Galleon Energy Inc.
TSX : GO

Galleon Energy Inc.

March 10, 2011 18:31 ET

Galleon Energy Inc. Reports 2010 Financial Results

CALGARY, ALBERTA--(Marketwire - March 10, 2011) - Galleon Energy Inc. (TSX:GO) ("Galleon" or the "Corporation") announces 2010 financial results from operations.

2010 Financial Highlights

- Gross revenues of $207.8 million ($2.45 per basic share) and funds from operations of $100.5 million ($1.19 per basic share) were generated from average production of 14,800 BOE/d (30% oil and liquids and 70% natural gas);

- A net loss of $38.9 million ($0.46 per basic share) was recorded, which included a non-cash goodwill impairment of $30.2 million at December 31, 2010;

- Revenues averaged $40.42/BOE including $1.95/BOE of realized commodity financial derivatives. Revenues were generated 54% from oil and liquids sales and 46% from natural gas sales;

- Operating expenses averaged $9.52/BOE;

- The operating netback was $23.47/BOE and the corporate netback was $18.60/BOE;

- Net capital of $22.9 million was invested in exploration and development activities ($137.0 million) and property acquisitions ($17.8 million) less property dispositions ($131.9 million);

- Net debt was $152.9 million at December 31, 2010 compared to $226.9 million at December 31, 2009. At December 31, 2010, an amount of $135.7 million was drawn on available bank credit facilities of $250 million;

- During 2010, the Corporation purchased 1,187,800 Class A shares for cancellation at an average price of $3.50 per share under the normal course issuer bid;

- At December 31, 2010, issued and outstanding Class A shares were 83,980,083 with share options totaling 7,150,000 at an average price of $5.44;

- Tax pools at December 31, 2010 are estimated to be approximately $590 million.

2011 Outlook

The 2011 capital expenditure budget of $131 million is expected to be allocated 80% towards low risk development locations in the Eastern Montney natural gas, Doig light oil and North Peace River arch producing areas. Approximately 70% of the capital program is directed towards oil projects. Funding of the 2011 capital program is expected to be largely financed from internal cash flow. Additionally, acquisitions of both oil and gas properties are targeted. These acquisitions are expected to be financed by bank debt and the issuance of equity.

In July, 2010, the Corporation was restructured into three business units: Eastern Montney, Kakut and North Peace River Arch ("NPRA"). In 2011, approximately 31% of investment capital will be allocated to the Eastern Montney business unit, 45% to the Kakut business unit and 24% to the NPRA business unit.

In 2011, the Corporation will continue to farm out lands, some of which are prospective for emerging resource plays including those in the Nordegg, Duvernay and Slave Point. The goal will be to have third parties fund and prove up the potential of the lands while retaining a significant portion of the net resource. A number of opportunities have been identified on Galleon's land base of approximately 775,000 net acres.

Projected 2011 cash flows are approximately 20% higher than 2010 cash flows. Operating costs in 2011 are expected to average $10.00/BOE and royalties, net of gas cost allowance, are budgeted to be less than 15% of revenues.

Galleon has used average commodity price assumptions of $85/Bbl USD WTI for oil and $3.70/GJ CDN for natural gas in the 2011 corporate budget. A foreign exchange rate of $0.97 has been used. For 2011, the Corporation has commodity hedge contracts in place for 33.3 Mmcf/d of natural gas with an average fixed price of $5.71/Mcf and 2,500 Bbl/d of crude oil with an average price of $88.06/Bbl WTI Cdn.




