Arsenal Energy Inc.
TSX : AEI

Arsenal Energy Inc.

August 18, 2005 08:00 ET

Arsenal Announces Updated Reserves Information; Drilling Update

CALGARY, ALBERTA--(CCNMatthews - Aug. 18, 2005) - Arsenal Energy Inc. ("Arsenal or the Company") (TSX:AEI) is pleased to announce the following reserves, net asset value ("NAV") information as at June 30, 2005 and provide an update on its current drilling program. In conjunction with the property acquisition which closed June 29, 2005 Arsenal obtained an engineering update from AJM Petroleum Consultants as at June 30, 2005.



RESERVES

SUMMARY OF OIL AND GAS RESERVES AND NET PRESENT VALUES AS OF
JUNE 30, 2005 FORECAST PRICES AND COSTS
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Crude Natural Oil
Oil Gas NGL Equiv.
Marketable reserves (mbbl) (mmcf) (mbbl) (mboe)
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Proved producing 2,503 1,800 274 3,077

Proved undeveloped 128 - - 128
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Total proved 2,631 1,800 274 3,205

Probable 1,348 367 5 1,414
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Total proved plus probable 3,979 2,167 279 4,619

Possible 1,684 - - 1,684
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Total proved plus probable
plus possible 5,663 2,167 279 6,303
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Present values before
income taxes - $millions Undisc. 5% 10% 15%
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Proved producing 68,643 48,601 40,231 35,308

Proved undeveloped 1,902 1,525 1,259 1,064
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Total proved 70,545 50,126 41,490 36,372

Probable 26,853 20,016 15,886 14,894
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Total proved plus probable 97,398 70,142 57,376 51,266

Possible 29,259 25,157 21,860 19,169
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Total proved plus probable
plus possible 126,657 95,299 79,236 70,435
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NET ASSET VALUES

The following net asset value table has been compiled using the
following assumptions:

- Total debt of $12.0 million
- 32.1 million shares outstanding, 39.0 million diluted
- $3.0 million to be received for in the money warrants exercised
(diluted)
- $2.6 million to be received for in the money options exercised
(diluted)
- $5.4 million attributable to the Nuqra concession in Egypt. This
represents the deemed net asset value of the Quadra Resources
Corp. acquisition which closed August 11, 2005.

SUMMARY OF NET PRESENT VALUES AS OF JUNE 30, 2005 FORECAST PRICES AND
COSTS
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Net asset values before
income taxes - per share amounts Undisc. 5% 10% 15%
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Proved plus probable basic NAV 2.83 1.98 1.58 1.39
Proved plus probable diluted NAV 2.47 1.77 1.45 1.29

Proved plus probable plus possible basic NAV 3.74 2.76 2.26 1.99
Proved plus probable plus possible diluted NAV 3.22 2.42 2.01 1.78
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DRILLING UPDATE

Arsenal has completed the drilling of the first 9.0 wells (4.14 net) of the previously announced 28 well (12.0 net) drilling program initiated in June 2005 at Lashburn, Rush Lake, Buzzard and Wildmere in Central Saskatchewan and Alberta. All wells were successful and are currently producing. Net incremental production to Arsenal is approximately 175 barrels of oil equivalent per day.

Arsenal intends to spud the first well of the 3.0 well (1.5 net) drilling program at Evi, Evi South and Mitsue on August 21, 2005. The wells target high quality, light sweet oil with recoverable reserves between 125 mboe and 250 mboe per well. The second and third wells are anticipated to be drilled during September 2005. Arsenal holds an option to drill an additional 5.0 wells (2.5 net) in these areas, located on the Peace River arch in central Alberta.

Certain statements in this material may be "forward-looking statements" including outlook on oil and gas prices, estimates of future production, estimated completion dates of acquisitions and construction and development projects, business plans for drilling and exploration, estimated amount and timing of capital expenditures and anticipated future debt levels and royalty rates. Information concerning reserves contained in this material may also be deemed forward-looking statements as such estimates involve the implied assessment that the resources described can be profitably produced in the future. These statements are based on current expectations, estimates and projections that involve a number of risks and uncertainties, which could cause actual results to differ from those anticipated by Arsenal. This news release is not for distribution in the United States.

The term barrels of oil equivalent ("boe") may be misleading, particularly if used in isolation. A boe conversion ratio of six thousand cubic feet per barrel (6mcf/bbl) of natural gas to barrels of oil equivalence is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. All boe conversions in the report are derived from converting gas to oil in the ratio mix of six thousand cubic feet of gas to one barrel of oil.

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

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