Cheyenne Energy Inc.
TSX VENTURE : CHY

Cheyenne Energy Inc.

April 12, 2006 09:00 ET

Cheyenne Updates Current Operations and Releases Year End Results

CALGARY, ALBERTA--(CCNMatthews - April 12, 2006) - Cheyenne Energy Inc. ("Cheyenne" or the "Company") (TSX VENTURE:CHY) is pleased to provide an update on its current capital program.

During the first quarter of 2006, the Company cased the 95% working interest exploratory well at Hawk in northwestern Alberta. The target zone of the well was Gilwood oil at 1435m. There were indications of hydrocarbons during the drilling and logging phases of the well; however, environmental and wildlife regulations have delayed further analysis of the well until late April. The Company purchased additional acreage at a Crown land sale in January 2006 resulting in the Company now holding 23 contiguous sections in this prospective northwestern Alberta trend. Also during the quarter, the Company drilled two 100% working interest developmental wells in the Camrose area targeting Glauconite gas.

- The first well at 06-24-045-19W4 was drilled as a directional well to fulfill an offset obligation assessed on the Company by the Crown. The Glauconite zone did not indicate economic hydrocarbons; however, initial results on the logs indicated 10 metres of gas-bearing potential in the Basal Quartz zone. The Company has cased the well and perforated and completed the lower Basal Quartz zone. During completion the Company encountered some water with a low sour gas content, which is currently being analyzed at a lab to determine the nature of its source.

- On the second well at 05-12-044-17W4, the Company did not encounter commercial signs of hydrocarbons and the well was plugged and will be abandoned.

Further operations in the Camrose area may include the shooting of seismic on Company-owned land sections to confirm the location of the next drilling targets, further delineate the gas play in the Glauconite formation and its aerial extent in this core area.

Cheyenne is also pleased to present its financial results for the three and twelve months ended December 31, 2005 and its independently evaluated reserves as at December 31, 2005.



HIGHLIGHTS

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------------------------------------------------------------------------
Three Months Ended
December 31, Year Ended December 31,
% %
2005 2004 Change 2005 2004 Change
------------------------------------------------------------------------
FINANCIAL
Petroleum and
Natural Gas
Revenue 2,303,729 242,543 850 5,423,317 1,398,240 288

------------------------------------------------------------------------
Cash Flow
(Used) from
Operations 499,218 (264,546) (289) 1,225,078 (468,739) (361)
Per Share-Basic
and Diluted 0.03 (0.02) (250) 0.08 (0.04) (300)

------------------------------------------------------------------------
Net Income
(Loss) 18,757 (211,947) (109) 217,787 (450,440) (148)
Per Share-Basic
and Diluted 0.00 (0.02) (100) 0.01 (0.04) (125)

------------------------------------------------------------------------
Capital
Expenditures,
Net 923,240 1,477,476 (38) 2,782,009 2,113,171 32

------------------------------------------------------------------------
Indebtedness
(Including
Working
Capital) 2,316,561 1,589,096 46 2,316,561 1,589,096 46

------------------------------------------------------------------------
Common Shares
Outstanding
('000s)
Basic 15,493,187 14,169,018 9 15,493,187 14,169,018 9
Diluted 15,681,422 14,375,697 9 15,681,422 14,375,697 9
Weighted
Average
Common
Shares
Outstanding
('000s)
Basic 15,493,187 13,251,951 17 14,778,515 11,165,338 32
Diluted 15,493,187 13,266,312 17 14,778,515 11,179,699 32

------------------------------------------------------------------------
OPERATIONS
Average Daily
Production
Natural
Gas (MCF/d) 2,085 345 504 1,474 507 191
Crude Oil
and NGLs
(BBLS/d) 13 8 63 11 8 38
Barrels of
Oil
Equivalent
(BOE/d 6:1) 361 66 447 257 92 179

------------------------------------------------------------------------
Average Product
Prices Realized
Crude Oil
(CDN$/BBL) 65.60 55.33 18 65.71 50.77 29
Natural Gas
(CDN$/MCF) 11.64 6.33 84 9.59 6.79 41
Barrels of
Oil
Equivalent
(CDN$/BOE) 69.46 40.14 73 57.83 36.88 57
------------------------------------------------------------------------
------------------------------------------------------------------------


MESSAGE TO SHAREHOLDERS

2005 was a challenging year for Cheyenne and many of its peers in the 'junior' category. While commodity prices received were unlike anything seen before, the weather was uncooperative in the summer which caused drilling and other services to become scarce during the fall and winter seasons. The scarcity of services resulted in many of the juniors, Cheyenne included, either abandoning or revising their capital programs.