Annual Information
($000s except per share amounts) 2010 2009 2008
----------------------------------------------------------------------------
Revenues before royalties and financial
derivatives 207,831 213,144 418,233
Funds from operations(1) 100,478 97,393 241,298

Per share - basic 1.19 1.22 3.39

Per share - diluted 1.19 1.22 3.35

Net earnings (loss) (38,947) (34,572) 79,264

Per share - basic (0.46) (0.43) 1.11

Per share - diluted (0.46) (0.43) 1.10
Capital expenditures - exploration &
development 136,570 106,095 273,598
Acquisitions (dispositions) of oil and gas
properties, net (114,158) (8,451) 17,541

Total assets 993,375 1,136,732 1,181,003

Net debt (1)(2) 152,861 226,859 282,446
Total non-current financial liabilities 14,980 - 1,541

669,709 712,863 689,524
Shareholders' equity
Weighted average shares outstanding
Basic 84,770,976 79,656,109 71,105,806
Diluted 84,770,976 79,656,109 72,128,065

(1) See "Non-GAAP Measurements"
(2) Net debt includes bank indebtedness, working capital and capital leases,
but excludes financial derivatives and future income taxes


The 2% decrease in revenues in 2010 compared to 2009 was primarily due to lower crude oil production volumes, partially offset by increased crude oil prices during the year. The 1,176 BOE per day reduction in production volumes reflects the sale of properties, primarily the Puskwa light oil assets sold in the second quarter of 2010, and a decrease in heavy oil volumes. Average production in 2010 was 14,800 BOE/d compared to 15,976 BOE/d in 2009. Excluding volumes from properties which were sold, average production for the year ended December 31, 2010 was 2% higher than the average production recorded in 2009. Crude oil prices, before transportation and financial derivative contracts, averaged $70.71/Bbl in 2010, up 20% from $59.01/Bbl in 2009.

Funds from operations increased by 3% in 2010 from 2009, due to lower operating costs and higher realized gains on financial derivative contracts. Operating expenses decreased by $5.3 million or $0.21/BOE from 2009, to $9.52/BOE for the year ended December 31, 2010. The $3.9 million increase in realized gains on financial derivatives in 2010 reflects higher gains on natural gas derivative contracts combined with lower losses on oil derivative contracts.

Net debt at December 31, 2010 was $152.9 million. The $74.0 million reduction from the $226.9 million outstanding at the end of 2009 represents a decrease of 33%. Debt was reduced during 2010 with the application of proceeds received on the sale of the Puskwa assets during the second quarter of 2010.

The net loss in 2010 includes a $30.2 million non-cash impairment of goodwill. There was no impairment to the carrying amount of the Corporation's petroleum and natural gas properties during 2010.



Results of Operations
Year ended December 31 2010 2009
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5,401,855 BOE 5,831,086 BOE
($000s) $/BOE $/BOE
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Revenues 207,831 38.47 213,144 36.55
Realized gain on financial
derivatives 10,552 1.95 6,651 1.14
Other income - - 752 0.13
Royalties (44,060) (8.15) (55,032) (9.44)
GCA(1) 12,670 2.35 22,320 3.83
Transportation costs (8,806) (1.63) (8,165) (1.40)
Operating costs (51,405) (9.52) (56,714) (9.73)
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126,782 23.47 122,956 21.08
General and administration (14,773) (2.73) (15,911) (2.73)
Restructuring costs (1,242) (0.23) - -
Interest costs (10,086) (1.87) (9,226) (1.58)
Capital and other taxes (203) (0.04) (426) (0.07)
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Funds from operations(2) 100,478 18.60 97,393 16.70
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(1) GCA means Gas Cost Allowance
(2) See "Non-GAAP Measurements"


Petroleum and Natural Gas Revenues
Year ended December 31 2010 2009
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($000s) % %
Light oil 78,943 38 87,854 41
Heavy oil 23,481 11 22,961 11
NGLs 9,379 5 8,731 4
Natural gas 95,615 46 93,261 44
Royalty income 413 - 337 -
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Total 207,831 100 213,144 100
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Revenues for the year ended December 31, 2010 decreased by 2% to $207.8 million from $213.4 million in the prior year. Gas revenues increased in 2010 due to increases in both production volumes and natural gas prices. The increase in oil prices during 2010 was more than offset by a decrease in production volumes, resulting primarily from the sale of properties, including the Puskwa light oil properties sold in the second quarter of 2010.



