Grand Petroleum Inc.

Grand Petroleum Inc.

February 28, 2007 20:00 ET

Grand Petroleum Inc. Announces Q4 2006 Drilling Results, Estimated 2006 Results and Year-End Reserves

CALGARY, ALBERTA--(CCNMatthews - Feb. 28, 2007) - Grand Petroleum Inc. ("Grand" or the "Corporation") (TSX VENTURE:GPP) drilled 11 wells (7.5 net) in the fourth quarter of 2006 resulting in six oil wells (3.5 net), one gas well (1.0 net), one dry and abandoned well (0.5 net) and three wells standing cased (2.5 net) for a 93% success rate. Most of the fourth quarter drilling was done in Grand's Sylvan Lake, Alberta and Hazelwood, Saskatchewan focus areas with three wells (3.0 net) drilled in Sylvan Lake, Alberta, and seven wells (3.5 net) in Hazelwood, Saskatchewan, with the final well being a 100% owned horizontal oil well in Galahad, Alberta. In 2006 Grand drilled a total of 48 wells (32.95 net) casing 33 oil wells (21.6 net) and three gas wells (2.35 net), abandoning five wells (4.0 net) with seven wells standing cased at year end (5.0 net) for an 88% net success rate.

Grand anticipates that audited financial results for the year ended December 31, 2006 will be released on April 23rd, 2007 following the completion of a financial audit by the Corporation's independent auditors. Grand's management has completed its estimates of 2006 financial results and believes it is prudent to release these estimates as Grand's independent auditors will not complete their work for another two months. These estimates may be revised due to additional information that becomes available prior to the completion of the audit, but these revisions are not expected to be material. Grand estimates that fourth quarter production averaged 3,274 barrels of oil equivalent per day ("boe/d"(1)) with approximately two-thirds being oil and liquids production. Grand should therefore have an annual average production rate of 2,977 boe/d for 2006. Fourth quarter production is estimated to be up 19% from third quarter average production of 2,755 boe/d. Year over year production is estimated to be up 65% from the 2005 average production of 1,809 boe/d.

Grand estimates that cash from operations in 2006 totaled approximately $26 million or $1.04 per diluted share and total capital expenditures were approximately $47.4 million in 2006. At year end Grand's available bank lines were increased to a total of $44 million and Grand estimates it ended 2006 with under $28 million in net debt or approximately 0.88 times forecast 2007 cash from operations of approximately $32 million.

Fourth quarter 2006 volumes were positively impacted by the recommencement of production in the Sylvan Lake area following the receipt of Good Production Practice at Grand's 100% working interest well at 5-6-37-3W5 which is currently producing approximately 750 boe/d. Grand continues to achieve success in the Sylvan Lake area and has drilled three wells (3.0 net) to date in the first quarter of 2007 and has cased all these wells for a 100% success rate. Grand intends to drill another four (3.5 net) wells prior to mid-May with the timing of the final two wells in the program being determined by the onset of spring breakup. In Hazelwood, Saskatchewan, Grand and its partner have drilled four wells to date in 2007 (2.0 net) and all are horizontal oil wells. Grand plans to drill a total of 19 horizontal wells (8.5 net) and nine vertical wells (4.5 net) in Saskatchewan in 2007.

Year-end reserves have been evaluated by Grand's independent reservoir engineers, GLJ Petroleum Consultants Ltd. ("GLJ") as of December 31, 2006 (the "GLJ Report"), compliant with National Instrument 51-101. The following table summarizes the GLJ estimates and is based upon the most recent GLJ price forecast of January 1, 2007. Note that the gravity of all of Grand's production is at or above 19 degrees API and is sold into the medium or light crude stream in Canada, although under National Instrument 51-101 some of Grand's crude must be labeled "heavy".

Reserves Summary
Light and Heavy Natural Natural Gas Oil
Medium Oil Oil Gas Liquids Equivalent
Gross Net Gross Net Gross Net Gross Net Gross Net
Mbbl Mbbl Mbbl Mbbl Mmcf Mmcf Mbbl Mbbl Mboe Mboe
Proved 1,337 1,129 774 751 6,353 4,629 223 156 3,393 2,807
Probable 1,320 1,135 384 352 4,646 3,509 163 111 2,641 2,183

Proved Plus
Probable 2,657 2,264 1,158 1,103 10,999 8,138 386 267 6,034 4,990

Before Tax Present Value (thousands $)
Discount Factor
0% 5% 8% 10%
Proved 74,663 67,721 64,270 62,206
Probable 61,256 46,170 39,985 36,633

Proved Plus Probable 135,919 113,891 104,254 98,838

Notes: (1) Total values may not add due to rounding
(2) Net present values are before tax
(3) It should not be assumed that the undiscounted and discounted
future net revenues estimated by the GLJ Report represent the
fair market value of the reserves
(4) "Gross" consists of Grand's working interest, excluding Grand's
royalty interest reserves, before deduction of royalties payable
to others and "Net" consists of Grand's working interest and
Grand's royalty interest reserves, after the deduction of
royalties payable to others
(5) Forecast pricing used is based on GLJ's January 1, 2007

Utilizing Grand's unaudited estimate of 2006 capital expenditures of approximately $47.4 million, 2006 all-in finding costs are estimated to be $26.79/boe for Proven Reserves and $17.33/boe for Proven plus Probable Reserves without future capital, and $28.19/boe for Proven Reserves and $19.68/boe for Proven plus Probable Reserves including the change in future capital.

Grand exited 2006 with production in excess of 3,700 boe/d but has experienced some production restrictions in Sylvan lake in the first quarter of 2007. Grand estimates from field production data that current production is between 3,400 boe/d and 3,600 boe/d, with approximately 1,000 boe/d of production currently curtailed in the Sylvan Lake area due to pipeline constraints. Grand has reached agreements with the mid-stream pipeline company in the area and expects these constraints to be removed within the second quarter of 2007, which should allow production to exceed 4,000 boe/d before the end of the second quarter. Grand is forecasting production in 2007 to average between 3,700 and 4,000 boe/d, which should generate cash from operations of $32 to $35 million based upon the GLJ January 1, 2007 price forecast of US$62.00/bbl for WTI and C$7.00/mmbtu for spot Alberta natural gas for 2007.

Grand's board of directors has approved an initial budget (not including acquisitions) for 2007 of $40 to $45 million which can be achieved solely through forecasted cash flow and currently available bank lines. This budget supports a drilling program of 50 gross wells (30 to 35 net) from a current inventory of over 100 locations.

Grand currently has 26,281,190 shares and 2,575,833 options outstanding for a total of 28,857,023 fully diluted shares.

(1) Boe means barrel of oil equivalent on the basis of 1 boe to 6,000 cubic feet of natural gas. Boe's may be misleading, particularly if used in isolation. A boe conversion ratio of 1 boe for 6,000 cubic feet of natural gas is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

Certain information set forth in this press release contains forward-looking statements. 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, reliance should not be placed on forward-looking statements. Grand's actual results, performance or achievement 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 Grand will derive therefrom. Grand disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

The TSX Venture Exchange does not accept responsibility for the adequacy or accuracy of this release.

Contact Information

  • Grand Petroleum Inc.
    Andrew Hogg
    President and CEO
    (403) 231-8403
    Grand Petroleum Inc.
    Brenda Galonski
    Vice President, Finance and CFO
    (403) 231-8402