Exall Energy Corporation
TSX : EE

Exall Energy Corporation

March 20, 2009 09:25 ET

Exall Energy Corporation Announces Results for the Three Months and Year Ended December 31, 2008

CALGARY, ALBERTA--(Marketwire - March 20, 2009) - Exall Energy Corporation (TSX:EE) is pleased to announce financial and operating results for the three months and year ending December 31, 2008.

Exall achieved record production and cash flow results in 2008 and significant reserve additions due to successful drilling in 2008.

Highlights include:

- The Marten Mountain 7-12 well came on production in January 2009 and is currently flowing 1,050 barrels of oil per day (693 net) plus 470 mcf per day of solution gas,

- At unrestricted flow rates the current combined daily production rate from the 7-12 and 14-1 wells is 1,530 barrels of oil per day (978 net) with negligible water cut,

- Production increased 45 percent to average 253 boe per day in 2008,

- Commenced plans for the waterflood project at Marten Mountain that will allow increased production rates,

- Total proved reserves increased 87 percent and proved plus probable increased 50 percent on drilling of four (2.0 net) wells,

- The total proved NPV increased 129 percent and the proved plus probable increased by 55 percent,

- Funds from operations increased to $3.9 million for the year or $0.10 per share,

- Increased reserves have allowed for an expanded credit facility after the year end.



Three months
HIGHLIGHTS ended December 31 Year ended December 31
% %
2008 2007 change 2008 2007 change
----------------------------------------------------------------------------
Financial ($)
Gross revenue 704,722 970,385 (27) 8,025,626 3,821,732 110
Funds from
operations 17,663 592,932 (97) 3,862,669 1,342,380 188
Basic and diluted
per share 0.00 0.02 - 0.10 0.04 150
Net income (loss) (476,916) (684,855) (30) 645,161 (1,091,235) -
Basic and diluted
per share (0.01) (0.02) (50) 0.02 (0.04) -
Capital
expenditures, net 7,497,578 635,618 1,080 12,177,646 5,013,572 143
Net debt - - - 6,129,213 1,334,925 359

Operations
Daily production
Crude oil (bbl) 72 71 1 147 76 93
Natural gas
liquids (bbl) 12 14 (14) 14 14 -
Natural gas (mcf) 555 533 4 551 510 8
Total daily
production
(boe @ 6:1) 176 173 2 253 175 45
Netback per boe
(6:1) ($) 19.82 32.86 (40) 53.78 33.72 59


Overview

Annual production increased to an average 253 boe per day in 2008 primarily due to the drilling success at Marten Mountain in the Mitsue area of Alberta during the first quarter of 2008. The 14-1-75-6W5 well was drilled in the first quarter and produced through temporary facilities and restricted choke for the last two weeks of March, 2008 at an average rate of 760 boe per day plus 150 mcf per day of gas. The well was shut in during the spring break-up period and construction of a permanent bridge and permanent all-weather road to the site was completed, allowing the well to be put back on production starting July 22, 2008. The well produced at an average rate of 550 boe per day (325 net) through the month of August. The 14-1 well was shut in for the fourth quarter of 2008 to allow the drilling of two additional development locations established by the first well. The wells in the Q4 program have been completed, one as a water injection well and the second as a flowing oil well.

The 7-12-75-6W5 well was completed as a flowing oil well in December 2008 and placed on production January 2, 2009. The well produced at an average rate of 540 barrels of oil per day (356 net) through to the end of February. A production optimization procedure conducted near the end of February has resulted in a rate increase to 1,050 barrels of oil per day (693 net) with increased flowing wellhead pressure. The 7-12 well will be shut in at the end of March, at which time the New Oilwell Production Period expires and the well will come back on production in Q3 or upon approval of Good Production Practice (GPP). The 14-1 well is currently restricted to a daily allowable production rate of 148 barrels of oil. At unrestricted flow rates the combined daily production rate from the two wells is 1,530 barrels of oil per day (978 net) with negligible water cut.

The Company has applied for Waterflood Project status and GPP approval, which will allow higher production rates from the currently restricted 14-1 horizontal well and the new 7-12 well. The wells will be on the restricted allowable as of the end of March until approval of the waterflood and completion of pipeline construction. Approval of the project is expected during the second quarter of 2009. Construction of the pipeline and battery facilities currently under design will begin once Waterflood Project status is given and higher production rates have been approved.

Results of Operations

Production for 2008 of 253 boe per day represents a 45 percent increase over 2007. Funds from operations for the year of $3.9 million or $0.10 per share were the result of the increased production and impacted by record high commodity prices during the third quarter. Net income for the year was $645,161 or $0.02 per share.