Production

Year ended December 31 2010 2009
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BOE/d % BOE/d %
Light oil (Bbls/d) 2,913 20 3,924 25
Heavy oil (Bbls/d) 1,065 7 1,229 8
NGLs (Bbls/d) 472 3 575 3
Natural gas (Mcf/d) 62,098 70 61,487 64
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BOE/d (6:1) 14,800 100 15,976 100
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Average production was 14,800 BOE/d during 2010, 7% lower than the average production of 15,976 during 2009. Daily production volumes varied by product as follows: light oil decreased by 26%; heavy oil decreased by 13%; natural gas liquids decreased by 18% and natural gas increased by 1%.

Commodity Pricing and Marketing

Petroleum products are sold to major Canadian marketers at either spot reference prices or prices subject to commodity contracts based on US WTI for crude oil and AECO for natural gas. As a means of managing the risk of commodity price volatility, Galleon has entered into several natural gas and crude oil financial contracts.



The Corporation had the following financial contracts in place as at
December 31, 2010:

Natural Gas
----------------------------------------------------------------------------
January 1, 2010 - December 31, 2011 5,000 GJ/d CDN $5.85/GJ
January 1, 2010 - December 31, 2011 5,000 GJ/d CDN $5.75/GJ
April 1, 2010 - March 31, 2011 5,000 GJ/d CDN $5.76/GJ
January 1, 2011 - December 31, 2011 20,000 GJ/d CDN $5.20/GJ
April 1, 2011 - December 31, 2011 5,000 GJ/d CDN $5.60/GJ

Crude Oil
----------------------------------------------------------------------------
Fixed Price
January 1, 2011 - December 31, 2011 500 Bbl/d WTI CDN $92.00/Bbl
January 1, 2011 - December 31, 2011 1,000 Bbl/d WTI CDN $84.15/Bbl
Costless Collars
January 1, 2011 - December 31, 2011 1,000 Bbl/d WTI CDN $ 77.10-
$ 90.00/Bbl

Other
January 1, 2012 - December 31, 2012 1,000 Bbl/d WTI US $85.00/Bbl Call
January 1, 2012 - December 31, 2012 527 Bbl/d WTI US $85.00/Bbl Call
January 1, 2012 - December 31, 2012 1,100 Bbl/d WTI US$ 85.00 Swaption


Interest Rate Swap
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Notional Amount CAD $100 million Term: January 20, 2009 - January 20, 2011

Fixed rate 1.1% - Floating rate is reset against CAD--CDOR on each 3 month
anniversary


During the year, the Corporation realized gains of $10.6 million on financial contracts, which included a loss of $0.3 million on the interest rate swap. This compared to a $6.7 million gain realized in 2009. Based on the mark to market value at December 31, 2010, an unrealized gain on financial contracts of $9.0 million was recorded in 2010, compared to an unrealized loss of $10.8 million in 2009. If the contracts were unwound at December 31, 2010, the Corporation would be obligated to pay a net amount of $0.6 million.

Prices (prior to realized gains or losses on financial contracts and prior to transportation)



Year ended December 31 2010 2009
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Light oil ($/Bbl) 74.50 61.42
Heavy oil ($/Bbl) 60.41 51.29
NGLs ($/Bbl) 54.44 41.60
Natural gas ($/Mcf) 4.23 4.16


During 2010, as compared to 2009, the light oil price increased by 21%, the heavy oil price increased by 18%, the NGL price increased by 31%, and the natural gas price increased by 2%.



Crude Oil Prices



Year ended December 31 2010 2009
$ 000s $/Bbl $ 000s $/Bbl
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Crude oil 102,664 70.71 110,978 59.01
Realized financial contracts (3,811) (2.63) (6,750) (3.59)
Transportation (1,831) (1.26) (1,954) (1.04)
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Net crude oil 97,022 66.82 102,274 54.38
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Natural Gas Prices

Year ended December 31 2010 2009
$ 000s $/Mcf $ 000s $/Mcf
----------------------------------------------------------------------------
Natural gas 95,788 4.23 93,435 4.16
Realized financial contracts 14,646 0.65 13,814 0.62
Transportation (6,967) (0.31) (6,132) (0.27)
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Net natural gas 103,467 4.57 101,117 4.51
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NGL Prices