Despite the external challenges, Cheyenne capped 2005 with strong financial results. The Company is reporting positive net income and cash flow from operations for the year ended December 31, 2005 of $218,000 and $1,225,000, respectively. These positive results are a product of the Company's continuing focus on natural gas production and the industry's high commodity prices. The Company also completed a flow-through share offering in July of 1,276,470 common shares at a price of $0.85 per share.

Production for the year increased 179% over the prior year and increased 447% for the fourth quarter of 2005 over the same quarter of 2004. Production throughout the year experienced some fluctuations due to interruptions in a non-operated line, but by year end production was consistent and the Company exited the year producing 350 BOE/d.

The Company's capital program produced mixed results. Cheyenne's efforts on the exploitation front did not prove successful with the drilling of two uneconomic wells in its core areas of Camrose and Cessford. The well drilled at Hawk in late December displayed hydrocarbon indications during both the drilling and logging phases; however, further evaluation will commence at the end of April 2006 when environmental and wildlife restrictions have been lifted. The Company participated in Crown land sales late in 2005 purchasing additional land in the high prospect trend identified at Hawk in northwestern Alberta.

GUIDANCE AND OUTLOOK

The Company issued guidance on October 14, 2005 for projected 2005 results. The table below provides the guidance for 2005 along with actual results.



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------------------------------------------------------------------------
2005 Guidance Actual Results % Change
------------------------------------------------------------------------
2005 Exit Production (BOE/d) 560 - 650 350 (42)
Capital Budget Expenditures $ 3,000,000 $ 2,782,000 (8)
------------------------------------------------------------------------
------------------------------------------------------------------------


The exit production rate fell short of the guidance range as the Company redirected capital dollars to take advantage of an available rig to drill an exploratory well at Hawk in northwestern Alberta rather than drill the planned development wells in the Camrose area. With the buoyant provincial economy, many larger oil and natural gas explorers and producers were able to secure drilling contracts for several years and as such, put the junior companies at the mercy of any open drilling windows, which Cheyenne took advantage of. The development wells were deferred to the first quarter of 2006 when closer rigs are more available. Capital expenditures were slightly lower than forecast due to the timing of drilling the well at Hawk and the deferral of the Camrose wells.

Guidance for 2006 has not been updated as the Company awaits more definitive results from testing on the exploratory and development wells drilled. Results have been delayed, particularly in the Hawk area, due to environmental and wildlife imposed restrictions.

MANAGEMENT'S DISCUSSION AND ANALYSIS

A combination of increased production volumes and record-setting commodity prices resulted in petroleum and natural gas revenue reaching all-time highs for both the quarter and year ended December 31, 2005. The Company does not have any hedging arrangements in place and was able to take full advantage of the bullish commodity markets. Both corporate realized prices and benchmark industry prices were higher for the three months and year ended December 31, 2005 compared to the same periods in 2004. The unprecedented high natural gas prices as a result of supply/demand imbalances stemming from the hurricane activity in the United States Gulf Coast bode well for the Company with its 95% natural gas weighting and no production or financial hedges in place.

Natural gas comprised 97% of total revenue for the fourth quarter and 95% for the year ended December 31, 2005 compared to 83% and 90% for the same periods in 2004. Approximately one-third of the increase in revenue is attributable to the increase in prices for the year, while two-thirds is attributable to the increase in production. Year-over-year gas production gains were achieved mainly by tying-in the Glauconite gas well at Cessford in early March 2005. Throughout the year production from the well fluctuated slightly due to line problems at the non-operated Sunnynook facility resulting in production being shut-in for 26 days. The Company responded to the interruptions by installing a small compressor at the location to avoid future fluctuations and by year-end the property was producing 310 BOE/d (net). In the Camrose area, the Company-operated well at 102/02-05 became uneconomic and was shut-in during December 2005. Offsetting this loss was increased production from the non-operated 07-02 gas well that underwent a workover to co-mingle production from two separate zones in the last quarter of the year. The Company exited the year producing 350 BOE/d.

