Cheyenne Energy Inc.
TSX VENTURE : CHY

Cheyenne Energy Inc.

May 24, 2006 09:00 ET

Cheyenne Releases First Quarter Results

CALGARY, ALBERTA--(CCNMatthews - May 24, 2006) - Cheyenne Energy Inc. (TSX VENTURE:CHY) ("Cheyenne" or the "Company") is pleased to announce their financial and operating results for the three months ended March 31, 2006.



HIGHLIGHTS

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Three Months Ended March 31,
2006 2005 % Change
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FINANCIAL
Petroleum and Natural Gas Revenue ($) 1,320,836 507,611 160

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Cash Flow from Operations ($) 498,836 55,852 793
Per Share-Basic and Diluted 0.04 0.01 300

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Net Income (Loss) ($) 48,619 (43,290) (212)
Per Share-Basic and Diluted 0.01 (0.01) (200)

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Capital Expenditures, Net ($) 1,860,037 766,645 143

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Working Capital Deficiency ($) 3,677,763 2,449,889 50

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Common Shares Outstanding ('000s)
Basic 15,493 14,169 9
Diluted 15,681 14,376 9
Weighted Average Common Shares
Outstanding ('000s)
Basic 15,493 14,169 9
Diluted 15,493 14,187 9

OPERATIONS
Average Daily Production
Natural Gas (MCF/d) 1,763 737 139
Crude Oil and NGLs (BBLS/d) 11 9 22
Barrels of Oil Equivalent (BOE/d 6:1) 305 132 131

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Average Product Prices Realized
Crude Oil (CDN$/BBL) 63.34 58.49 8
Natural Gas (CDN$/MCF) 7.91 6.97 13
Barrels of Oil Equivalent (CDN$/BOE) 48.05 42.89 12
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In this report, all references to barrels of oil equivalent ("BOE") are calculated converting natural gas to oil at a ratio of six thousand cubic feet of natural gas to one barrel of oil. This is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

"Cash flow from operations" is a non-GAAP measure that represents cash generated from operating activities before changes in non-cash working capital. The Company's determination of cash flow from operations may not be comparable to that reported by other companies.

PRESIDENT'S MESSAGE TO SHAREHOLDERS

The first quarter of 2006 resulted in strong financial results once again for Cheyenne with positive cash flow and net income for the period of $499,000 and $48,600, respectively, compared to cash flow of $55,800 and a net loss of $43,300 a year earlier. Higher production volumes and bullish commodity prices prevailed to offset the ever-increasing cost pressures in the oil and gas industry.

The Company is pleased to report improved average quarterly production of 305 BOE per day, an increase of 131% over the prior year. The commodity mix remains split at 96% natural gas and 4% liquids with 82% of the production coming from the Cessford core area.

Despite cost increases across the oil and gas industry for services and labor, the Company was effective in decreasing operating costs to $7.27 per BOE for the first quarter of 2006 compared to $11.86 per BOE for the same period in 2005. Part of the decrease on a BOE basis is the increase in the production base and partly due to Management's control systems in place to review operations resulting in the shut-in of a non-economic well in Camrose late in 2005.

In the face of a shorter winter drilling season and robust market competition for resources and oil and gas services, the Company managed to secure a drilling rig for its developmental capital program at Camrose and a service rig for the completion of the exploratory well at Hawk. The Company's completion program at Hawk was suspended until the second quarter when the environmental and wildlife regulations allow for re-entry into the operational area. During the first quarter, the Company participated in an early Crown land sale and increased its holdings to 23 contiguous sections in this prospective trend.

The developmental drilling program at Camrose resulted in one well being abandoned and one well being cased, completed and perforated in the Basal Quartz zone. Initial logs indicated 10 meters of gas-bearing potential in the zone. Further testing on water encountered in the zone is being performed to determine its origin and the sour content.

For the remainder of 2006, the Company plans to complete the evaluation of the 95% working interest exploratory well at Hawk. The results of the evaluation will bear heavily on the location of and number of wells to be drilled in this area over the short term. The Company has identified a number of locations for follow-up. With the attractive oil prices and significant premiums being paid for lighter oil, the Company is anxious to receive the results of the testing and move forward with the next steps in the capital program. At the Company's Camrose core area, plans are to shoot seismic to further delineate the gas play in the Glauconite formation and its aerial extent.

LIQUIDITY & CAPITAL RESOURCES

The Company's net negative working capital position at March 31, 2006 totaled $3,677,800. The Company has a revolving production loan with a financial institution with $2,075,000 drawn on the $3,000,000 available and a developmental demand loan with a financial institution, of which $nil was drawn on the $700,000 available at March 31, 2006. The Company has a loan payable to a shareholder of the Company in the amount of $100,000, which is due July 31, 2006. At March 31, 2006 the Company was in breach of its bank covenant requirement to maintain a 1:1 working capital ratio.

At May 23, 2006 the Company had 15,493,187 common shares outstanding; 88,235 broker options outstanding with an exercise price of $0.85 per option; 100,000 warrants outstanding with an exercise price of $0.70 per warrant; and 200,000 stock options outstanding with an exercise price of $0.55 per option. The stock option plan, under which the stock options were granted, has not been approved by the shareholders and will be voted on by the shareholders at the annual meeting on May 25, 2006.

OBJECTIVES & OUTLOOK

The Company will continue to develop production from its core producing areas of Cessford and Camrose and further delineate the Glauconite gas formation at Camrose while developing future drilling locations at Hawk in northwestern Alberta. Further production estimates and guidance are delayed until the Company can complete its evaluation on the potential Gilwood oil well at Hawk. The final results of the evaluation are expected sometime in the second quarter once the environmental and wildlife access restrictions are lifted and the Company can re-enter the operational area.

Additional Information

Complete financial statements and additional information relating to Cheyenne is available on the Company's website at www.cheyenneenergy.com or on SEDAR at www.sedar.com.

This press release contains forward-looking statements. These forward-looking statements can generally be identified as such because of the context of the statements including words such as the Company "believes", "anticipates", "expects", "plans", "may", "estimates" or words of a similar nature. These statements are based on current expectations and are subject to known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Accordingly, readers are cautioned and no assurances can be given that any of the events anticipated by the forward-looking statements will occur, or if any of them do so, what benefits that we will derive there from. The Company does not undertake any obligation to publicly update or revise any forward-looking statements.

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

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