Year ended December 31 2010 2009
$ 000s $/Bbl $ 000s $/Bbl
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NGL 9,379 54.44 8,731 41.60
Transportation (8) (0.05) (79) (0.38)
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Net NGL 9,371 54.39 8,652 41.22
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Performance by Property
Year ended December 31
2010
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Operating Funds
netbacks/ from
Production BOE (1) operations(2)
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BOE/d % $ %
Eastern Montney 5,452 37 20.42 39
Kakut 4,194 28 18.72 28
North Peace River
Arch 4,423 30 15.26 24
Sold properties 731 5 34.77 9
14,800 100 19.11 100


2009
----------------------------------------------------------------------------
Operating Funds
netbacks/ from
Production BOE (1) operations(2)
----------------------------------------------------------------------------
BOE/d % $ %
Eastern Montney 4,970 31 15.78 31
Kakut 3,412 21 16.65 22
North Peace River
Arch 5,372 34 11.28 24
Sold properties 2,222 14 27.11 23
15,976 100 16.03 100
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(1) Operating netbacks/BOE exclude GCA, other income and hedging gains or
losses, and are calculated by subtracting royalties and operating costs
from revenues and dividing the result by the average production for the
period
(2) See "Non-GAAP Measurements"


The Corporation has been structured into three business units: Eastern Montney, Kakut and North Peace River Arch. These business units, and the general nature of the activities planned within each, are described below.

Eastern Montney Business Unit - Comprised of Eastern Montney Gas/Oil and Culp/McLeans Creek Light Oil

Eastern Montney production averaged 5,452 BOE/d (74% natural gas and 26% oil and NGLs) during 2010, a 10% increase from the average production during 2009. The Eastern Montney natural gas project continues to represent a significant resource to Galleon and is the Corporation's largest producing area. Low operating costs for the area enabled it to contribute 39% to total funds from operating activities in 2010 based on 37% of production volumes. The economics of this project are strong due to the low operating costs and associated oil and NGL's that are produced with the gas.

The Eastern Montney project was initially developed using vertical wells. However, as technology evolved to allow effective stimulation of horizontal wellbores, Galleon implemented horizontal development in 2008. As of the end of 2010, Galleon has drilled a total of 61 horizontal wells and 83 vertical wells in the project area. The project area encompasses a large fairway that is 30 miles long by 10 miles wide that has been mapped and tested. Galleon's approach to this project during 2010 was to pursue a level of drilling activity that would utilize the capacity available in our existing gas plant. This will be the approach until gas prices improve, at which time the project will be considered for expansion. During 2010 Galleon drilled a total of 22 wells.

During Q4 Galleon has also encountered a Montney oil leg that is being further developed in 2011. In Q4 2010, a total of 4 wells were drilled into this oil leg with an additional three follow up locations planned for Q1 2011. The one month average production for these four wells is 107 BOE/d per well (76% working interest). Galleon will continue to delineate and exploit this oil accumulation throughout 2011.

Kakut Business Unit - Comprised of Kakut, Senex/Sawn Lake and Edam, Sask.

The Kakut property continues to be a significant growth area for Galleon. Production for 2010 averaged 4,194 BOE/d (75% natural gas and 25% oil and NGLs), representing an increase of 23% from 2009. The Kakut property contributed 28% of total funds from operating activities based on 28% of production volumes in 2010.

The Kakut Doig light oil/natural gas play is a regional resource that is defined by over 40 vertical wells and occurs at a relatively shallow depth of 1,550 metres. Drilling has confirmed a productive fairway of at least 15 miles in length.

Galleon completed the Kakut battery expansion in late August, 2010, in anticipation of continued growth in both oil and gas production. The expansion has increased fluid handling capacity from 1,000 to 10,000 barrels per day. Galleon's Kakut gas plant capacity is 28 Mmcf/d.

