Orleans Energy Ltd.
TSX VENTURE : OEX

Orleans Energy Ltd.

January 24, 2007 08:30 ET

Orleans Energy Provides Operations Update and Announces 2007 Capital Budget

CALGARY, ALBERTA--(CCNMatthews - Jan. 24, 2007) - Orleans Energy Ltd. ("Orleans" or the "Company") (TSX VENTURE:OEX) is pleased to provide the following information:

Operations Update - Fourth Quarter 2006

Orleans continued to be active with the drill bit in the fourth quarter of 2006, drilling five wells (4.8 net), including two gas wells, two oil wells and one dry and abandoned well, resulting in an overall success rate of 80%. Collectively in 2006, the Company drilled or participated in the drilling of 28 wells (20.8 net), resulting in 17 gas wells, six oil wells, one standing well and four dry holes for an overall success rate of 82%.

At Pine Creek in West Central Alberta, Orleans drilled one gas well in October (100% working interest), which was dually completed and brought on-stream in late December. In 2006, the Company successfully drilled and brought on-stream four (4.0 net) multi-zone gas wells on the property and has established a significant drilling inventory of 15 to 20 wells based upon reduced spacing to four wells per section.

At Gordondale on the Peace River Arch, in the fourth quarter the Company brought on-stream five (3.0 net) light gravity (40 degree API) oil wells, drilled and completed in the third quarter, to a newly constructed gathering system and modified oil battery. Orleans has plans to drill up to nine wells in 2007 to further delineate this oil pool. Evaluation of offsetting analog pools indicate drilling densities of 40 to 80 acre spacing with a majority of the pools under waterflood. Upon further delineation and production results, the Company intends to commence an infill drilling program and initiation of a waterflood.

At Leo in Central Alberta, Orleans drilled a horizontal oil well (100% working interest) in the Upper Mannville D&E oil pool in the fourth quarter. The Company plans to drill up to four horizontal wells in 2007. Internal estimates indicate up to 9.2 million barrels of light oil-in-place (36 degree API) with only approximately four hundred thousand barrels or 4% recovered to-date. Hydrocarbon recoveries from nearby analogous pools under waterflood range from 15 to 50%.

At Kaybob in West Central Alberta, the Company successfully commenced drilling operations in a 100% working interest Montney gas well on December 28, 2006. It was recently completed with favourable test results and tie-in is scheduled for the end of March 2007. Additionally, a follow-up Montney gas well (100% working interest) has recently been cased and is waiting on completion. Orleans has amassed 10 sections (8.4 net) of land within this liquids-rich gas prone fairway and has developed a 10 to 15 well drilling inventory, assuming the approval of a reduced spacing application to three wells per section which was submitted in the third quarter of 2006.

At Gilby in Central Alberta, the Company successfully drilled one gas well (78% working interest), targeting the Edmonton sands and Horseshoe Canyon Coals. The well was completed and is scheduled to be on-stream prior to the end of January 2007. Over 30 Edmonton sand infill locations have been identified and are awaiting down spacing approval.

At Pembina in Central Alberta, the Company drilled a gas well (100% working interest) in December 2006. The well was recently completed with favourable results and is currently waiting on tie-in to nearby processing facilities.

In this current period of volatile and uncertain commodity prices, the Company has prudently initiated a systematic commodity hedging strategy, whereby it has presently arranged the following hedge contracts for 2007:



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Daily
Notional Price
Product Index Term Volume received
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Fixed
oil swap W.T.I. Jan. 1/07 - Jul.31/07 125 bbls US$ 77.25 per bbl
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Gas
collar AECO-C Jan. 1/07 - Mar.31/07 2,000 GJs C$6.50 - C$8.50 per GJ
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Gas
collar AECO-C Jan. 1/07 - Mar.31/07 2,000 GJs C$7.00 - C$8.75 per GJ
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Gas
collar AECO-C Feb. 1/07 - Dec.31/07 1,000 GJs C$6.50 - C$9.08 per GJ
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Gas
collar AECO-C Apr. 1/07 - Oct.31/07 1,000 GJs C$6.50 - C$8.52 per GJ
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Orleans is very pleased with its second half 2006 drilling and operating results and has continued that momentum into early 2007 with very positive initial drilling performance. The inventory of opportunities continues to grow, now in excess of 200 Company-operated drilling locations across five core properties that are generally characterized as multi-zone, year round access, long reserve life areas. This past year has very much been a transitional year for Orleans as it has successfully assimilated the assets acquired mid-year through the acquisition of two private oil and gas companies and has subsequently expanded its drilling inventory. Notwithstanding the operational challenges of transforming the Company from primarily an explorer and producer of "W4" Central Alberta assets to a "W5" West Central and Peace River Arch asset focus, Orleans believes that the major operational hurdles it faced with establishing core infrastructure in key properties is a matter of past record and that delays in well start-ups are expected to be minimized as a result.

In this period of low equity valuations within the oil and gas sector, Orleans believes that it offers an excellent investment opportunity as its current share price is not reflective of the intrinsic value of the Company. Utilizing recently prepared preliminary National Instrument 51-101 ("NI 51-101") proved plus probable reserves evaluation conducted by the Company's independent reserve engineering firm as of December 31, 2006 (net present value 10%), Orleans estimates its year-end 2006 net asset value at $4.55 per fully-diluted share, exclusive of any value assigned to its significant tax pool balance of approximately $158 million. Moreover, Orleans' asset base possesses all the prerequisites for a solid growth platform including: an extensive, operated drilling inventory providing exposure to both light oil and natural gas prospects within a west-central Alberta geographic corridor, access to approximately 55,000 net acres of high working interest (77%) undeveloped acreage offering geologic play diversity, a long-life, proved plus probable reserves base of approximately 11.4 million barrels of oil equivalent with a reserve life index exceeding 10 years and an operated production base allowing for year-round access across five core areas exclusively within Alberta.