Net income and cash flow from operations both increased significantly over the quarter and year ended December 31, 2005. Cash flow from operations and net income were positive for the third consecutive quarter as a result of the higher commodity prices and production volumes. Cash flow from operations was negatively affected by increased royalties in the fourth quarter and higher annual operating expenses. During the fourth quarter the Company was assessed a compensatory royalty for a non-producing lease in the Camrose area that is adjacent to a section being produced by another energy company. Operating expenses increased on an absolute dollar basis over the same comparative prior year periods as a result of the increased production from the Cessford gas well and repairs and maintenance on downhole equipment at Camrose. Net income for the quarter and year end was further impacted by heavy charges for depletion and depreciation. Fourth quarter and year end rates of $12.82 per boe and $10.01 per boe respectively, were a result of the Company's capital program increasing its depletable base without associated reserve additions.

Liquidity and Capital Reserves

The Company's net negative working capital position at December 31, 2005 totaled $2,316,561. The Company had a revolving production loan with a financial institution with $2,200,000 available, of which $1,225,000 was drawn at December 31, 2005 and a developmental loan of $1,500,000 with a financial institution, of which $nil was drawn at December 31, 2005. Subsequent to year end, the revolving production loan line available was increased to $3.0 million and the developmental loan reduced to $700,000 available.

At December 31, 2005 and to date, Cheyenne 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 in May 2006.

RESERVES

The Company's reserve report as at December 31, 2005 was prepared by Paddock Lindstrom & Associates Ltd. ("Paddock"), an independent petroleum reservoir engineering firm. This is the third year Paddock has evaluated these reserves. The reserves as at December 31, 2005 and 2004 have been evaluated in accordance with National Instrument 51-101, Standards of Disclosure for Oil and Gas Activities. The following tables provide reconciliation between the two reserve reports on a gross basis (before deducting royalties and without including any royalty interest).

2005 Reconciliation of Gross Company Reserves by Principal Product-Forecast Prices and Costs



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------------------------------------------------------------------------
Total Proved Proved Plus Probable
------------------------------------------------------------------------
Oil Gas NGL Oil Gas NGL
(MSTB) (MMCF) (MSTB) (MBOE) (MSTB) (MMCF) (MSTB) (MBOE)
------------------------------------------------------------------------
December
31, 2004 17 3,275 2 565 21 5,234 3 896
Technical
Revisions 1 (512) 3 (82) 1 (1,735) 3 (285)
Discoveries - - - - - - - -
Production 3 538 1 93 3 538 1 93
------------------------------------------------------------------------
December
31, 2005 15 2,225 4 390 19 2,961 5 518
------------------------------------------------------------------------
------------------------------------------------------------------------


Cheyenne's gross interest reserves at December 31, 2005 are 390,000 BOE total proved reserves and 518,000 BOE proved plus probable reserves. The decrease in gross reserves resulted from the shut-in of operations at one producing gas well in the Camrose area and revisions associated with potential Viking gas reserves in the Cessford area. The aerial extent of potential Viking gas reserves had to be reduced after drilling an uneconomic well at Cessford on an adjacent section of land.

Summary of Oil and Gas Reserves-Forecast Prices and Costs



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------------------------------------------------------------------------
Reserves
Category Gross Reserves
------------------------------------------------------------------------
Light Crude Natural Gas Natural Gas Oil Equivalent
Oil (MSTB) Liquids (MSTB) (MMCF) (MBOE)
------------------------------------------------------------------------
Proved
Proved
Producing 15 4 2,225 390
Proved
Non-
Producing - - - -
------------------------------------------------------------------------
Total
Proved
Developed 15 4 2,225 390
Proved
Undeveloped - - - -
------------------------------------------------------------------------
Total Proved 15 4 2,225 390
Probable
Additional 4 1 736 128
------------------------------------------------------------------------
Total Proved
Plus
Probable 19 5 2,961 518
------------------------------------------------------------------------
------------------------------------------------------------------------


------------------------------------------------------------------------
------------------------------------------------------------------------
Reserves
Category Net Reserves
------------------------------------------------------------------------
Light Crude Natural Gas Natural Gas Oil Equivalent
Oil (MSTB) Liquids (MSTB) (MMCF) (MBOE)
------------------------------------------------------------------------
Proved
Proved
Producing 14 3 1,480 264
Proved
Non-
Producing - - - -
------------------------------------------------------------------------
Total
Proved
Developed 14 3 1,480 264
Proved
Undeveloped - - - -
------------------------------------------------------------------------
Total Proved 14 3 1,480 264
Probable
Additional 4 - 528 92
------------------------------------------------------------------------
Total Proved
Plus
Probable 18 3 2,008 356
------------------------------------------------------------------------
------------------------------------------------------------------------