In 2010, Galleon drilled 19 Doig horizontal wells at Kakut. The Company plans to continue drilling on this project at a measured pace and to closely monitor results. The evolution of a cost effective drilling and completion technique will help achieve the optimal depletion strategy. In order to model these early-stage and long-term well-performance expectations there will be a focus in 2011 on developing a reliable simulation, based upon production and pressure, as well as incorporating petrophysical parameters gathered from open-hole logs and core.

In Q3 2010, two wells, 04-28-74-03W6 and 16-06-75-03W6 (both 100% working interest) located in the Doig B pool, which were producing a total of approximately 900 BOE/d (83% natural gas and 17% oil and NGLs) were shut in due to high gas-oil ratios (GOR's), after their four month new oil well production period (NOWPP) came to an end. Galleon received approval from the ERCB for Temporary Net Gas-Oil Ratio Penalty relief in the Kakut Doig B pool for the go forward period of January 1, 2011 to December 31, 2011. This 12 month timeframe will allow Galleon to observe and design an optimal depletion strategy for the pool.

During 2010, Galleon received approval for the remaining Kakut Doig holding applications outstanding. A total of 11 sections are approved for 4 horizontal wells per section. In addition, holdings for 9 more sections have been applied for based on 4 horizontal wells per section with an anticipated approval in late Q2 2011.

Edam continues to deliver consistent production with the implementation of a cost effective chemical program which keeps sand/water/oil in suspension long enough to mitigate production problems. The program is ongoing in our current wells and selected reactivations.

In Sawn Lake during the first quarter of 2011, 2 horizontal wells will be drilled with a partner. Galleon's working interest in these wells is 25%. Several companies operating in the same area have seen prolific results using multi-stages with acid, which is the completion technique that will be used in the Galleon wells.

North Peace River Arch Business Unit ("NPRA") - Comprised of various properties, including Eaglesham, Whitelaw, Flood, Dixonville, Alexis/St. Anne, and N.E. BC

Production in the NPRA business unit averaged 4,423 BOE/d in 2010 (70% natural gas and 30% oil and NGLs), a decrease of 18% from 2009. In 2010, NPRA contributed 24% of the funds from operations and 30% of production volumes.

In this business unit, Galleon has targeted two emerging Triassic oil plays. The Company has assembled an extensive land position over the plays. One vertical well in the first Triassic oil project was recompleted in Q4 2010 with encouraging results. This recompletion, along with vertical well control and seismic, provides support for an emerging Triassic oil play. This play has considerable areal extent and thick hydrocarbon charge. Galleon will focus on horizontal drilling technology to develop these opportunities.

The Company has also identified natural gas opportunities in the area. Large oil-in-place assets at Alexis/St. Anne will also continue to be exploited and optimized.

In 2010, Galleon drilled 6 (5.0 net) vertical wells targeting primarily gas, and 3 (2.7 net) horizontal wells targeting primarily oil in the NPRA area.



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Quarterly Highlights
2010
----------------------------------------------------------------------------
Q4 Q3 Q2 Q1
Production
Light oil (Bbl/d) 2,600 2,517 3,295 3,249
Heavy oil (Bbl/d) 985 1,009 1,108 1,161
Natural Gas (Mcf/d) 57,459 59,186 67,689 64,165
Liquids (Bbl/d) 394 433 537 527
BOE/d 13,556 13,823 16,222 15,631
Total BOE produced 1,247,108 1,271,739 1,476,256 1,406,752

Daily BOE of production per
million Class A shares 161 163 191 184

2009
----------------------------------------------------------------------------
Q4 Q3 Q2 Q1
Production
Light oil (Bbl/d) 3,364 3,872 4,024 4,447
Heavy oil (Bbl/d) 1,210 1,281 1,198 1,227
Natural Gas (Mcf/d) 57,752 57,012 61,733 69,632
Liquids (Bbl/d) 489 561 565 687
BOE/d 14,688 15,216 16,076 17,965
Total BOE produced 1,351,338 1,399,847 1,462,922 1,616,979

