Fairborne Energy Ltd.
TSX : FEL

Fairborne Energy Ltd.

February 22, 2011 07:00 ET

Fairborne Increases Proved Reserves by 25% With A Recycle Ratio of 1.8 for Both Proved and Proved Plus Probable Reserves and Provides Operational Update

CALGARY, ALBERTA--(Marketwire - Feb. 22, 2011) - Fairborne Energy Ltd. (TSX:FEL) ("Fairborne" or the "Company") provides its 2010 year end reserves and an operational update.

2010 Reserve Highlights



-- Proved developed producing reserves increased 24% to 30 MMBOE
-- Total proved reserves increased 25% to 50 MMBOE
-- Proved plus probable reserves increased 15% to 73 MMBOE
-- Finding and development costs were $12.34 per BOE for proved and $14.90
per BOE for proved plus probable reserves, excluding change in future
capital ($17.17 per BOE for proved and $17.59 per BOE for proved plus
probable reserves, including change in future capital)
-- Finding, development and acquisition costs were $15.25 per BOE for
proved and $15.37 per BOE for proved plus probable reserves, excluding
change in future capital ($19.40 per BOE for proved and $18.58 per BOE
for proved plus probable reserves, including change in future capital)
-- Recycle ratio of 1.8 for both proved and proved plus probable reserves
(excluding change in future capital)
-- Production replacement ratio of 2.8 times for both proved and proved
plus probable reserves
-- Proved developed producing reserves represent 60% of proved reserves
-- Proved reserve life index increased 18% to 9.0 years; proved plus
probable reserve life index increased 10% to 13.2 years
-- Dec. 31, 2010 Net Present Value (NPV) of future net revenues (discounted
at 10%) remained flat compared to the prior year at $1.05 billion
-- Net Asset Value (NPV 10) of $7.71 per share
-- 2010 operating netback of $27.42 per BOE


SUMMARY OF RESERVES

The Company's independent engineering evaluation, effective December 31, 2010, was prepared by the independent engineering firm of GLJ Petroleum Consultants ("GLJ") in accordance with the definitions set out under National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities ("NI 51-101") based on forecast prices and costs.

Summary of Oil and Gas Reserves - Gross(1) and Net(2) Reserves (Forecast Prices)



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Light/Medium Crude
Oil Heavy Oil Natural Gas Liquids
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Gross Net Gross Net Gross Net
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(Mbbl) (Mbbl) (Mbbl) (Mbbl) (Mbbl) (Mbbl)
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Proved
Developed
Producing 4,017 3,457 6 7 3,624 2,399
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Developed
Non-producing 369 288 110 97 324 215
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Undeveloped 1,363 1,196 119 122 2,779 2,091
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Total Proved 5,749 4,940 236 227 6,728 4,705
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Probable 3,573 2,994 197 179 3,603 2,495
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Total Proved
plus Probable 9,321 7,934 433 406 10,331 7,200
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Conventional
Natural Gas Coal Bed Methane TOTAL
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Gross Net Gross Net Gross Net
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(Bcf) (Bcf) (Bcf) (Bcf) (MBOE) (MBOE)
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Proved
Developed
Producing 110.1 95.6 23.1 20.9 29,856 25,288
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Developed
Non-producing 5.9 5.0 1.9 1.7 2,108 1,716
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Undeveloped 72.9 67.2 9.8 8.4 18,052 16,020
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Total Proved 189.0 167.9 34.9 31.1 50,016 43,024
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Probable 83.2 73.2 10.3 9.1 22,953 19,375
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Total Proved
plus Probable 272.1 241.0 45.2 40.1 72,969 62,400
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Note: May not add due to rounding.
(1) "Gross" reserves means Fairborne's working interest (operating and non-
operating) share before deduction of royalties payable to others and
without including any royalty interest of Fairborne.
(2) "Net" reserves means Fairborne's working interest (operating and non-
operating) share after deduction of royalty obligations plus Fairborne's
royalty interests in reserves.

Reconciliation of Gross Reserves (Forecast Prices) (1)

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Total
Total Proved plus
(MBOE) Proved Probable
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Opening, December 31, 2009 40,157 63,234
Technical Revisions 3,194 (1,314)
Exploration Discoveries 2,948 3,394
Drilling Extensions and Infill Drilling 6,590 8,463
Acquisitions 2,805 4,928
Dispositions (145) (203)
Production, excluding sulphur (5,533) (5,533)
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Closing, December 31, 2010 50,016 72,969
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Note: May not add due to rounding.