Net Present Value of Future Net Revenue of Oil and Gas Reserves-Forecast Prices and Costs



------------------------------------------------------------------------
------------------------------------------------------------------------
Reserves
Category Before Future Income Tax Expenses and Discounted At
------------------------------------------------------------------------
0% 5% 10% 15% 20%
(M$) (M$) (M$) (M$) (M$)
------------------------------------------------------------------------
Proved
Developed Producing 11,773 10,499 9,548 8,800 8,191
Developed Non-Producing - - - - -
Undeveloped - - - - -
------------------------------------------------------------------------
Total Proved 11,773 10,499 9,548 8,800 8,191
Probable 3,210 2,341 1,805 1,447 1,195
------------------------------------------------------------------------
Total Proved Plus
Probable 14,982 12,840 11,353 10,246 9,385
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------------------------------------------------------------------------


Summary of Paddock Lindstrom & Associates Ltd. Pricing and Exchange Rate Assumptions-Forecast Prices and Costs



------------------------------------------------------------------------
------------------------------------------------------------------------
Natural Gas Crude Oil
WTI@ EDM
Henry Hub AECO-C Cushing Ref.
Year (US$/MMBTU) (CDN$/MMBTU) (US$/BBL) ($/BBL)
------------------------------------------------------------------------
2006 9.85 10.54 60.00 69.57
2007 9.00 9.52 57.50 66.61
2008 8.00 8.32 55.00 63.64
2009 7.50 7.71 52.50 60.68
2010 7.00 7.10 50.00 57.72
2011 7.14 7.24 47.50 54.76
2012 7.28 7.39 48.45 55.85
2013 7.43 7.53 49.42 56.97
2014 7.58 7.68 50.41 58.11
2015 7.73 7.84 51.42 59.27
2016 7.88 7.99 52.44 60.46
2017 8.04 8.15 53.49 61.66
2018 8.20 8.32 54.56 62.90
2019 8.37 8.48 55.65 64.16
2020 8.53 8.65 56.77 65.44
2021 8.70 8.83 57.90 66.75
2022 8.88 9.00 59.06 68.08
2023 9.06 9.18 60.24 69.44
2024 9.24 9.37 61.45 70.83
------------------------------------------------------------------------
------------------------------------------------------------------------

All prices escalated at 2% per year after 2024.
All costs escalated at 2% per year from 2006.

------------------------------------------------------------------------
------------------------------------------------------------------------
Natural Gas Liquids

CDN/US
Butane Propane Ethane Exchange
Year ($/BBL) ($/BBL) ($/BBL) Rate
------------------------------------------------------------------------
2006 48.70 41.74 33.47 0.85
2007 46.62 39.96 30.24 0.85
2008 44.55 38.19 26.43 0.85
2009 42.48 36.41 24.43 0.85
2010 40.40 34.63 22.44 0.85
2011 38.33 32.85 22.88 0.85
2012 39.10 33.51 23.34 0.85
2013 39.88 34.18 23.81 0.85
2014 40.68 34.86 24.29 0.85
2015 41.49 35.56 24.77 0.85
2016 42.32 36.27 25.27 0.85
2017 43.17 37.00 25.77 0.85
2018 44.03 37.74 26.29 0.85
2019 44.91 38.49 26.81 0.85
2020 45.81 39.26 27.35 0.85
2021 46.72 40.05 27.90 0.85
2022 47.66 40.85 28.45 0.85
2023 48.61 41.67 29.02 0.85
2024 49.58 42.50 29.60 0.85
------------------------------------------------------------------------
------------------------------------------------------------------------

All prices escalated at 2% per year after 2024.
All costs escalated at 2% per year from 2006.


Net Asset Value

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------------------------------------------------------------------------
December 31, 2005
------------------------------------------------------------------------
Proved Plus Probable Reserves (PV 10%) ($000s) $ 11,353
Undeveloped Land ($000s)(1) 1,055
Working Capital, Including Debt ($000s) (2,317)
Proceeds on Exercise of Warrants ($000s) 70
Proceeds on Exercise of Broker Options ($000s) 75
Proceeds on Exercise of Stock Options ($000s) 110
------------------------------------------------------------------------
Net Asset Value (Fully Diluted) ($000s) $ 10,346
Fully Diluted Shares ('000s) 15,881
------------------------------------------------------------------------
Net Asset Value Per Share $ 0.65
------------------------------------------------------------------------
------------------------------------------------------------------------

(1) Undeveloped land is valued at $100 per acre.


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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