Daily BOE of production per
million Class A shares - basic 174 184 211 239


Prices (prior to realized gains or losses on financial contracts and prior
to transportation)

Light oil ($/Bbl) 76.44 71.26 72.53 77.47
Heavy oil ($/Bbl) 60.32 58.13 57.76 64.91
Crude oil ($/Bbl) 72.01 67.50 68.82 74.17
Natural Gas ($/Mcf) 3.81 3.75 4.07 5.22
NGLs ($/Bbl) 58.06 49.48 53.41 56.80
Per BOE ($)
Revenues 36.88 34.82 37.44 44.28
Royalties, net of GCA (4.42) (4.16) (6.71) (7.59)
Transportation costs (1.67) (1.66) (1.64) (1.56)
Operating costs (10.11) (10.20) (9.03) (8.88)
Net 20.68 18.80 20.06 26.25
Other revenue - - - -
G&A (3.38) (3.09) (2.07) (2.54)
Restructuring costs - (0.05) (0.81) -
Interest (1.32) (1.45) (2.42) (2.14)
Capital and other taxes (0.06) (0.05) 0.02 (0.07)
Realized gain (loss) on financial
derivatives 1.10 1.90 3.61 1.02
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Funds from operations(1) 17.02 16.06 18.39 22.52

Light oil ($/Bbl) 72.88 67.12 61.39 47.53
Heavy oil ($/Bbl) 62.23 57.27 51.54 33.65
Crude oil ($/Bbl) 70.06 64.67 59.13 44.53
Natural Gas ($/Mcf) 4.60 3.16 3.61 5.13
NGLs ($/Bbl) 52.06 43.87 39.23 34.07
Per BOE ($)
Revenues 41.65 35.36 34.43 35.24
Royalties, net of GCA (6.91) (7.10) (2.11) (6.40)
Transportation costs (1.33) (1.41) (1.41) (1.45)
Operating costs (9.31) (9.32) (9.43) (10.70)
Net 24.10 17.53 21.48 16.69
Other revenue - - 0.05 0.42
G&A (3.28) (2.47) (2.62) (2.60)
Restructuring costs - - - -
Interest (2.27) (2.05) (1.16) (0.98)
Capital and other taxes (0.07) (0.07) (0.11) (0.04)
Realized gain (loss) on financial
derivatives (1.60) 0.50 2.58 2.68
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Funds from operations(1) 16.88 13.44 20.22 16.17
----------------------------------------------------------------------------
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(1) See "Non-GAAP Measurements"


Quarterly Highlights
(unaudited)
2010
----------------------------------------------------------------------------

Q4 Q3 Q2 Q1

Financial ($000s)
Revenues 45,995 44,279 55,273 62,284
Operating costs (12,612) (12,978) (13,328) (12,487)
General &administrative expenses (4,212) (3,930) (3,063) (3,568)
Restructuring costs - (59) (1,183) -
Interest expense (1,645) (1,849) (3,578) (3,014)
Impairment of goodwill 30,155 - - -
Funds from operations(1) 21,227 20,425 27,146 31,680
Per share, basic(1) 0.25 0.24 0.32 0.37
Per share, diluted(1) 0.25 0.24 0.32 0.37
Earnings (loss) (48,145) (5,621) 2,328 12,491
Per share, basic (0.57) (0.07) 0.03 0.15
Per share, diluted (0.57) (0.07) 0.03 0.15
Total assets 993,375 1,026,875 1,010,855 1,175,832
Weighted average outstanding
Class A shares-basic 83,983,158 84,869,236 85,143,751 85,098,939
Weighted average outstanding
Class A shares-diluted 83,983,158 84,869,236 85,143,751 85,098,939
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Quarterly Highlights
(unaudited) 2009
----------------------------------------------------------------------------