(1) "Gross" reserves means Fairborne's working interest (operating and non-
operating) share before deduction of royalties payable to others and
without including any royalty interest of Fairborne.

Net Present Value of Reserves, before income taxes (4)at December 31, 2010
(1)(2)(3)

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Discounted at:
($thousands) Undiscounted 5% 10% 15% 20%
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Proved
Developed Producing 898,635 690,394 562,324 476,156 414,437
Developed Non-Producing 60,971 42,863 32,099 25,063 20,161
Undeveloped 403,737 257,355 169,228 112,759 74,807
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Total Proved 1,363,343 990,612 763,650 613,979 509,405
Probable 789,008 452,270 289,331 198,458 142,701
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Total Proved plus Probable 2,152,351 1,442,882 1,052,982 812,437 652,106
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Note: May not add due to rounding.
(1) Utilizing GLJ January 1, 2011 price forecast.
(2) As required by NI 51-101, undiscounted well abandonment costs of $22.6
million for total proved reserves and $27.5 million for total proved
plus probable reserves are included in the Net Present Value
determination.
(3) Prior to provision of income taxes, interest, debt service charges and
general and administrative expenses. It should not be assumed that the
undiscounted and discounted future net revenues estimated by GLJ
represent the fair market value of the reserves.
(4) Net present value after income taxes for total proved reserves is $656.3
million and for total proved plus probable reserves is $869.0 million
based on a discount factor of 10%.

NET ASSET VALUE

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Forecast Prices - December 31, 2010
Discounted at:
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(thousands except as noted) 8% 10% 12%
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Net present value of future net revenue,
discounted, before tax(1),(2) $1,184,975 $1,052,982 $943,938
Undeveloped land(3) 66,131 66,131 66,131
Convertible debentures (100,000) (100,000) (100,000)
Long term debt, net of working capital (222,874) (222,874) (222,874)
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Net asset value $928,232 $796,239 $687,195
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Diluted common shares outstanding(4) 103,275 103,275 103,275
Net asset value per share $8.99 $7.71 $6.65
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(1) The net present value of the future net revenue for proved plus probable
reserves was determined by GLJ in their December 31, 2010 evaluation
report.
(2) It should not be assumed that the discounted future net revenues
estimated by GLJ represent the fair market value of the reserves.
(3) Undeveloped land at December 31, 2010 was valued at an average price of
$250 per net acre.
(4) Diluted common shares includes 102.5 million common shares outstanding
at December 31, 2010 as well as 0.8 million additional shares to be
issued on exercise of stock options, excluding stock options which are
out of the money based on prevailing market prices and common shares
issuable on the exercise of convertible debentures.

Capital Efficiency Highlights - 2010 (9)

