Churchill Energy Inc.

Churchill Energy Inc.

August 12, 2009 18:00 ET

Churchill Announces Second Quarter 2009 Results

CALGARY, ALBERTA--(Marketwire - Aug. 12, 2009) - Churchill Energy Inc. ("Churchill") (TSX VENTURE:CEI) today filed its second quarter unaudited financial statements for the three and six months ended June 30, 2009 and related Management's Discussion and Analysis on SEDAR ( and on the Company's website at


Churchill Energy Inc. ("Churchill" or the "Company") is pleased to report to shareholders the Company's activities in the second quarter of 2009.

On July 27, 2009, Churchill entered into an Arrangement Agreement pursuant to which Zargon Energy Trust will acquire all of the outstanding common shares of Churchill. Pursuant to the Agreement, Churchill shareholders will receive, for each common share held, at the election of each holder, either (i) 0.01363 trust units of Zargon for a deemed value of $0.22; (ii) $0.22 in cash; or (iii) a combination thereof, subject to proration such that a maximum of $4.6 million will be paid in cash. The transaction will be completed pursuant to a Plan of Arrangement (the "Arrangement") which requires the approval of at least two-thirds of the votes cast by Churchill shareholders at a special meeting of Churchill to be called to consider the Arrangement (the "Meeting") along with customary regulatory, court and other approvals. An Information Circular outlining the Arrangement is expected to be mailed to Churchill shareholders in mid to late August 2009 in respect of the Meeting, which is anticipated to take place in late September 2009. If the Arrangement is completed prior to September 29, 2009, as currently anticipated, the first post-Arrangement distribution by Zargon will be paid on October 15, 2009 to Zargon unitholders (including former Churchill shareholders who have elected to receive and continue to hold Zargon trust units) of record on September 30, 2009. The Board of Directors of Churchill has concluded that the Arrangement is in the best interests of its shareholders and has resolved to recommend that Churchill shareholders vote their Churchill shares in favour of the Arrangement, given that the Arrangement is expected to provide Churchill shareholders with consideration equal to a premium of approximately 90% over the five day weighted average trading price of the Churchill common shares prior to the announcement, and, to the extent shareholders receive Zargon trust units, with monthly distributions, access to improved liquidity, continued participation in Churchill's oil and gas prospects and participation in a significantly larger oil and gas company with a lower cost of capital and improved access to capital. Peters & Co. Limited acted as exclusive financial advisor to Churchill with respect to the transaction and has provided the Churchill Board of Directors with a verbal opinion that, subject to reviewing final documentation, the consideration to be received by the Churchill shareholders pursuant to the Arrangement is fair, from a financial point of view, to the Churchill shareholders.

Funds from operations were $358,165 for the second quarter of 2009 which is net of general and administrative expenses. This was a six fold increase from the first quarter of 2009 due primarily to increased production volumes as a result of the Grand Forks wells being on production for the whole quarter as well as accounting for the full quarter of production from the Welton properties. Production averaged 369 boe/d in the quarter which was 18% higher than the 314 boe/d in the first quarter.

Operating netbacks were $31.59 per boe which was a significant increase over the first quarter netback of $13.12 per boe. This was due to stronger oil prices and narrow differentials for our Bow River crude oil in the quarter.

On behalf of the Board of Directors I would like to express our gratitude for the support our Shareholders have demonstrated in the past and with respect to our decision to proceed with the Arrangement with Zargon,

On behalf of the Board of Directors,

Kelly D. Cowan, Chief Executive Officer

August 12, 2009


Three Months Ended Six months Ended
June 30, June 30,
2009 2008 2009 2008 Change
FINANCIAL ($, except
share data)

Oil and gas revenues,
before royalties 1,328,123 3,034,325 2,340,657 5,519,461 (58%)

Funds from
operations (1) 358,165 1,292,645 406,296 2,322,033 (83%)
Per Share- Basic
and diluted
($ per share) 0.01 0.04 0.01 0.07 (86%)

Net income (loss)
gain (597,059) (7,997,866) 2,274,150 (8,538,243) 127%
Per Share - Basic
and diluted
($ per share) (0.01) (0.22) 0.06 (0.24) 125%
Expenditures 381,052 319,000 543,891 1,927,546 (72%)
Proceeds on property
dispositions - (14,146,707) (167,976) (14,146,707) (99%)

Total assets 36,671,014 36,282,507 36,671,014 36,282,507 (1%)

