Buffalo Resources Corp.
TSX VENTURE : BFR

Buffalo Resources Corp.

April 15, 2009 08:00 ET

Buffalo Resources Announces Record Results for 2008

CALGARY, ALBERTA--(Marketwire - April 15, 2009) - Buffalo Resources Corp. ("Buffalo") (TSX VENTURE:BFR) is pleased to announce record financial results for the year ended December 31, 2008.

2008 HIGHLIGHTS

- Cash flow increased 311% to $31.6 million ($0.43 per share) for the year compared to $7.7 million ($0.15 per share) for the ten months ended December 31, 2007.

- Earnings of $8.8 million ($0.12 per share) for the year compared with a loss of $5.2 million in 2007.

- Daily average production increased 11% to 3,281 boe/d for the year ended December 31, 2008 from 2,956 boe/d for the ten months ended December 31, 2007.

- Net debt reduced to $51.8 million at December 31, 2008 from $63.6 million at December 31, 2007.

- Proved plus probable reserves increased 42% to 21.5 million boe.

- Net asset value of $3.14 per fully diluted share at December 31, 2008 using the value of proved plus probable reserves discounted at 10% per annum of $270 million (as evaluated by Paddock, Lindstrom & Associates Ltd.) plus the balance sheet values of undeveloped land, seismic data, bank debt, net working capital deficit and asset retirement obligations (December 31, 2007 - $2.25 per fully diluted share).

- Finding, development and acquisition costs of proved plus probable reserves basis, including future development costs, of $7.52 per boe.

- Drilled 31 (net 13.0) wells at a 96% success rate in 2008.



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FINANCIAL ($000s except shares and per share amounts)

Three months Four months Ten months
ended ended Year ended ended
December 31, December 31, December 31, December 31,
2008 2007 2008 2007
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Revenue 12,030 20,664 78,115 39,208
Cash flow from
operations 2,913 4,382 31,619 7,696
Basic and diluted
per share $ 0.04 $ 0.07 $ 0.43 $ 0.15
Net earnings (loss) (657) (3,096) 8,838 (5,236)
Basic and diluted per
share $(0.01) $(0.05) $ 0.12 $(0.10)
Capital expenditures,
net 10,549 19,618 28,876 83,435

As at December 31 2008 2007
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Working capital (deficit) (51,840) (63,600)
Shareholders' equity 113,887 94,461
Total assets 205,835 205,272
Common shares outstanding (000s) 76,702 65,702
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OPERATIONS

Three months Four months Ten months
ended ended Year ended ended
December 31, December 31, December 31, December 31,
2008 2007 2008 2007
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Average daily production
Oil and NGLs (bbls/d) 1,621 2,101 1,635 1,241
Natural gas (mcf/d) 8,930 11,716 9,876 10,289
Barrels of oil
equivalent (boe/d) 3,109 4,054 3,281 2,956
Average realized prices
Oil and NGLs ($/bbls) 42.83 45.53 76.25 48.82
Natural gas ($/mcf) 6.91 6.17 8.67 6.47
Barrels of oil
equivalent ($/boe) 42.06 41.78 65.05 43.35
Field netback ($/boe) 19.60 15.17 33.73 17.59
Cash flow ($/boe) 10.18 8.86 26.33 8.51
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OPERATIONS

In 2008, Buffalo achieved average daily production of 3,281 boe/d and realized an average selling price of $65.05 per boe, thereby generating revenue of $78.1 million. This revenue was a 99% increase over the ten months ended December 31, 2007 and led to record cash flow from operations of $31.6 million and record earnings of $8.8 million. Not only did the Company achieve record results, but the balance sheet was also strengthened by a reduction in net debt to $51.8 million at December 31, 2008, an $11.8 million decrease from December 31, 2007.

In Q4 2008, average daily production was 3,109 boe/d, a decrease from the fourth quarter of 2007 mainly reflecting the disposition of the Killam oil property midway through 2008 (approximately 386 boe/d) and the shut-in of the Pincher Creek gas property (approximately 500 boe/d). Buffalo's gas production from Pincher Creek is processed at Shell Canada's Waterton Gas Plant where operations were suspended for construction of a new sour gas processing train. It is anticipated the Pincher Creek property will be back on production in May 2009. Buffalo maintained a balanced production commodity split during the quarter with oil representing 52% of production by volume.