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Total Proved
Proved plus Probable
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Capital costs ($thousands, unaudited)
Exploration and development(1),(2) 157,090 157,090
Acquisitions, net of dispositions 77,572 77,572
Change in future development costs(1)
Exploration and development 61,484 28,328
Acquisitions, net of dispositions 2,444 20,674
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Reserve additions (MBOE)
Exploration and development 12,732 10,543
Acquisitions, net of dispositions 2,660 4,725
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Finding & development costs, excluding change
in future capital (1),(6)($ per BOE) 12.34 14.90
Finding & development costs, including change
in future capital (1),(3)($ per BOE) 17.17 17.59
Finding, development and acquisitions costs,
excluding change in future capital(1),(5,(6)
($ per BOE) 15.25 15.37
Finding, development and acquisition costs,
including change in future capital(1),(5,(6)
($ per BOE) 19.40 18.58
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Operating netback(7), (8)($ per BOE) 27.42 27.42
Finding, development and acquisitions costs,
excluding change in future capital (1),(6)
($ per BOE) 15.25 15.37
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Recycle ratio 1.8 1.8
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Reserve additions, including acquisitions and
revisions (MBOE) 15,392 15,268
Total 2010 production (MBOE), excluding
sulphur 5,533 5,533
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Production replacement ratio 2.8 2.8
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Gross reserves(4)(MBOE) 50,016 72,969
Fourth quarter 2010 production (BOE per day),
excluding sulphur 15,948 15,948
Average 2010 production (BOE per day),
excluding sulphur 15,160 15,160
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Reserve Life Index, using annualized Q4
production (years) 8.6 12.5
Reserve Life Index, using 2010 production
(years) 9.0 13.2
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(1) The aggregate of the exploration and development costs incurred in the
most recent financial year and the change during that year in estimated
future development costs generally will not reflect total finding and
development costs related to reserve additions for that year.
(2) Excludes corporate assets.
(3) Calculated in accordance with NI 51-101 as exploration and development
costs incurred in the year along with the change in estimated future
development costs divided by the applicable reserve additions. In 2009,
F&D costs, including change in future capital, as calculated in
accordance with NI 51-101 were $20.21 per BOE for proved reserves and
$26.36 per BOE for proved plus probable reserves. F&D costs on a three
year average, including change in future capital, were $21.00 per BOE
for proved reserves plus $21.10 per BOE for proved plus probable
reserves.
(4) Gross reserves means Fairborne's working interest (operating and
non-operating) share before deduction of royalties payable to others
and without including any royalty interest.
(5) Fairborne also calculates finding, development and acquisition
("FD&A") costs which incorporate both the costs and associated
reserve additions related to acquisitions net of any dispositions
during the year. Since acquisitions can have a significant impact on
Fairborne's annual reserve replacement costs, the Company believes that
FD&A costs provide a more meaningful portrayal of Fairborne's cost
structure.
(6) F&D costs, excluding future capital for proved reserves, were $19.45
per BOE in 2009 (proved plus probable - $20.24 per BOE) and $17.19 per
BOE on a three year average (proved plus probable - $16.52 per BOE).
FD&A costs, including future capital for proved reserves, were $17.24
per BOE in 2009 (proved plus probable - $26.51 per BOE) and $23.37 per
BOE on a three year average (proved plus probable - $22.37 per BOE).
FD&A costs, excluding future capital, for proved reserves were $16.33
per BOE in 2009 (proved plus probable - $20.69 per BOE) and $19.56 per
BOE on a three year average (proved plus probable - $17.65 per BOE).
(7) Operating netback is calculated by subtracting royalties and
operating costs, including transportation, from petroleum and natural
gas sales and sulphur block sales.
(8) Excludes the change in fair value of derivatives.
(9) 2010 figures are calculated utilizing financial information
based on estimated unaudited financial results which may change on
completion of the audited 2010 annual consolidated financial
statements.


OPERATIONS

Fairborne is currently operating three drilling rigs in the Alberta Deep Basin and one at Sinclair, Manitoba. The Company expects to maintain this level of activity through to spring breakup.

Marlboro/Pine Creek Wilrich - 11 Successful Wilrich Wells

Fairborne's success continues at Marlboro with the latest well being successfully drilled and completed with 12 hydraulic fracture stages. This well was inline tested in excess of 7 mmcf per day.

This latest well brings the total horizontal wells drilled and completed at the Company's Marlboro property to eleven. Production performance to date continues to meet or exceed expectations as summarized below:



# of Producing Wells Gas Rate Per Well
30 day avg 10 4.2 mmcf per day
60 day avg 10 3.9 mmcf per day
90 day avg 10 3.6 mmcf per day


On November 4, 2010 Fairborne's Board of Directors approved the construction of the Fairborne Marlboro Gas Plant with capacity of 40 to 50 mmcf/d. Construction is ongoing and on track for a late April startup with costs coming in as budgeted. The plant design includes significant expansion capabilities and liquids recovery for Wilrich gas of 15 bbls per million cubic feet.

On December 31, 2010 the Third Party pipeline operator to which Fairborne currently delivers its Marlboro gas for transportation to and processing at the K3 Gas Plant (same Third Party operator) informed the Company that it was restricting Fairborne's flow rate from the Marlboro property.

Fairborne has had and continues to have approximately 8 mmcf per day (1,350 boe/d) of net production shut in due to this restriction. Initial indications were that the restriction was a short term situation, however the Company now anticipates the restriction will be in place until the Fairborne Marlboro Gas Plant is commissioned and running in April of this year.

With three additional wells (2.2 net) planned to be drilled and completed by spring breakup and assuming the wells achieve the average initial production rate of 4.2 mmcf/d, the Company anticipates having a net additional 1,500 boe per day behind pipe awaiting startup of the gas plant.

Sinclair - Increasing Initial Production Rates

At current oil prices, the Sinclair light oil property represents a significant value upside for Fairborne as the Company receives exceptional netbacks of approximately $80 per barrel at current prices.