Working capital
deficit (2) 733,981 2,040,473 733,981 2,040,473 (64%)

Bank debt 3,747,736 - 3,747,736 - -

Weighted average
shares outstanding
Basic 41,184,664 35,691,669 39,910,050 35,691,669 12%
Diluted 41,184,664 35,691,669 39,910,050 35,691,669 12%

as noted)

Average Daily
Crude oil and NGLs
(bbls/d) 177 152 154 139 11%
Natural gas (mcf/d) 1,153 1,662 1,124 1,892 (41%)
Barrels of oil
equivalent (boe/d) 369 429 342 454 (25%)

Average Product
Prices Received (3)
Crude oil and NGLs
($/bbl) 57.47 103.50 51.85 92.24 (44%)
Natural gas ($/mcf) 3.69 10.39 4.22 9.05 (53%)
Combined ($/BOE) 38.98 76.93 37.30 65.90 (43%)

Netback ($/BOE) 31.59 52.08 23.16 41.42 (44%)

Wells Drilled
Gross - - - 1 -
Net - - - 0.50 -

Success - - - 100% -

Undeveloped land
(net acres) 62,605 41,978 62,605 41,978 49%

(1) Funds from operations is a non-GAAP measure which does not have a
standardized meaning prescribed by Canadian GAAP and therefore may not
be comparable with the calculation of similar measures by other
(2) Excludes bank debt and the risk management contracts
(3) Before realized hedging gains and losses

Churchill is a Calgary-based junior oil and natural gas company headquartered in Calgary. Our focus is the exploration, development and exploitation of hydrocarbon reserves in the Western Canadian Sedimentary basin. The common shares of Churchill are listed on the TSX Venture Exchange and trade under the symbol "CEI".

Forward Looking Information and Statements

This news release contains certain forward-looking information and statements within the meaning of applicable securities laws. The use of any of the words "expect", "anticipate", "continue", "estimate", "objective", "ongoing", "may", "will", "project", "should", "believe", "plans", "intends", "strategy" and similar expressions are intended to identify forward-looking information or statements. In particular, but without limiting the foregoing, this news release contains forward-looking information and statements pertaining to the following: the volumes and estimated value of Churchill's oil and gas reserves; the life of Churchill's reserves; the volume and product mix of Churchill's oil and gas production; future oil and natural gas prices and Churchill's commodity risk management programs; the amount of future asset retirement obligations; future liquidity and financial capacity; future results from operations and operating metrics; future costs, expenses and royalty rates; future interest costs; future development, exploration, acquisition and development activities (including drilling plans) and related capital expenditures and future taxes payable by Churchill; and Churchill's tax pools.

The forward-looking information and statements contained in this news release reflect several material factors and expectations and assumptions of Churchill including, without limitation: that Churchill will continue to conduct its operations in a manner consistent with past operations; the general continuance of current industry conditions; the continuance of existing (and in certain circumstances, the implementation of proposed) tax, royalty and regulatory regimes; the accuracy of the estimates of Churchill's reserve and resource volumes; certain commodity price and other cost assumptions; and the continued availability of adequate debt and equity financing and cash flow to fund its plans expenditures; Churchill believes the material factors, expectations and assumptions reflected in the forward-looking information and statements are reasonable but no assurance can be given that these factors, expectations and assumptions will prove to be correct.

The forward-looking information and statements included in this news release are not guarantees of future performance and should not be unduly relied upon. Such information and statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking information or statements including, without limitation: changes in commodity prices; changes in the demand for or supply of Churchill's products; unanticipated operating results or production declines; changes in tax or environmental laws, royalty rates or other regulatory matters; changes in development plans of Churchill or by third party operators of Churchill's properties, increased debt levels or debt service requirements; inaccurate estimation of Churchill's oil and gas reserve and resource volumes; limited, unfavorable or a lack of access to capital markets; increased costs; a lack of adequate insurance coverage; the impact of competitors; and certain other risks detailed from time to time in Churchill's public disclosure documents (including, without limitation, those risks identified in this news release).

The forward-looking information and statements contained in this news release speak only as of the date of this news release, and none of Churchill or its subsidiaries assumes any obligation to publicly update or revise them to reflect new events or circumstances, except as may be required pursuant to applicable laws.

BOEs may be misleading, particularly if used in isolation. A BOE conversion ratio of 6 Mcf: 1 bbl is based on 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 does not accept responsibility for the adequacy or accuracy of this news release.

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