Granite Oil Corp. Provides Operational Update

CALGARY, ALBERTA--(Marketwired - April 28, 2016) - GRANITE OIL CORP. ("Granite" or the "Company") (TSX:GXO)(OTCQX:GXOCF) is pleased to provide an operational update including advancement of its Gas Injection Enhanced Oil Recovery (EOR) Scheme and improving capital efficiencies.

Granite has achieved a 100% voidage replacement ratio (VRR) in the core of its 100%-owned Alberta Bakken oil pool ahead of schedule, reaching a significant milestone in the long-term development of the Company's gas injection EOR scheme. Granite currently has regulatory approval for the EOR scheme over a 23 section area which contains an internally estimated 200 million barrels of original oil in place (OOIP).

After recognizing favourable reservoir characteristics, Granite initiated a gas injection EOR pilot scheme on its Alberta Bakken oil pool in early 2012, only one year after discovery of the pool. Since then, the Company has continued to expand and evaluate the performance of the scheme and has conducted internal and third party reservoir simulation studies that continue to demonstrate its efficiency and benefits. Since receiving regulatory approval to consolidate the scheme over 23 sections of land in the fourth quarter of 2015, the primary operational goal of the Company has been to achieve 100% voidage replacement in the oil pool through gas injection under the EOR scheme. The Company believes that attaining the 100% VRR has major long-term implications with respect to increasing ultimate oil recoveries from the pool. The performance of the EOR scheme to-date continues to demonstrate positive response from the pool and third party reservoir modeling shows that the scheme has the potential to triple overall recovery rates compared to the primary recovery rate alone. In addition to recovering significantly more oil, the efficiency of the scheme is expected to reduce the number of wells required to develop the oil pool, decreasing associated capital and operating costs. This combination of improved recovery and efficient development places the Company in a strong position for the continued success of its efficient growth and sustainable dividend model.

Operations Update

Granite continues to improve its capital cost structure. The Company is pleased to announce that in the second quarter it drilled and completed its lowest cost well to-date, with an all in cost of approximately $1.5 million. This represents a 47% decrease year over year, and a 17% decrease as compared to Granite's 2016 budgeted well costs. The well was a re-entry of an existing well and was successfully drilled deeper in the reservoir to optimize oil recovery within the EOR scheme.

The Company continues to optimize operations and anticipates it can drill and complete new wells for similar costs. Granite has a significant inventory of both re-entries and new drills, totaling 40 wells within the area under the influence of its current EOR approval area. The Company will also add two additional gas injector wells this year, building VRR capacity for growth and further developing its model of efficient gas injection for maximizing oil recovery.

Land and EOR Expansion

Granite continues to expand its oil resource potential through the acquisition of highly prospective lands and plans to test its successful gas injection EOR scheme on the western edge of its previously delineated Bakken oil pool, 15 miles west of the existing producing pool.

Granite acquired a total of 7,275 gross acres (7,275 net) of crown lands during the first quarter, along with 3,840 gross acres (3,840 net) of freehold lands. The Company also acquired an option to purchase an additional 16,160 gross acres (16,160 net) of freehold lands over the western portion of the oil pool, approximately 20 miles west of the Company's main producing Alberta Bakken oil pool.

These newly acquired lands allow Granite the opportunity to test the application of its successful EOR technology on its western land base. The Company will commence work on a gas reinjection EOR pilot project that will test the original Alberta Bakken horizontal discovery well along with a second horizontal producing well as an injector-producer pair. Injection gas for this pilot will be supplied from an up-hole Bow Island gas pool. The original horizontal discovery well was drilled in 2011 and flowed oil at approximately 250 bbl/d at the end of a three day production test and produced 22,000 Bbls over a three year period. With improved pressure support and enhanced oil mobility anticipated from the gas reinjection EOR pilot project, the Company hopes to replicate the positive and significant results of its successful EOR scheme applied in the main producing oil pool. If successful, the EOR test has the potential to add significant value to Granite's west Bakken resource, delineated over 15 miles from the existing EOR.

First Quarter 2016

Granite took advantage of competitive equipment and service pricing during the first quarter of 2016 to successfully complete several major facility projects, which considerably advanced the Company's long-term development and expansion of the EOR scheme. In addition to completing a number of field optimization projects, the Company installed and commissioned approximately 2,000 horsepower of additional gas compression equipment, as well as a utility pipeline and related meter station which will provide Granite with secure access to a long-term, reliable gas supply for use under the EOR scheme. With these facility expansions, the Company has built-in capacity for the further expansion of its EOR scheme and the future development of its Alberta Bakken oil pool with reduced capital commitments necessary for future growth. As well, during the re-pressurization phase, the Company is permitted to inject gas at rates greater than 100% VRR to return the oil pool to original pressure conditions. Accordingly, the Company is positioned to take advantage of current gas prices and its expanded facilities to optimize injection rates during this re-pressurization phase.

Granite produced approximately 2,850 Bbl/d of oil during the first quarter of 2016. Total capital expended in the first quarter is estimated to be approximately $4.2 million, which includes the drilling and completion of one Bakken horizontal well for $1.9 million, and $2.3 million of one-time capital outputs primarily for facilities and land. First quarter funds flow from operations was approximately $6.0 million.

