Regal Energy Ltd.
TSX VENTURE : REG

Regal Energy Ltd.

May 26, 2006 09:00 ET

Regal Energy Announces Second Quarter 2006 Results

CALGARY, ALBERTA--(CCNMatthews - May 26, 2006) -

Not for distribution in the United States of America

Regal Energy Ltd. (TSX VENTURE:REG) ("Regal" or the "Company") announces its financial (unaudited) and operating results for the second quarter ended March 31, 2006.

Recent Highlights

- Completed a significant liquids-rich natural gas well at Kaybob, Alberta. Production anticipated by early June 2006 at 120 Boe/d net.

- Drilled and cased three natural gas wells at Garrington, Alberta. The wells are expected to be completed, tied in and on production by late June 2006 at 130 Boe/d net. Three additional wells are expected to be drilled in June 2006 and on production by July 2006.



Three Months ended Six Months ended
March 31, 2006 March 31, 2006
(unaudited)

Financial (1)
Petroleum and natural gas sales $ 374,960 $ 374,960
Funds flow from operations (non-GAAP)(2) $ (151,075) $ (195,535)
Net earnings (loss) $ (20,112) $ (64,572)
Capital expenditures $ 3,404,309 $ 4,389,830
Working capital surplus $ 2,027,719
Total assets $17,583,227
Shareholders' equity $12,747,322

Shares outstanding as of May 25, 2006 22,709,179
Shares issuable for warrants as of
May 25, 2006 1,777,011
Stock options outstanding as of
May 25, 2006 2,086,000

Operations
Production
Natural gas (Mcf) 17,756 17,756
Oil and NGLs (Bbls) 6,023 6,023
Total production (Boe)(3) 8,982 8,982

Natural gas (Mcf/d) 197 98
Oil and NGLs (Bbl/d) 67 33
Total production (Boe/d)(3) 100 49

Average selling price
Natural gas ($/Mcf) 7.49 7.49
Oil and NGLs ($/Bbl) 40.16 40.16
Total production ($/Boe)(3) 41.75 41.75

Notes:

(1) On December 31, 2005, Azeri Capital Inc. ("Azeri"), a private
corporation, merged with Regal Energy Corp. through a Plan of
Arrangement pursuant to the Business Corporations Act (Alberta) and
changed the resulting corporation's name to Regal Energy Ltd.
("Regal" or the "Company"). As Azeri was a private corporation,
no historical comparative information is presented in these
financial statements as the information is not readily available.
(Note: Regal recognizes the industry norm of reporting results on a
calendar year basis and therefore plans on a calendar year basis
although its fiscal year-end is September 30.)

(2) Funds flow before net change in non-cash operating working capital
balances does not conform to Generally Accepted Accounting
Principles (GAAP). Refer to the Net Earnings and Funds Flow from
Operations section of the Management's Discussion and Analysis.

(3) Natural gas is converted to oil equivalent at 6 Mcf = 1 Bbl. A Boe
conversion ratio of 6 Mcf = 1 Bbl is based on an energy equivalency
conversion method and does not represent a value equivalency at the
wellhead; therefore Boe's may be misleading if used in isolation.


During the second quarter Regal drilled and completed a successful liquids-rich natural gas well at Kaybob that flowed gas at rates in excess of one million cubic feet per day and associated NGLs at 25 barrels per day. The tie in of the well is expected to occur by early June and increase the Company's net production by 120 Boe/d.

At Garrington, Regal commenced activities on its significant farm-in encompassing more than 20,000 acres of land and drilled and cased three Edmonton sands gas wells prior to spring breakup. With the lifting of road bans in the area, the three gas wells are expected to be completed shortly and placed on stream by late June. The wells are expected to add 130 Boe/d net to the Company's production base. Three additional wells are expected to be drilled and placed on stream by early July. Approximately 80 percent of the Company's 2006 capital expenditures are being directed to the Garrington area and the Company is looking forward to reporting meaningful growth in its reserves and production base as a result of this program.

