Culane Energy Corp.
TSX VENTURE : CLN

Culane Energy Corp.

November 26, 2010 17:31 ET

Culane Energy Releases 2010 Third Quarter Results

CALGARY, ALBERTA--(Marketwire - Nov. 26, 2010) -

THIS NEWS RELEASE IS NOT FOR DISSEMINATION IN THE UNITED STATES OR TO U.S. PERSONS.

Culane Energy Corp. ("Culane" or the "Company") (TSX VENTURE:CLN) announces its financial and operating results for the third quarter ended September 30, 2010. The unaudited Financial Statements and related Management's Discussion and Analysis have been filed with Canadian securities regulatory authorities on SEDAR at www.sedar.com and posted on the Company's website at www.culaneenergycorp.com.



2010 2009 2010 2009
HIGHLIGHTS Q3 Q3 Y to D Y to D
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Daily production - BOE 958 1,229 998 1,470
Netback per BOE 20.31 25.12 23.86 24.52
Cash flow - ($000's) 1,097 2,327 4,672 8,079
Cash flow per share (basic) 0.04 0.10 0.19 0.35

Earnings (loss) - ($000's) (1,130) (1,211) (2,524) (4,464)
Wells drilled 2 - 6 4
Capital expenditures - ($000's) 3,590 4,320 11,812 8,138
Dispositions - ($000's) - - - 408
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Working Capital (deficit) - ($000's) (310) 370
Bank debt - ($000's) (20,702) (11,049)
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Net debt - ($000's) (21,012) (10,679)
Basic shares outstanding at
September 30 24,569,754 24,519,754


Highlights - continued (per share information stated below is based on weighted average - basic outstanding shares)

- In February, the Company drilled a horizontal oil well at Notukeu in SW Saskatchewan into the Upper Shaunavon formation. A multi-stage sand frac using the 'Packers Plus' technology resulted in the well being put on production in August at an initial average production rate of 94 bbls/d, it is currently producing 30 bbls/d. The Company suspects the well has plugged off due to the influx of sand from the frac operation and is preparing to re-enter the well to clean the sand out of the well bore.

- Water-flood injection rates at Killam are currently at 4,700 barrels of water per day. The Company plans to increase water injection rates up to 6,500 barrels per day during the fourth quarter, following the tie-in of two water source wells drilled in August.

- Production averaged 998 BOE/d for the first nine months of 2010 compared to 1,470 BOE/d for the same period in 2009 (Q3/10 - 958, Q2/10 - 980, Q1/10 - 1,056, Q4/09 - 1,073). Production mix was 74% oil and 26% natural gas for the first nine months of 2010.

- Prices for 2010 averaged $68.32 per bbl for oil and $4.36 per Mcf for natural gas compared to 2009 interim prices of $55.31 per bbl for oil and $3.98 per Mcf of natural gas.

- Gross revenues were $15.7 million for the first nine months of 2010 compared to $18.8 million for the same period in 2009.

- Cash flow for the first nine months was $4.7 million, or $0.19 per share, compared to $8.1 million, or $0.35 per share for the same period in 2009.

- The Company recorded a loss of $2.5 million for the first nine months of 2010, or $0.10 per share, compared to a loss of $4.5 million, or $0.19 per share in the first nine months of 2009. Higher depletion costs in 2009 contributed to the bigger loss in the earlier period.

- Capital expenditures of $11.8 million were invested in 2010. Most of the expenditures were in Saskatchewan with three horizontal wells and one vertical test well drilled in new exploration areas, plus 10 additional sections of lands acquired. Two additional water source wells were drilled at Killam Alberta in August 2010.

- The Company's land base in Saskatchewan is now comprised of 43,974 acres (68.7 sections), 85% Crown and 15% freehold.

- Net debt (bank debt less working capital) at September 30, 2010 was $21 million compared to $13.7 million at December 31, 2009. Debt to annualized cash flow is 4.8 to 1 (based on third quarter cash flow), while debt to equity is 0.4 to 1.

