The Buffalo Oil Corporation
TSX VENTURE : BFO

The Buffalo Oil Corporation

November 28, 2006 09:00 ET

Buffalo Oil Delivers Record Results in Q3- 2006

CALGARY, ALBERTA--(CCNMatthews - Nov. 28, 2006) - The Buffalo Oil Corporation ("Buffalo") (TSX VENTURE:BFO) is pleased to announce record operating and financial results for the nine months ended September 30, 2006. Buffalo's ability to grow production organically through the drill bit allows it to continue to deliver exceptional financial results. Highlights of the third quarter and nine months include:

- Seven consecutive quarters of increased production.

- Production of 1,541 boe/d, a 283% increase over Q3-2005.

- Drilled nine wells in the quarter (22 wells year to date) at a 100% success rate.

- Increased cash flow from operations by 116% to $2.5 million or $0.14 per share for the quarter, from $0.09 per share in Q3-2005.

- Cash flow from operations for the nine months reached $0.32 per share, a 78% increase over 2005.

- Net earnings of $599,000 or $0.04 per share for nine months compared with $0.01 per share in 2005.

- Increased 2006 production exit rate guidance to between 2,000 and 2,200 boe/d.



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FINANCIAL ($000s except shares, per share amounts and % change)
Three Months Nine Months
Period ended % %
September 30 2006 2005 Change 2006 2005 Change
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Revenue 6,483 2,051 216 15,221 4,845 214
Cash flow from
operations (1) 2,455 1,137 116 5,459 2,194 149
Basic per share $ 0.14 $ 0.09 56 $ 0.32 $ 0.18 78
Diluted per share $ 0.13 $ 0.08 63 $ 0.30 $ 0.17 76
Net earnings (loss) 671 392 71 599 77 676
Basic per share $ 0.04 $ 0.03 33 $ 0.04 $ 0.01 300
Diluted per share $ 0.04 $ 0.03 33 $ 0.03 $ 0.01 200
Capital expenditures,
net 3,044 7,496 (59) 8,389 8,425 (0)

September December
30 31 %
As at 2006 2005 Change
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Working capital surplus (deficit) 2,674 (201) n/a
Shareholders' equity 19,210 13,191 46
Total assets 29,407 21,150 39
Common Shares outstanding (000s) 17,828 14,263 25
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(1) Cash flow from operations represents earning before depletion,
depreciation and accretion, stock-based compensation and future taxes.


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OPERATIONS Three Months Nine Months
Period ended % %
September 30 2006 2005 Change 2006 2005 Change
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Average daily
production
Oil and NGLs (bbls/d) 1,322 237 459 1,122 222 407
Natural gas (mcf/d) 1,315 996 32 1,300 995 31
Barrels of oil
equivalent(1) (boe/d) 1,541 403 283 1,339 387 246
Average realized
prices
Oil and NGLs ($/bbls) 47.60 57.88 (18) 42.07 45.16 (7)
Natural gas ($/mcf) 5.73 8.63 (34) 6.56 7.78 (16)
Barrels of oil
equivalent ($/boe) 45.73 55.36 (17) 41.64 45.81 (9)
Field netback ($/boe) 21.05 34.01 (38) 18.12 25.55 (29)
Cash flow ($/boe) 17.32 30.69 (44) 14.93 20.74 (28)
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(1) All references to barrels of oil equivalent (boe) are calculated by
converting natural gas to oil at a ratio of six thousand cubic feet to
one barrel of oil.


OPERATIONS

Buffalo's highly successful 2006 drilling program allowed the Corporation to continue its strong growth. Production for the quarter averaged 1,541 boe/d, a 24% increase over Q2-2006. Throughout the quarter, oil prices remained strong while natural gas prices at $5.73 per mcf were down from $6.21 per mcf in the second quarter. Revenue of $6.5 million for Q3-2006 was 23% higher than for the second quarter. Third quarter cash flow increased 18% over the second quarter, to $2.5 million or $0.14 per share.

EXPLORATION AND DEVELOPMENT

The results of Buffalo's activities in the third quarter 2006 and near term plans are as follows:

Frog Lake, Alberta

Buffalo completed and equipped 15 (7.7 net) oil wells during the quarter, including seven wells which had been drilled in Q2-2006. These wells are currently producing oil at an average rate per well of approximately 67 bbls/d. One of the wells targeted a new GP oil pool and is currently producing oil at a rate of 74 bbls/d. In Q4, Buffalo plans to drill 15 oil wells (4.8 net) including one well to delineate the new GP oil pool.

Two suspended well bores (1.0 net) were completed for Viking gas production and produced gas at rates of 350 and 180 mcf/d on short term production tests. In 2007, after obtaining down-spacing approval, Buffalo plans to complete and tie-in four additional well bores for Viking gas production. These wells are all in close proximity to the gas gathering system and are expected to be tied-in and producing at an average cost of less than $200,000 per well. The area contains numerous suspended well bores that can be converted to Viking gas production if initial results are favourable. In September a suspended Colony gas well at 02-15-057-04W4M was tied-in to the Frog Lake gas gathering system and the well is currently producing gas at a rate of approximately 920 mcf/d.