During the year the Company spent $12.2 million on capital expenditures while drilling two (1.25 net) successful oil wells in the Marten Mountain area and one (0.15 net) successful oil well in the Jayar area. The Company also drilled a water injection well (0.66 net) and added to facilities primarily in the Marten Mountain area. The years' capital expenditures were funded by funds from operations, additional debt and the issue of additional equity.

Reserves

Exall received the results of an independent engineering evaluation of its oil and gas reserves conducted by AJM Petroleum Consultants Ltd. effective December 31, 2008. This evaluation was prepared in accordance with National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities (NI 51-101). This instrument, which was adopted by the Canadian Securities Administrators, sets out standards of disclosure for oil and gas activities and mandates the application of evaluation standards defined in the Society of Petroleum Evaluation Engineers (SPEE) Canadian Oil and Gas Evaluation Handbook (COGEH).

Highlights of the reserve report include:

- Company working interest reserves are 751.3 Mboe total proved and 1,352.1 Mboe proved plus probable,

- In 2008 development activity added 452.1 Mboe of total proved reserves and 552.9 Mboe of proved plus probable reserves,

- Reserve replacement was 4.4 times total proved and 5.4 times proved plus probable,

- The net present value of the proved plus probable reserves is $27.8 million, discounted at 10 percent, forecast prices, before tax,

- Reserve life index of 8.1 years total proved and 14.6 years proved plus probable based on the 2008 annual average production rate and year-end reserves.

Substantial additions to reserves in 2008 are attributed to successful drilling in the Marten Mountain area of Mitsue, AB. Light oil and solution gas reserves in the prospect area account for 58 percent of total proved and 61 percent of proved plus probable reserves of the Company. Exall's operations for 2009 will focus largely on continued exploitation of this property.



Working Interest Reserves History

Total Proved Proved Plus Probable
----------------------------------------------------------------------------
% % % %
December Reserves Incr- NPV ($000) Incr- Reserves Incr- NPV ($000) Incr-
31 (MBOE) ease @ 10% DCF ease (MBOE) ease @ 10% DCF ease
----------------------------------------------------------------------------

2006 254.5 - 5,332 - 432.3 - 8,314 -
2007 402.1 58 6,942 30 902.1 109 17,967 116
2008 751.3 87 15,917 129 1,352.1 50 27,814 55



Finding and development costs for the Company in 2008 came to $35.58 per boe on the total proved reserves and $32.39 per boe on the proved plus probable reserves including future development costs. Significant future development costs included the pipeline and facilities planned for the Marten Mountain area. Future drilling will utilize those facilities and along with the anticipated saving on drilling cost can be expected to reduce the per barrel finding and development costs substantially as the property is developed.

Outlook

During 2008 Exall participated in the drilling of four wells resulting in the completion of two oil wells, one gas well and one water injection well. The corporate production objective for 2008 exit was set between 800 and 1,000 boe per day. The successful drilling and completion of the two producing Marten Mountain horizontal wells assured that the Company met that goal, in terms of production capability, although full production has been delayed due to weather, drilling delays and government regulations. The proven reserves and production capability established by the wells are expected to increase the corporate cash flow and borrowing power sufficiently to fund further development of that key property, as well as other assets owned by the Company. The completion and testing of the water injection well has allowed the Company to quickly advance the application for enhanced recovery. Exall is currently focused on the waterflood project and the design and permitting of the pipeline and battery facilities in the area. The Company expects to have final approvals for the project and to proceed with construction in the second quarter of 2009. Completion of the project is scheduled for the summer of 2009 to coincide with higher production rates upon the waterflood project approval.

Exall has also begun preparation of a second surface location for the drilling of up to five wells along the extension of the Marten Mountain channel trend beginning in the fourth quarter of 2009. The Company plans to drill the wells as horizontal development wells from a single pad. The wells drilled to date have had extended lateral offsets (up to 2,400 meters) to the reservoir due to restricted surface access in Lesser Slave Lake Provincial Park. Subsequent wells will have substantially shorter offsets (less than 1,200 meters) to the reservoir as drilling has established that the channel trend is exiting the provincial park. The resulting savings in drilling cost will be substantial, with the well cost dropping from the historical average of $4 million to an estimated $2 million. In addition, the downward pressure on costs due to inactivity in the service sector along with the recently announced Alberta Government drilling incentive and 5 percent maximum Crown Royalty incentive programs will have positive effect on the Company's proposed capital expenditure. Most of the Company's production is located in Alberta which will allow Exall to recover $200 per meter drilled or $600,000 for a 3,000 meter well through a credit of 50 percent on Crown Royalties paid. Wells planned for the greater Mitsue area during the first quarter of 2009 have been deferred, due to the diversion of capital to facility projects, until the Marten Mountain project is on stream.

