769 5,239 5,519 6,327
Oil (bbls/d) 785 1,008 755 770 964
NGLs (bbls/d) 157 177 128 142 173
Combined (boe/d) 1,908 2,146 1,756 1,832 2,192

Average prices received
Natural gas ($/mcf) $ 10.44 $ 7.22 $ 7.95 $ 9.26 $ 7.55
Oil ($/bbl) 124.63 69.80 96.72 110.94 67.06
NGLs ($/bbl) 78.02 49.43 63.25 71.40 48.29
Combined ($/boe) $ 89.71 $ 56.37 $ 70.35 $ 80.43 $ 55.20
Royalties 20.54 8.29 15.90 18.32 9.09
Operating expenses 10.85 9.12 13.48 12.11 9.98
Transportation expenses 0.66 1.59 1.30 0.96 1.26
Netback received ($/boe) $ 57.66 $ 37.37 $ 39.67 $ 49.04 $ 34.87

Midnight's Board of Directors announces they have adopted a Shareholders' Rights Plan (the "Rights Plan") effective August 11, 2008. The Rights Plan is similar to existing shareholder rights plans adopted by other Canadian public companies. Based upon Midnight's future prospects, the Board of Directors have determined that it is in the best interests of Midnight to adopt the Rights Plan to ensure a maximization of shareholder value in that Midnight believes that the unrealized value of its potential is not properly reflected in its current valuation. The Rights Plan has not been adopted in response to, or in anticipation of, any known take-over bid.

The Rights Plan's objectives are to ensure, to the extent possible, that all shareholders of the Corporation are treated equally and equitably in connection with any takeover bid for the Corporation. The Rights Plan discourages discriminatory, coercive or unfair takeovers of the Corporation and gives the Board of Directors time, if needed, to evaluate the proposed transaction and to conduct an orderly process to maximize shareholder value. Such process may include the solicitation of superior proposals, consideration of alternative structures, identification of other potential bidders or the conducting of an orderly auction.

The Rights Plan is subject to approval of the Toronto Stock Exchange, and requires approval by Midnight's shareholders within six months of the Rights Plan's effective date. If the Rights Plan is not confirmed by Midnight's shareholders, it will terminate and be void and of no further force and effect.

The Board has implemented the Rights Plan by authorizing the issuance of one right (a "Right") in respect of each common share (the "Common Shares") of the Corporation outstanding at the close of business on August 11, 2008 (the "Record Time"). In addition, the Board authorized the issuance of one Right in respect of each additional Common Share issued from treasury after the Record Time. The Rights trade with and are represented by Midnight's Common Shares. Until such time as the Rights separate from the Common Shares, when they become exercisable, Rights certificates will not be distributed to shareholders.

If a person, or a group acting jointly or in concert, acquires (other than pursuant to an exemption available under the Rights Plan) beneficial ownership of 20% or more of the Common Shares, Rights (other than those held by such acquiring person which will become void) will separate from the Common Shares and permit the holder thereof to purchase Common Shares at a 50% discount to their market price. A person, or a group acting jointly or in concert, who is the beneficial owner of 20% or more of outstanding Common Shares as of the Record Time is exempt from the dilutive effects of the Rights Plan provided such person (or persons) does not increase its beneficial ownership by more than 1% (other than in accordance with the terms of the Rights Plan). At any time prior to the Rights becoming exercisable, the Board of Directors may waive the operation of the Rights Plan with respect to certain events before they occur.

The issuance of the Rights is not dilutive and will not affect reported earnings or cash flow per share until the Rights separate from the underlying Common Shares and become exercisable or until the exercise of the Rights. The issuance of the Rights will not change the manner in which shareholders currently trade their Common Shares.

Midnight is a top quality junior exploration company with a high-end technical team with a proven track record. Our balanced sweet gas and light oil production base, our strong balance sheet and our high quality prospect inventory positions Midnight extremely well for the future.

Copies of the consolidated interim financial statements and Management's Discussion and Analysis in respect thereof for the three and six months ended June 30, 2008 and the Rights Plan is being filed today with Canadian securities regulators and will be available on SEDAR and can be accessed at www.sedar.com or by visiting Midnight's website at www.midnightoil.ca.

Forward Looking Statements

Certain information contained within this press release, and in certain documents incorporated by reference into this document, may constitute forward looking statements. These statements relate to future events or our future performance. All statements other than statements of historical fact may be 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 expressions. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward looking statements. We believe the expectations reflected in those forward looking statements are reasonable but no assurance can be given that these expectations will prove to be correct and such forward looking statements included in, or incorporated by reference into, this press release should not be unduly relied upon. These statements speak only as of the date of this press release and/or as of the date specified in the documents incorporated by reference into this press release, as the case may be.

Statements relating to "reserves" or "resources" are deemed to be forward looking statements, as they involve the implied assessment, based on certain estimates and assumptions, that the resources and reserves described can be profitably produced in the future. The forward looking statements contained in this press release and the documents incorporated by reference herein are expressly qualified by this cautionary statement. We do not undertake any obligation to publicly update or revise any forward looking statements except as required by securities law.

Basis of Presentation - The financial data presented below has been prepared in accordance with Canadian Generally Accepted Accounting Principles ("GAAP"). The reporting and the measurement currency is the Canadian dollar. For the purpose of calculating unit costs, natural gas is converted to a barrel equivalent ("boe") using six thousand cubic feet of natural gas equal to one barrel of oil unless otherwise stated.

Non-GAAP Measurements - Within the press release references are made to terms commonly used in the oil and gas industry. Funds from operations, funds from operations per share and netbacks are not defined by GAAP in Canada and are referred to as non-GAAP measures. Funds from operations per share is calculated based on the weighted average number of common shares outstanding consistent with the calculation of net income per share. Netbacks equal total revenue less royalties and operating and transportation expenses calculated on a per boe basis. Management utilizes these measures to analyze operating performance and leverage. Funds from operations is not intended to represent operating profit for the period nor should it be viewed as an alternative to operating profit, net income, cash flow from operations or other measures of financial performance calculated in accordance with Canadian GAAP. Funds from operations is commonly referred to as cash flow by research analysts and is used to value and compare oil and gas companies and is frequently included in published research when providing investment recommendations. Total boes are calculated by multiplying the daily production by the number of days in the period.

Midnight is a publicly listed junior oil and gas exploration and development company based in Calgary, Alberta. Midnight's shares trade on the TSX under the symbol "MOX".

The TSX has neither approved nor disapproved the contents of this press release.

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