Southeast Saskatchewan

Buffalo drilled a new Frobisher horizontal leg in a suspended oil well at Alameda (0.5 net) and reconditioned the oil battery to accommodate an increase in production. The well is currently producing approximately 90 bbls/d. A horizontal well that was drilled in the Frobisher zone at Huntoon (0.5 net) in June 2006 was completed and equipped as an oil well during the quarter and is currently producing. Production from Buffalo's Heward property was limited during the quarter while a new water disposal well was drilled and oil flow lines were replaced. The work is complete and production at Heward is now approximately 140 bbls/d.

Central Alberta

In October, Buffalo participated in a well in the Gilby area (0.35 net). The well was directionally drilled to 2,700 metres and encountered gas in the Glauconite and Ellerslie zones. Short duration production tests (12 hours) were run on each of two Ellerslie sands. The well is expected to be tied-in and producing gas from the Ellerslie zone by mid December.

Buffalo is participating in a well in the Strachan area (0.25 net). The well was drilled to 3,425 metres and encountered gas in multiple zones. A completion program is currently being developed and testing is expected to continue through year end.

Peace River Arch, Alberta

At Cecil where Buffalo holds a five section land block (average 80% working interest) drilling by offset operators has been very encouraging. In Q4, Buffalo completed a 12 square mile, 3-D seismic program. The data has been processed and interpretation is underway. It is anticipated that the first drilling location will be selected prior to year end and the well spudded in Q1-2007.

CORPORATE

In Q4-2006 Buffalo completed its acquisition of Pocaterra Energy Inc. for cash and shares. The producing assets are located at Ferrier, Garrington and Jenner in central Alberta and increased production by approximately 300 boe/d. Numerous development opportunities have been identified on the related lands.

In November, Buffalo opted to take advantage of a strong market for flow-through common shares and accepted a "bought deal" private placement of $2 million of flow-through shares and $1 million of common shares at prices of $2.20 and $1.80 per share respectively. The underwriters of the offering were also granted an option to purchase up to an additional $3 million of common shares at a price of $1.80 per share. The transaction is expected to close on December 4, 2006.

OUTLOOK

Because of its proven drilling success, Buffalo expects to meet or exceed all its 2006 operational performance targets. Current production is approximately 1,950 boe/d and Buffalo recently increased its forecast 2006 exit production rate to between 2,000 and 2,200 boe/d. In spite of traditionally weaker fourth quarter heavy oil prices and continued weak natural gas prices, Buffalo expects to maintain the Q3 cash flow level in Q4-2006, which will result in Buffalo exceeding its previously forecast cash flow per share of $0.42.

SUMMARY

In a changing and uncertain environment, Buffalo continues to deliver on its forecasts. The Corporation has in excess of 185 "drill ready" locations which should enable this performance to continue. At the same time the Corporation has been diligently progressing its central Alberta and Peace River Arch initiatives. Two natural gas wells were recently drilled at Gilby and Strachan in central Alberta and the first will be on production prior to year end. Processing of a 3D seismic program at Cecil in the Peace River Arch, which was carried out by Buffalo during Q3, has been completed. It is expected that the first drilling location will be selected prior to year end and spudded in Q1-2007.

Further information on Buffalo's operating and financial results can be obtained at SEDAR (www.sedar.com) and on Buffalo's website (www.buffalo-oil.com) where the financial statements and management's discussion and analysis for the nine months ended September 30, 2006 are available.

Certain information set forth in this press release contains forward looking statements. Readers are cautioned that the assumptions used in the preparation of such information, although considered reasonable at the time of preparation, may prove to be imprecise and, as such, reliance should not be placed on forward-looking statements. Buffalo's actual results, performance or achievements could differ materially from those expressed in, or implied by, these forward-looking statements and accordingly, no assurance can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do so, what benefits Buffalo will derive therefrom. Buffalo disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Barrels of oil equivalent (Boe's) may be misleading, particularly if used in isolation. A boe conversion ratio of 6 Mcf of gas = 1 Bbl of oil is based upon an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

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

Contact Information

  • The Buffalo Oil Corporation
    Trevor Penford
    President and C.F.O.
    (403) 252-2462
    Email: tpenford@buffalo-oil.com
    or
    The Buffalo Oil Corporation
    William (Bill) Trickett
    Chairman and C.E.O.
    (403) 252-2462
    Email: btrickett@buffalo-oil.com
    or
    The Buffalo Oil Corporation
    Suite 180, 1209 - 59th Avenue S.E.
    Calgary, Alberta T2H 2P6
    (403) 252-2462
    (403) 252-1399 (FAX)
    Website: www.buffalo-oil.com