Galleon Energy Inc.
TSX : GO

Galleon Energy Inc.

January 19, 2011 19:16 ET

Galleon Energy Inc. Reports Fourth Quarter 2010 Operations Results and First Quarter 2011 Update

CALGARY, ALBERTA--(Marketwire - Jan. 19, 2011) - Galleon Energy Inc. (TSX:GO) ("Galleon" or the "Corporation") announces fourth quarter 2010 drilling and operations results and provides an update on first quarter 2011 activities.

Fourth Quarter 2010 Operations

During fourth quarter 2010, 14 (12.75 net) wells were drilled and cased for production resulting in 5 (5.0 net) natural gas and 9 (7.75 net) oil wells, for a success rate of 100%.

In the fourth quarter of 2010, the Corporation was focused on directing capital resources towards developing lands to which proven and probable undeveloped reserves have been assigned and converting those reserves into production and cash flow. 

In accordance with the Corporation's on-going goal of value generation through strategically farming out lands from its extensive land base and prospect inventory, the Corporation entered into 5 farm-out deals during the second half of 2010. Three wells have been drilled and 5 re-entry wells have been completed. 

In Q4 2010, Galleon experienced delays in obtaining fracture crews and equipment. This resulted in certain newly drilled wells being completed and brought on-stream up to three to four weeks later than initially forecasted. In January 2011, Galleon has entered into a strategic agreement to contract equipment and crews for the majority of its currently planned completion activities through to the end of third quarter 2011.

Based on field estimates, production averaged 13,525 BOE/d in the fourth quarter of 2010. Galleon expects second half 2010 production to average approximately 13,675 BOE/d (70% natural gas and 30% oil and liquids).

During Q4 2010, production was impacted by unanticipated events including delays in fracture operations, the northern Kakut Montney gas pool transitioning to an oil pool which results in increased future cash flow, a significant oil well transitioning from flowing to pumping and pipeline apportionments.

Eastern Montney Business Unit - Production is approximately 5,300 BOE/d and the program continues to deliver consistent, predictable and economic results. In Q4 2010, there were four horizontal Montney wells drilled and placed on production. 

Recent drilling in the second half of 2010 has identified an oil prone Montney fairway which will be further developed in 2011. Although it is still early in the development of this oil fairway, the potential of this oil play has been defined as significant. Four horizontal wells (96% interest) have been drilled to date having initial one month production averaging 107 BOE/d (76% oil). The average cost to drill, complete and tie-in each well is approximately $1.3 million. An additional three horizontal wells are planned to be drilled in Q1 2011 to further prove up productivity from this new Montney oil fairway.

NPRA Business Unit – Production is approximately 4,000 BOE/d. During Q4 2010, Galleon successfully drilled one vertical Montney natural gas well. In addition, two new Triassic oil projects were identified.

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 aerial extent and thick hydrocarbon charge. Galleon plans to follow up with two horizontal wells in Q1 2011.

In the second Triassic oil project, after comprehensive geological and geophysical analysis, one vertical well test is planned in Q1 2011. 

Kakut Business Unit – Production is approximately 4,200 BOE/d.

Kakut, Alberta Montney Project - New production and pressure data has confirmed the existence of two separate Montney pools. The southern pool is primarily natural gas whereas the northern pool has an oil leg. Recent production from the northern pool has seen a transition toward oil. Galleon has a plan to develop this oil resource during 2011. One well is currently on stream and three other standing wells are scheduled to be tied-in and brought on-stream late in the first quarter of 2011. Galleon plans to further maximize oil production in 2011 by drilling at least one Montney horizontal well in the oil portion of the pool. Producing predominantly oil from this pool will result in increased cash flow due to high crude oil prices. 

Kakut, Alberta Doig Project – This gassy light oil project continues to deliver economic wells. This Doig reservoir is defined by a large number of vertical control points. Galleon continues to accumulate data and history within this project, and as such, Galleon continues to increase its understanding of the reservoir. In addition, work is ongoing to determine the appropriate completion and drilling methods, with the goal of optimizing well productivity and cost efficiency. Galleon plans to complete a Kakut Doig horizontal well in Q1 2011 with a cemented liner system using a higher fracture density than previously deployed.

Effective January 1, 2011, Galleon has received interim ERCB approval of its application for GOR penalty relief for the Kakut Doig B pool. This relates to, as previously disclosed, production curtailment of two Kakut Doig wells (100% interest), located at 04-28-074-03W6 and 16-06-075-03W6. The two wells are currently on stream. 