2007 Capital Budget and Market Guidance

The Company's Board of Directors has approved an initial 2007 exploration and development capital expenditure program in a range of $30 to $35 million (the "2007 Capital Budget"), range-bound to account for the unpredictable crude oil and natural gas price market. In light of the presently weak oil and gas price environment, Orleans has decided to initially execute a conservative capital budget and is directionally committed to incurring capital expenditures in an amount that does not significantly exceed projected cash flow from operations. Notwithstanding this spending discipline objective which will facilitate continued financial flexibility, the 2007 Capital Budget is designed to deliver approximately 80% growth in average daily production year-over-year and advance the continued exploration and development of Orleans' diverse asset base.

The 2007 Capital Budget encompasses the drilling of 24 to 29 wells, with an approximate 74% working interest, including seven to eight gas wells at Kaybob, seven to nine oil wells at Gordondale, two to four oil wells at Leo, three gas wells at Gilby, two gas wells at Pine Creek, two exploration gas wells at Jack on the Peace River Arch and one oil well at Pembina. The drilling expenditure component of Orleans' 2007 Capital Budget is projected between $22 to $26 million, with the remaining budgeted funds directed towards capital investments in field facilities of $5 to $6 million and land acreage expansion and seismic programs of approximately $3 million.

In terms of geographic allocation of the budgeted drilling and field facilities capital expenditures, approximately $11 to $12 million will be deployed at Kaybob, $6 to $8 million at Gordondale, $3 to $5 million at Leo/Halkirk, $3 million at Gilby, $2 million at Pine Creek and $2 million at Jack and Pembina.

Based on the capital investment activities anticipated within the initial 2007 Capital Budget, preliminary average daily production for calendar 2007 is projected between 3,100 to 3,200 boe/day, weighted 65% natural gas and 35% light crude oil and natural gas liquids. The median of this forecasted production range represents an 80% increase over the Company's estimated 2006 average daily production of approximately 1,750 boe/day and a 217% increase over Orleans' calendar 2005 average daily production level of 995 boe/day. Orleans' year-end 2007 exit rate is anticipated to range between 3,300 to 3,400 boe/day.

With respect to cash flow or funds from operations in 2007, utilizing the current forward 2007 strip commodity price assumptions of US$55.00/bbl for West Texas Intermediate ("WTI") oil, an AECO gas price of C$7.68/Mcf and a Canadian dollar at $0.85 (US$/C$), cash flow from operations generated from the median of the forecasted 2007 average daily production range is estimated at $30.5 million or $0.92 per share (basic outstanding).

Stock Option Grants

The Company intends to proceed with certain option grants to officers and directors in an aggregate quantity of 325,000 options with an exercise price determined from the market price subsequent to the public dissemination of this news release. The stock options will be granted pursuant to the Company's stock option plan and will vest over a three-year period with a five-year expiry. Orleans presently has 3,314,866 shares reserved for issuance under its stock option plan. Subsequent to this stock option grant, Orleans will have a total of 3,023,739 stock options outstanding, representing 9.1% of Orleans' current total issued and outstanding common shares of 33,148,659.

Orleans Energy Ltd. is a Calgary, Alberta-based emerging crude oil and natural gas company, with common shares trading on the TSX Venture Exchange under the symbol "OEX". Orleans is a team of dedicated, experienced professionals focused on the creation of shareholder value via acquisition and development of crude oil and natural gas assets in Alberta.

Certain information regarding the Company contained herein may constitute forward-looking statements within the meaning of applicable securities laws. Forward-looking statements may include estimates, plans, anticipations, expectations, intentions, opinions, forecasts, projections, guidance or other similar statements that are not statements of fact. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. These statements are subject to certain risks and uncertainties and may be based on assumptions that could cause actual results to differ materially from those anticipated or implied in the forward-looking statements. The Company's forward-looking statements are expressly qualified in their entirety by this cautionary statement.

In this news release, reserves and production data are commonly stated in barrels of oil equivalent ("boe") using a six to one conversion ratio when converting thousands of cubic feet of natural gas ("mcf") to barrels of oil ("bbl") and a one to one conversion ratio for natural gas liquids ("NGLs" or "ngls"). Such conversion may be misleading, particularly if used in isolation. A boe conversion ratio of 6 mcf: 1 bbl is based on energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

Cash flow from operations does not have any standardized meaning prescribed by Canadian Generally Accepted Accounting Principles ("GAAP") and accordingly represents Funds from Operations before any asset retirement obligation cash expenditures. Additionally, net asset value represents the net present value of proved plus probable reserves (discounted at 10% before income taxes) plus estimated internally-evaluated undeveloped land and seismic, plus stock option proceeds less estimated net debt. Net debt refers to outstanding bank debt plus working capital deficit. Net debt is not a recognized measure under Canadian GAAP.

The TSX Venture Exchange does not accept responsibility for the adequacy or accuracy of this news release.

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