- The Company had drawn $20.7 million on its primary credit facility of $27 million at September 30, 2010, leaving $6.3 million available, plus $3 million on its development facility.

- The Company issued 2,250,000 flow through common shares at $1.45 per share for gross proceeds of $3.2 million at the beginning of November 2010. The proceeds will be used toward funding the Company's winter exploration drilling program.

- The basic common shares outstanding at November 26, 2010 are 27,189,754.

Operations Update

Saskatchewan

Coleville

As previously announced, in the first quarter of 2010 Culane drilled an exploration well targeting the Birdbear formation in west central Saskatchewan at Coleville. The well was then acidized and swabbed with rates fluctuating from 0 to 70 barrels of oil per day and water cuts ranging from 65% to 100%. The oil quality is 14.6o API. A single well battery was then constructed to allow this well to be production tested. Culane carried out an initial chemical treatment on this well in April with the subsequent testing of the well being delayed by road bans and wet weather. Once production commenced Culane produced 100 barrels of oil in 18 hours, then the well turned back to producing water. The produced oil sample was sent to the lab for analysis. The produced oil turned out to be a thick emulsion that formed when the mud system was turned over to produced water from another Birdbear pool 30 miles away. To date, efforts to break the emulsion block have failed.

Culane has reviewed the seismic data on this play and plans to drill another test well. Seismic data indicates that the new well should be approximately 10 meters higher in structure from the first test well. Formation water from the Birdbear Formation at Coleville will be used to change over the mud system before completion of the well to eliminate the formation of an emulsion.

Culane has licensed a horizontal well that will commence drilling in December of 2010. A drilling rig has been contracted for this operation. Drilling is expected to take approximately 22 days. The well will then be tested and results released once they are available.

Culane will pay a 2.5% Crown royalty on the first 100,000 barrels (16,000 m3) of oil produced from any horizontal wells drilled in the Birdbear Formation on Saskatchewan Crown lands. Culane owns a 100% working interest in this project.

Kerrobert

Culane has contracted a drilling rig to spud a vertical exploration well in early December. Culane will be recovering a 9m drill core from the Birdbear Formation in this well. Drilling is expected to take approximately 12 days. Completion and testing operations will commence after the drilling rig is moved off the location. Depending on the results of the first well, Culane may have five more locations to drill at Kerrobert before break-up.

Notukeu

At Notukeu, Culane's drilling operations in southwest Saskatchewan have resulted in a successful 100% working interest horizontal oil well in the Upper Shaunavon formation. Initial production rates were averaging approximately 15 m3 (94 barrels) of oil per day with an 8 to 10 % water cut. The Notukeu 2-6-11-17W3 was drilled in February 2010 and following an initial completion and production testing period, was shut in for most of April, May and June because of spring break-up and extended delays due to extremely wet weather and field conditions.

After a month of production, the well experienced pump failure and, following a replacement, oil production stabilized at its current rate of 30 bbls/d. The Company suspects the well has plugged off due to the influx of sand from the frac operation and is preparing to re-enter the well to clean the sand out of the well bore.

At Notukeu, Culane owns 13 sections of land with a 100% working interest and has identified an additional 45 drill locations. Further drilling at Notukeu will be subject to the performance of the 2-6 well following any further completion efforts.

Alberta

Killam

The Killam water-flood has now been in full operation since early 2010. Water injection rates are now approximately 4,700 barrels of water per day. In the third quarter, Culane drilled, cased and completed two new water source wells at Killam to increase injection volumes. The two new water source wells have been tested and are expected to increase water injection volumes to between 6,000 and 6,500 barrels per day. Culane has received all the required approvals to build a water pipeline from these wells to its water injection facilities. Pipeline construction is scheduled to commence within 10 days. As the reservoir pressure increases sufficiently, Culane intends to increase pump speeds and oil production rates. As a direct result of water injection into the Killam pool, daily oil production has stabilized and the associated natural gas production has clearly declined, both of which are indicators of positive response to the water-flood. Culane has 31 multi-leg horizontal producing oil wells at Killam, 13 water injectors that are a combination of vertical and horizontal wells and 12 water source wells.