Q4 Q3 Q2 Q1
Financial ($000s)
Revenues 56,287 49,497 50,373 56,987
Operating costs (12,582) (13,045) (13,790) (17,297)
General & administrative expenses (4,430) (3,453) (3,827) (4,201)
Restructuring costs - - - -
Interest expense (3,063) (2,876) (1,702) (1,585)
Impairment of goodwill - - - -
Funds from operations(1) 22,820 18,818 29,605 26,150
Per share, basic(1) 0.27 0.23 0.39 0.35
Per share, diluted(1) 0.27 0.23 0.39 0.35
Earnings (5,654) (1,815) (22,012) (5,091)
Per share, basic (0.07) (0.02) (0.29) (0.07)
Per share, diluted (0.07) (0.02) (0.29) (0.07)
Total assets 1,136,732 1,127,665 1,141,506 1,158,329
Weighted average outstanding
Class A shares-basic 84,325,666 82,890,883 76,040,581 75,231,828
Weighted average outstanding
Class A shares-diluted 84,325,666 82,890,883 76,040,581 75,231,828
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(1) See "Non-GAAP Measurements".


GALLEON ENERGY INC.

Consolidated Balance Sheets

As at December 31


($000s) 2010 2009

----------------------------------------------------------------------------
ASSETS
CURRENT
Accounts receivable 28,829 41,270
Deposits and prepaid expenses 3,361 6,190
Future income taxes - 2,884
Fair value of financial derivatives 20,815 4,241
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53,005 54,585
Goodwill - 34,891
Equipment inventory 5,876 6,116
Property and equipment 934,494 1,041,140
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993,375 1,136,732
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LIABILITIES
CURRENT
Accounts payable and accrued liabilities 49,369 55,531
Capital lease - 1,545
Bank loan 135,682 217,243
Future income taxes 3,630 -
Fair value of financial derivatives 6,411 13,789
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195,092 288,108
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Asset retirement obligations 43,094 41,499
Fair value of financial derivatives 14,980 -
Future income taxes 70,500 94,262
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323,666 423,869
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SHAREHOLDERS' EQUITY
Share capital 587,028 599,334
Contributed surplus 36,983 28,884
Retained earnings 45,698 84,645
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669,709 712,863
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993,375 1,136,732
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GALLEON ENERGY INC.

Consolidated Statements of Earnings (Loss), Comprehensive Income (Loss)
and Retained Earnings

Year ended December 31
($000s, except per share amounts) 2010 2009
----------------------------------------------------------------------------

REVENUE
Petroleum and natural gas revenue 207,831 213,144
Royalties, net of GCA (31,390) (32,712)
Realized gain on financial derivatives 10,552 6,651
Unrealized gain (loss) on financial derivatives 8,972 (10,784)
Other income - 752
----------------------------------------------------------------------------
195,965 177,051

EXPENSES
Operating 51,405 56,714
Transportation 8,806 8,165
General and administration 14,773 15,911
Restructuring costs 1,242 -
Interest 10,086 9,226
Stock-based compensation 4,072 6,114
Accretion 2,860 2,651
Depletion and depreciation 128,284 127,930
Goodwill allocated to disposed properties 4,736 -
Impairment of goodwill 30,155 -
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256,419 226,711

Loss before taxes (60,454) (49,660)



Income taxes
Capital and other taxes 203 426
Future income tax recovery (21,710) (15,514)
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(21,507) (15,088)
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NET LOSS AND COMPREHENSIVE LOSS (38,947) (34,572)
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RETAINED EARNINGS, BEGINNING OF PERIOD 84,645 119,217
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RETAINED EARNINGS, END OF PERIOD 45,698 84,645
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NET LOSS AND COMPREHENSIVE LOSS PER SHARE
Basic (0.46) (0.43)
Diluted (0.46) (0.43)
Weighted average Class A shares - basic 84,770,976 79,656,109
- diluted 84,770,976 79,656,109


GALLEON ENERGY INC.