Outlook

After satisfying its primary goal of attaining a 100% VRR, the Company has returned its production to approximately 3,000 bbls/d of oil. Granite now has additional gas injection capacity and a number of restricted flowing oil wells which provide the Company go-forward flexibility. As well, with reduced costs, the oil price threshold required to be fully sustainable at the current dividend payout has been reduced. In combination with a strong balance sheet and higher-than-budget commodity pricing, the Company will continue to monitor the effectiveness of its EOR scheme and determine the best use of free cash flow with continued emphasis on maximizing efficient, long-term oil recovery and shareholder value.

Reader Advisories

Forward-Looking Statements. Certain statements contained in this news release may constitute forward-looking statements or information (collectively, "forward-looking statements" or "statements"). These statements relate to future events or Granite's future performance. All statements other than statements of historical fact may be forward-looking statements. Forward-looking statements are often, but not always, identified by the use of words such as "seek", "anticipate", "plan", "continue", "estimate", "expect", "may", "will", "project", "predict", "potential", "targeting", "intend", "could", "might", "should", "believe" and similar expressions. Statements relating to "reserves" are also deemed to be forward-looking statements, as they involve the implied assessment, based on certain estimates and assumptions, that the reserves described exist in the quantities predicted or estimated and that the reserves can be profitably produced in the future. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. In particular, this news release contains forward-looking statements, pertaining to the following: forecasted capital expenditures and plans, drilling and development plans, Granite's financial strength, anticipated production rates, projections of market prices and costs, supply and demand for oil and natural gas, the quantity of reserves, oil and natural gas production levels, the success of the enhanced oil recovery scheme, treatment under governmental regulatory and taxation regimes and expectations regarding Granite's ability to raise capital and to continually add to reserves through acquisitions and development.

Granite believes the expectations reflected in such forward-looking statements and the assumptions upon which such forward-looking statements are based, to be reasonable, but no assurance can be given that these expectations will prove to be correct and such forward-looking statements included in this news release should not be unduly relied upon by investors. These statements speak only as of the date of this news release and are expressly qualified, in their entirety, by this cautionary statement. Granite's actual results could differ materially from those anticipated in these forward-looking statements as a result of risk factors that may include, but are not limited to: volatility in the market prices for oil and natural gas; general economic conditions, stock market volatility and ability to access sufficient capital from internal and external sources, uncertainties associated with estimating reserves; uncertainties associated with Granite's ability to obtain additional financing on satisfactory terms; geological, technical, drilling and processing problems; liabilities and risks, including environmental liabilities and risks, inherent in oil and natural gas operations; incorrect assessments of the value of acquisitions; competition for, among other things, capital, acquisitions of reserves, undeveloped lands and skilled personnel. Readers are cautioned that the foregoing list of factors is not exhaustive. Management has included the above summary of assumptions and risks related to forward-looking information provided in this news release in order to provide securityholders with a more complete perspective on Granite's future operations and such information may not be appropriate for other purposes. Additional information on these and other factors that could affect Granite'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).

With respect to forward-looking statements contained in this news release, Granite has made assumptions regarding, among other things: prevailing commodity prices, exchange rates, interest rates, applicable royalty rates and tax laws; the legislative and regulatory environments of the jurisdictions where Granite carries on business or has operations; future production rates and estimates of operating costs; performance of existing and future wells; reserve and resource volumes; anticipated timing and results of capital expenditures; the success obtained in drilling new wells; the sufficiency of budgeted capital expenditures in carrying out planned activities; the timing, location and extent of future drilling operations; the state of the economy and the exploration and production business; results of operations; performance; business prospects and opportunities; the availability and cost of financing, labour and services; the impact of increasing competition; ability to market oil and natural gas successfully and Granite's ability to obtain additional financing on satisfactory terms.

The forward-looking statements represent Granite's views as of the date of this document and such information should not be relied upon as representing its views as of any date subsequent to the date of this document. Granite has attempted to identify important factors that could cause actual results, performance or achievements to vary from those current expectations or estimates expressed or implied by the forward-looking information. However, there may be other factors that cause results, performance or achievements not to be as expected or estimated and that could cause actual results, performance or achievements to differ materially from current expectations. There can be no assurance that forward-looking statements will prove to be accurate, as results and future events could differ materially from those expected or estimated in such statements. Accordingly, readers should not place undue reliance on forward-looking information. Except as required by law, the Company undertakes no obligation to publicly update or revise any forward-looking statements.

Test Rates. Test rates are not necessarily indicative of long-term performance or of ultimate recovery. Neither a pressure transient analysis nor a well-test interpretation has been carried out and the data should be considered to be preliminary until such analysis or interpretation has been done.

BOE Presentation. References herein to "boe" mean barrels of oil equivalent derived by converting gas to oil in the ratio of six thousand cubic feet (Mcf) of gas to one barrel (bbl) of oil. Boe may be misleading, particularly if used in isolation. A boe conversion ratio of 6 Mcf: 1 bbl is based on an energy conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. In addition, given that the value ratio based on the current price of crude oil as compared to natural gas is significantly different from the energy equivalency of 6:1, utilizing a conversion on a 6:1 basis may be misleading as an indication of value.