The horizontal well drilled in Jayar, Alberta during the first quarter of 2008 (14.5% WI) continues to produce at 80 boe per day (12 net). Exall will be participating (8.7% WI) in the drilling of another horizontal infill well at Jayar, to be drilled in the fourth quarter of 2009. Additional wells are planned in the area, dependent on the successful results of this well. Exall has an average 14.5 percent working interest in future wells.

Exall will also be participating in seismic acquisition and the drilling of a development well in the Aitken Creek, British Columbia area, offsetting the original gas discovery well drilled in 2004. The Company has an average 22.5 percent working interest in nine drilling spacing units in the area.

The year 2008 has been an exciting and dynamic year for Exall and the industry in general. Starting from a modest production base of light oil and gas, the Company has shown itself capable of setting and achieving ambitious targets, beginning with the drilling of an outstanding well in the first quarter, establishing permanent access and production in the second and third, and finally in the fourth quarter, duplicating the drilling success and setting the Company on track for explosive growth in the future. Exall is a light oil-weighted company with high operating margins. This puts the Company in a favorable position to weather the current economic downturn and potentially take advantage of opportunities that arise.

A major challenge over the past year has been operating during times of high commodity prices and high operating costs which has changed to low prices with continued high costs, including the imposition of the New Royalty Framework in Alberta. With the continued drilling success Exall has managed to finance activities through cash flow, increased debt and limited equity issues. The control of drilling and facilities costs will be a challenge in the coming year although the current economic crisis and depressed prices should be expected to bring those costs to more reasonable levels. The programs introduced by the Government of Alberta to alleviate the excessive royalty burden of the New Royalty Framework and spur drilling will improve the economics of future activity; however, we believe that permanent changes are required in the long term to re-establish the Alberta Advantage. Completion of the waterflood approval and facilities construction phase planned for early summer will precipitate a jump in production rates and projected cash flow for the Company.

Reader Advisory

Certain selected financial and operational information for the three months and year ended December 31, 2008 is set out above and should be read in conjunction with the audited financial statements and related management's discussion and analysis (MD&A) for the three months and year ended December 31, 2008 as well as the Company's Annual Information Form for the year ended December 31, 2008. These documents will be filled on SEDAR at www.sedar.com and on the Company's website at www.exall.com prior to March 31, 2009.

This news release contains forward-looking statements, which are subject to certain risks, uncertainties and assumptions, including those relating to results of operations and financial condition, capital spending, financing sources, commodity prices and costs of production. By their nature, forward-looking statements are subject to numerous risks and uncertainties that could significantly affect anticipated results in the future and, accordingly, actual results may differ materially from those predicted. A number of factors could cause actual results to differ materially from the results discussed in such statements, and there is no assurance that actual results will be consistent with them. Such factors include fluctuating commodity prices, capital spending and costs of production, and other factors described in the Company's most recent Annual Information Form under the heading "Risk Factors" which has been filed electronically by means of the System for Electronic Document Analysis and Retrieval ("SEDAR") located at www.sedar.com. Such forward-looking statements are made as at the date of this news release, and the Company assumes no obligation to update or revise them, either publicly or otherwise, to reflect new events, information or circumstances, except as may be required under applicable securities law.

For the purposes of calculating unit costs, natural gas has been converted to a barrel of oil equivalent (boe) using 6,000 cubic feet equal to one barrel (6:1), unless otherwise stated. The boe conversion ratio of 6 mcf: 1 bbl is based on an energy equivalency conversion method and does not represent a value equivalency; therefore boe may be misleading if used in isolation. This conversion conforms to the Canadian Securities Regulators' National Instrument 51-101 -Standards of Disclosure for Oil and Gas Activities. The net present values disclosed may not represent fair market value.

About Exall

Exall Energy Corporation is a junior oil and gas company active in its business of oil and gas exploration, development and production from its properties in Alberta, British Columbia and Texas. Exall is currently developing a new oil discovery in north-central Alberta which will add significant production over the next six months. The Company's common shares are listed on the Toronto Stock Exchange under the trading symbol EE.

Please visit Exall Energy's website at: www.exall.com.

Contact Information

  • Exall Energy Corporation
    Frank S. Rebeyka
    Vice Chairman & CEO
    (403) 815-6637
    or
    Exall Energy Corporation
    Roger N. Dueck
    President & COO
    (403) 237-7820 x 223
    (403) 262-4723 (FAX)
    info@exall.com
    www.exall.com