Consolidated Statements of Cash Flows


Year ended December 31
($000s) 2010 2009
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Cash provided by (used in):


OPERATING ACTIVITIES
Net loss (38,947) (34,572)
Items not requiring cash:
Future income tax recovery (21,710) (15,514)
Depletion and depreciation 128,284 127,930
Accretion 2,860 2,651
Goodwill allocated to disposed properties 4,736 -
Impairment of goodwill 30,155 -
Stock-based compensation 4,072 6,114
Unrealized loss (gain) on financial derivatives (8,972) 10,784
Abandonment costs (491) (1,281)
Change in non-cash working capital 3,378 11,615
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103,365 107,727
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FINANCING ACTIVITIES
Issue of common shares 337 53,855
Repurchase of common shares (4,154) (32)
Share issue costs - (2,737)
-------------------------
Capital lease payments (1,545) (2,106)
Bank loan repayment (81,561) (31,772)
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(86,923) 17,208
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INVESTING ACTIVITIES
Disposals of equipment inventory 240 6,033
Additions to oil and gas properties (136,570) (106,095)
Acquisitions of oil and gas properties (17,791) -
Dispositions of oil and gas properties 131,949 8,451
Change in non-cash working capital 5,730 (33,324)
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(16,442) (124,935)
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CHANGE IN CASH - -
CASH, BEGINNING AND END OF PERIOD - -
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SUPPLEMENTARY INFORMATION
Cash interest paid 9,599 9,522
Cash taxes paid 371 1,005
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Galleon has approximately 84.0 million shares issued and outstanding which trade on the Toronto Stock Exchange under the symbol "GO".

ADVISORIES: Certain information regarding Galleon Energy Inc. in this news release including management's assessment of future plans and operations including drilling plans, method of funding of potential acquisitions, expected level of 2011 cash flows compared to 2010, 2011 operating costs and royalties may constitute forward-looking statements under applicable securities laws and necessarily involve risks including, without limitation, risks associated with oil and gas exploration, development, exploitation, production, marketing 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, capital expenditure costs, including drilling, completion and facilities costs, unexpected decline rates in wells, wells not performing as expected, delays resulting from or inability to obtain required regulatory approvals and ability to access sufficient capital from internal and external sources. As a consequence, actual results may differ materially from those anticipated in the forward-looking statements. Readers are cautioned that the foregoing list of factors is not exhaustive.

Projected level of 2011 cash flows may constitute future oriented financial information or a financial outlook under applicable securities laws, which was approved by management of the Corporation as at March 10, 2011. This is provided to provide readers with a comparison of expected 2011 cash flows compared to 2010 based on the various assumptions described. Readers are cautioned that the information may not be appropriate for other purposes.

Additional information on these and other factors that could affect Galleon'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), at Galleon's website (www.galleonenergy.com). Furthermore, the forward-looking statements contained in this news release are made as at the date of this news release and Galleon 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.

This news release contains terms commonly used in the oil and gas industry, such as funds from operations, funds from operations per share, and operating netback. These terms are not defined by GAAP and should not be considered an alternative to, or more meaningful than, cash provided by operating activities or net earnings as determined in accordance with Canadian GAAP as an indicator of Galleon's performance. Management believes that in addition to net earnings, funds from operations is a useful financial measurement which assists in demonstrating the Corporation's ability to fund capital expenditures necessary for future growth or to repay debt. Galleon's determination of funds from operations may not be comparable to that reported by other companies. All references to funds from operations throughout this news release are based on cash flow from operating activities before changes in non-cash working capital and abandonment expenditures. The Corporation calculates funds from operations per share by dividing funds from operations by the weighted average number of Class A shares outstanding.

Galleon uses the term net debt. This measure does not have any standardized meaning prescribed by Canadian GAAP and therefore may not be comparable to similar measures presented by other companies.

Disclosure provided herein in respect of barrels of oil equivalent (boe) 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.

Contact Information

  • Galleon Energy Inc.
    Glenn R. Carley
    Executive Chairman
    (403) 261-6012
    or
    Galleon Energy Inc.
    Steve Sugianto
    President and Chief Executive Officer
    (403) 261-6012
    or
    Galleon Energy Inc.
    Shivon Crabtree
    Vice President and Chief Financial Officer
    (403) 261-6012
    www.galleonenergy.com