Total working interest revenue during the second fiscal quarter ended March 31, 2006 amounted to $374,960 and was made up of natural gas sales in the amount of $133,072 and crude oil and natural gas liquids sales of $241,888. During the quarter, 17,756 Mcf of natural gas was sold (197 Mcf/d) and 6,023 Boe of crude oil and natural gas liquids was sold (67 Boe/d) for a combined sales total of 8,982 Boe (100 Boe/d).

At Atlee Buffalo, the Company's recently drilled heavy oil well sanded off on two separate occasions during the quarter resulting in lower than anticipated production volumes and significant workover costs to restart the well. The well sanded off again in late April and additional work recently performed on the well was unsuccessful in restoring production. Management has deferred any further work on the well in favor of more economic projects. This will result in a reduction of heavy oil production volumes from the property however per unit operating costs will also be considerably reduced.

During the quarter, the majority of the capital that was expended by the Company was in drilling and completion activities on the Kaybob well and the three wells at Garrington. The Company had capital expenditures of $3,425,018 ($4,443,334 year to date - excluding the acquisition of Regal Energy Corp.). During the quarter, the Company incurred $3,085,963 on drilling and completions, $201,585 on equipping and tie-in, $66,273 of seismic, geological and geophysical costs (including $50,000 for the reprocessing of its seismic database). Acquisition of land expenditures were $14,433 and $11,155 was spent on office equipment and furniture. During the quarter $24,900 of salaries were capitalized, as well as $20,709 added to the Company's capital base for the asset retirement obligation as a result of the drilling done in the quarter.

Regal's revised calendar 2006 forecast anticipates capital expenditures will be approximately $11.6 million including $8 million allocated to drilling and completions, $2.5 million to tie-ins and site facilities, $1.0 million on seismic and land and $0.1 million on other. A total of 11 wells are now anticipated to be drilled during the balance of the year including up to 10 wells at Garrington. As a result of the Company's ongoing exploration and development program, production rates are now forecasted to increase from an average rate of 100 Boe/d during the second quarter to a calendar 2006 exit rate of 700 Boe/d. With a reduction in the Company's heavy oil activity at Atlee Buffalo in favor of more economic opportunities, natural gas is expected to increase to 90 percent of the Company's total oil equivalent production by the end of calendar 2006 from a second quarter level of 33 percent.

An important element of Regal's business strategy during 2006 has entailed the search for opportunities to acquire corporations and properties on a tax effective basis. The directors and management of Regal are of the opinion that a merger would offer shareholders the opportunity to participate in the growth potential associated with a larger economic entity with an expanded base of operations and prospects, increased financial resources and significant tax pools. A number of opportunities were identified and reviewed during the second quarter and the Company remains committed to finding a suitable transaction.

We encourage interested parties to access Regal's Second Quarter 2006 Financial (unaudited) and Operating Results and Management's Discussion and Analysis at http:/www.sedar.com.

We also encourage interested parties to visit Regal's new website located at http:/www.regalenergy.ca for current corporate information, including updates to the Company's corporate presentation.

Issued and Outstanding Common Shares: 22,709,179

ADVISORY - Certain information regarding Regal set forth in this release, including management's assessment of the Company's future plans and operations, may constitute forward-looking statements under applicable securities law and necessarily involve risks associated with oil and gas exploration, production, marketing, and transportation such as loss of market, volatility of prices, currency fluctuations, imprecision of reserves estimates, environmental risks, competition from other producers and ability to access sufficient capital from internal and external sources. As a consequence, actual results may differ materially from those anticipated in the forward-looking statements.

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

Contact Information

  • Regal Energy Ltd.
    Douglas O. McNichol
    President and Chief Executive Officer
    (403) 509-2581
    Email: dmcnichol@regalenergy.ca
    or
    Regal Energy Ltd.
    Wayne R. Wilson
    Vice President, Finance and Chief Financial Officer
    (403) 509-2584
    Email: wwilson@regalenergy.ca
    or
    Regal Energy Ltd.
    Suite 1520, Life Plaza, 734 - 7th Avenue S.W.
    Calgary, Alberta T2P 3P8