First quarter 2011 operations

The focus of the first quarter 2011 capital program will be on the continued development of the light oil and natural gas projects in the Kakut, Eastern Montney and North Peace River business units. 

Currently, Galleon has three drilling rigs working and plans to drill up to 19 wells in Q1 2011. Estimated capital expenditures of approximately $33 million have been allocated to the drilling program in Q1 2011. These expenditures are expected to be funded by working capital and cash flow.

2011 Guidance

The 2011 capital expenditure budget of up to $131 million is expected to be allocated 80% towards low risk development locations in the Montney, Doig and North Peace River producing areas. Approximately 70% of the capital program is directed towards oil projects. Funding of the 2011 capital program is expected to be largely from internal cash flow and working capital.

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 779,000 net acres.

Projected 2011 cash flows are approximately 20% to 25% higher than 2010 cash flows. 2011 cash flow per basic share is estimated to be approximately $1.50. At December 31, 2011, the Corporation estimates a net debt to cash flow ratio of approximately 1.2 to 1.3.

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 $88.00/Bbl WTI Cdn. 

Production in 2011 is expected to average 14,500 BOE/d (31% oil, 3% liquids and 66% natural gas). 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. 

2010 Year-end financial and reserves information

Galleon is scheduled to announce 2010 financial and reserves information on March 10, 2011 after close of market.

About Galleon Energy

Galleon Energy Inc. is a mid-sized oil and natural gas explorer and producer operating in Western Canada. The company has a large contiguous land block on Alberta's Peace River Arch and a strong technical team. Galleon Energy trades on the TSX under the symbol GO.

Forward-Looking Statements and Advisories

Statements herein that are not historical facts may be considered forward looking statements including estimated 2011 production rates and commodity mix, drilling plans and the timing thereof, capital expenditures and the allocation thereof and the method of funding thereof and the timing thereof, timing of tie-in and commencement of production of wells, plans to increase proved producing reserves by drilling existing drilling inventory, plans to farm-out certain lands, and 2011 cash flow, cash flow per share, year-end debt and debt to cash flow ratio. These forward-looking statements sometimes include words to the effect that management believes or expects a stated condition or result. All estimates and statements that describe the Corporation's future plans are forward-looking statements. Since forward-looking statements address future events and conditions, by their very nature they involve inherent risks and uncertainties 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, incorrect assessment of the value of acquisitions, failure to realize the anticipated benefits of acquisitions, delays resulting from or inability to obtain required regulatory approvals and ability to access sufficient capital from internal and external sources. As a consequence, Galleon's actual results may differ materially from those expressed in, or implied by, the forward-looking statements. 

Included herein is an estimate of Galleon's 2011 cash flow and cash flow per share and 2011 year end net debt level which are based on the various assumptions as to production levels, commodity prices and other assumptions stated herein. To the extent such estimates constitute a financial outlook, the estimates are included herein to provide readers with an understanding of Galleon's anticipated cash flow based on the capital expenditures and other assumptions described herein estimated and the resulting year end debt levels and readers are cautioned that the information may not be appropriate for other purposes.

Forward-looking statements or information are based on a number of factors and assumptions which have been used to develop such statements and information but which may prove to be incorrect. Although Galleon believes that the expectations reflected in such forward-looking statements or information are reasonable, undue reliance should not be placed on forward-looking statements because Galleon can give no assurance that such expectations will prove to be correct. In addition to other factors and assumptions which may be identified in this document, assumptions have been made regarding, among other things: the impact of increasing competition; the general stability of the economic and political environment in which Galleon operates; the timely receipt of any required regulatory approvals; the ability of Galleon to obtain qualified staff, equipment and services in a timely and cost efficient manner; drilling results; the ability of the operator of the projects which Galleon has an interest in to operate the field in a safe, efficient and effective manner; the ability of Galleon to obtain financing on acceptable terms; field production rates and decline rates; the ability to replace and expand oil and natural gas reserves through acquisition, development or exploration; the timing and costs of pipeline, storage and facility construction and expansion; the ability of Galleon to secure adequate product transportation; future oil and natural gas prices; currency, exchange and interest rates; the regulatory framework regarding royalties, taxes and environmental matters in the jurisdictions in which Galleon operates; and the ability of Galleon to successfully market its oil and natural gas products.

Readers are cautioned that the foregoing list of factors and assumptions is not exhaustive. 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), or 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.

Non-GAAP Measurements

Galleon uses the term net debt in this news release. 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.

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