Field netback increased to $19.60 per boe or $5.6 million for the three months ended December 31, 2008 compared with $15.17 per boe in Q4 2007. This improvement in field netback was largely the result of reduced royalty expense at $7.85 per boe in 2008 compared with $11.10 per boe in 2007. The higher proportion of oil production in 2008 reduced the average royalty rate. The 2007 royalty expense included an overcharge of crown royalties, which the Company was successful in recovering in 2008. Operating costs were $14.61 per boe for the quarter compared with $15.51 per boe in Q4 2007, which mainly reflects the curtailment of costs at Pincher Creek while operations are suspended and a number of non recurring charges in 2007.

EXPLORATION AND DEVELOPMENT

In Q4 2008, six (2.1 net) wells were drilled including two development gas wells at Whitecourt, a follow up horizontal oil well at Alameda, Saskatchewan, a gas well at Ferrybank, a horizontal oil well at Royce in the Peace River Arch and an exploration well in the Peace River Arch. The drilling was successful and, with the exception of the Peace River Arch exploration well, all have subsequently been placed on production. The remaining Peace River Arch well is expected to be tied-in and on production in Q3 2009. This success has encouraged the Company to tie-up offset land on a farmin basis in the surrounding Peace River Arch area and could result in a new production area for Buffalo. Capital expenditures for the fourth quarter of 2008 totalled $10.5 million and, in addition to the above drilling, included tie-in of four wells at Whitecourt and one at Alameda, all of which had been drilled in Q3 2008, the buy out of rental compressors at a cost of $0.5 million, and the purchase of land at a cost of $2.2 million, mainly in the Peace River Arch.

In the three prior quarters, Buffalo drilled 25 (10.9 net) wells including 13 oil wells and one D&A well at Frog Lake, six gas wells at Whitecourt, a deep horizontal gas well at Pincher Creek, two oil and one gas well at Killam which were subsequently sold and a horizontal oil well at Alameda. Overall, Buffalo enjoyed a 96% drilling success rate in 2008.

OUTLOOK

In November 2008, Buffalo's Board of Directors approved a 2009 capital budget of $32 million with the request that the Company monitor cash flow and undertake only those projects that could be completed through the reinvestment of cash flow from operations. The deteriorating commodity price environment resulted in the Company revising the 2009 capital program to $19.6 million in February 2009.

Reflective of the lower oil and gas commodity selling prices in the first quarter of 2009, Buffalo undertook only the minimum capital expenditures including the tie-in of a well drilled in Q4 2008, fulfillment of partner drilling commitments and completion of a seismic purchase commitment. By March 2009, oil prices were starting to firm to levels that should sustain a drilling program at Frog Lake in the summer of 2009 given that there have been some noticeable reductions in oilfield service costs. In December 2008, Buffalo received approval of its application for reduced spacing of producing wells at Frog Lake (downspacing application). This approval enables Buffalo to proceed with its plans to drill up to 200 additional wells at Frog Lake. The $19.6 million capital program would allow the Company to drill 56 (18 net) wells, including 44 wells at Frog Lake, four at Whitecourt, three in the Peace River Arch, two in southeast Saskatchewan and one at Viking.

On March 26, 2009, the Company announced that its Board of Directors had appointed an M&A Committee of independent directors with a mandate to consider strategic alternatives for the Company, which may include a sale, merger or other business combination involving Buffalo or the sale of some or all of the assets of the Company.

Buffalo is an emerging Canadian junior oil and gas company engaged in the exploration, development and production of oil and gas reserves in the provinces of Alberta and Saskatchewan.

Buffalo's annual financial statements and Management's Discussion and Analysis for the year ended December 31, 2008 are available on SEDAR (www.sedar.com) and on Buffalo's website at www.buffaloresources.com.

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. The forward looking statements contained in this press release are made as of the date hereof and Buffalo undertakes no obligation to update publicly or revise any forward looking statements or information, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws.

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 terms "cash flow from operations" and "field netback" are non-GAAP financial measures that do not have any standardized meaning prescribed by Canadian Generally Accepted Accounting Principles ("GAAP") and are therefore unlikely to be comparable to similar measures presented by other issuers. Both "cash flow from operations" and "field netback" provide useful information to investors and management since they are an indicator of the Corporation's profitability and ability to fund future capital expenditures which drives growth. Cash flow from operations is calculated as earnings (loss) before charges for depletion, depreciation and accretion, stock-based compensation and future income taxes and after deducting asset retirement expenditures. The inclusion of changes in non-cash operating working capital results in cash flow from operating activities. Field netback represents the profit margin from the sale of oil, natural gas and natural gas liquids and is calculated as revenues less royalties and operating expenses.

Neither the TSX Venture Exchange nor its Regulation Services Provider (as the term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

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