The winter drilling program includes nine (8.1 net) horizontal wells that will follow up the initial success obtained on the three most recent wells drilled where the number of fracture stimulations was increased from the previous standard of 10 to 12 per well to a range of 14 to 28 per well. This increase in fracture number is designed to investigate the level of increased production performance with increased stimulation. Four wells in the winter program have already been drilled and completion operations are currently underway.

The first well utilizing the increased fracture stimulation has now been on production for three months. This well was fracture stimulated over 14 intervals and had an initial production rate of 75 bbls per day (a 25 % increase over the type well) and is currently producing 60 bbls per day (a 39 % increase over the type well).

The second and third wells drilled in the 2010 program were fractured 24 and 28 times respectively and although stabilized production has not yet been reached as a result of increasing oil production rates, initial results are encouraging.

Harlech - Developing Liquids Rich Cardium Play

Three (2.2 net) vertical, multizone wells are planned for the winter program at Harlech, with the first well having spud in early January. These wells are targeting Viking, Notikewin, Falher and Gething sands in the Deep Basin and are following up on successful development drilling from the fourth quarter of 2010.

The Company previously announced plans to recomplete an existing vertical well for the Cardium sand on the western side of the Harlech property during the first quarter. Fairborne has 92 net sections of prospective Cardium rights in the Harlech area and, with condensate and natural gas liquid yields of 50 bbls per million cubic feet in nearby wells, the successful recompletion could lead to a large development area of low risk liquids rich gas development.

During the first quarter Fairborne has evaluated the Cardium in three (2.1 net) vertical wells over an area of two townships on the west side of the Harlech property. These wells were completed with average fracture stimulations of approximately 40 tonnes and have stabilized test rates of between 250 mcf per day to 1,000 mcf per day. These wells also averaged approximately 30 bbls per million cubic feet of free condensate at the well head and in addition are expected to yield significant amounts of natural gas liquids.

Based on the encouraging flow rates and liquids yield from the above mentioned vertical tests, Fairborne is planning to drill a horizontal Cardium well at Harlech during the second half of 2011.

Fairborne is a crude oil and natural gas exploration, development and production company headquartered in Calgary, Alberta, Canada. Fairborne's common shares trade on the Toronto Stock Exchange under the symbol "FEL".

Forward-Looking Statements

Certain information set forth in this press release, contain forward-looking statements including management's assessment of future plans and operations, drilling plans, expected activity levels, timing of completion of facilities construction and expected costs compared to budget, duration of shut in of production at Marlboro and timing of completion of wells. By their nature, forward-looking statements are subject to numerous risks and uncertainties, some of which are beyond Fairborne's control, including the impact of general economic conditions, industry conditions, volatility of commodity prices, risks associated with oil and gas exploration, development, exploitation, production, marketing and transportation, loss of markets, delays resulting from or the inability to obtain required regulatory approvals, inability to retain and delays in retaining drilling rigs and other services, currency fluctuations, imprecision of reserve estimates, environmental risks, competition from other industry participants, the lack of availability of qualified personnel or management, stock market volatility, incorrect assessment of the value of acquisitions, failure to realize the anticipated benefits of acquisitions and ability to access sufficient capital from internal and external sources. The foregoing list is not exhaustive. Additional information on these and other risks that could affect Fairborne's operations and financial results are included in reports on file with Canadian securities regulatory authorities and may be accessed through the SEDAR website (www.sedar.com), or at Fairborne's website (www.fairborne-energy.com). Readers are cautioned that the assumptions used in the preparation of such information, although considered reasonable at the time of preparation, may prove to be imprecise and, as such, undue reliance should not be placed on forward-looking statements. The actual results, performance or achievement of Fairborne could differ materially from those expressed in, or implied by, these forward-looking statements and, accordingly, no assurance 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 Fairborne will derive therefrom. Fairborne disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable securities laws.

Barrels of Oil Equivalency

Natural gas volumes are converted to barrels of oil equivalent (boe) on the basis of 6,000 cubic feet (mcf) of gas for 1 barrel (bbl) of oil. The term "barrels of oil equivalent" may be misleading, particularly if used in isolation. A boe conversion ratio of 6 mcf to 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.

Unaudited Financial Information

Certain financial information included in, or utilized in calculations in, this press release for the year ended December 31, 2010, such as finding, development and acquisition costs, operating netback and net asset value, are based on estimated unaudited financial results for the year then ended and are subject to the same limitations as discussed under "Forward-Looking Statements". In addition, these estimated amounts may change upon completion of the audited consolidated financial statements for the year ended December 31, 2010 and the changes could be material.

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