Culane's independent engineering evaluator completed its most recent evaluation of the Company's reserves as of December 31, 2009. The reserves have been assigned as Proved, Probable and Possible. The evaluator has assigned Possible reserves to the surfactant polymer flood. The Proved, Probable and Possible reserves assigned at this time combine for a 22.5% oil recovery factor. The "Discovered Petroleum Initially-in-place" at Killam net to Culane is estimated at approximately 42 million barrels of 24o API oil. Culane maintains 100% ownership in this asset and is the operator.

Water-flooding and Surfactant Polymer flooding can dramatically increase the amount of recoverable oil reserves above the estimated 10% oil recovery resulting from primary production. Analogous oil pool case histories have established that water-flooding similar oil reservoirs has the potential to recover up to 25% of the original oil in place and Surfactant Polymer flooding has the potential to recover up to 40% of the original oil in place. The initial feasibility study on the Killam oil pools indicates the potential for these recoveries.

Future Growth

As previously announced, Culane has acquired a 100% working interest in approximately two townships of land (69 sections) in southwest Saskatchewan. Culane acquired this land for its oil potential.

At the beginning of November 2010, Culane issued 2,250,000 flow through common shares at $1.45 per share for gross proceeds of $3.2 million. The proceeds of this financing will be used to fund exploration drilling at Coleville and Kerrobert that is expected to commence in December 2010. The exploration wells at Kerrobert and Coleville are not expected to require multi-stage frac services.

About Culane Energy Corp.

Culane Energy is a junior oil and gas company engaged in the exploration, development and production of oil and natural gas in western Canada.

Reader Advisories

Forward-Looking Statements: This news release contains certain forward-looking statements, including management's assessment of future plans and operations and the expected timing and results from operations, that involve substantial known and unknown risks, uncertainties and assumptions, certain of which are beyond Culane's control. Such risks, uncertainties and assumptions include, without limitation, those associated with oil and gas exploration, development, exploitation, production, marketing, processing and transportation, loss of markets, volatility of commodity prices, currency fluctuations, imprecision of reserve estimates, environmental risks, competition from other producers, inability to retain drilling rigs and other services, delays resulting from or inability to obtain required regulatory approvals and ability to access sufficient capital from internal and external sources, the impact of general economic conditions in Canada, the United States and overseas, industry conditions, changes in laws and regulations (including the adoption of new environmental laws and regulations) and changes in how they are interpreted and enforced, increased competition, the lack of availability of qualified personnel or management, fluctuations in foreign exchange or interest rates, stock market volatility and market valuations of companies with respect to announced transactions and the final valuations thereof, and obtaining required approvals of regulatory authorities. Culane's actual results, performance or achievements could differ materially from those expressed in, or implied by, these forward-looking statements and, accordingly, no assurances 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 that Culane will derive there from. Readers are cautioned that the foregoing list of factors is not exhaustive. Additional information on these and other factors that could affect Culane's operations and financial results are included in reports, including Culane's annual information form for the financial year ended December 31, 2009, on file with Canadian securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com). All subsequent forward-looking statements, whether written or oral, attributable to Culane or persons acting on its behalf are expressly qualified in their entirety by these cautionary statements. Furthermore, the forward-looking statements contained in this news release are made as at the date of this news release and Culane does not undertake any obligation to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by applicable securities 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 convervion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

Possible reserves are those additional reserves that are less certain to be recovered than probable reserves. There is a 10% probability that the quantities actually recovered will equal or exceed the sum of proved plus probable plus possible reserves.

27,189,754 Common Shares

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

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