Grey Wolf Exploration Inc.
TSX : GWE

Grey Wolf Exploration Inc.

November 08, 2005 09:00 ET

Grey Wolf Announces Excellent Third Quarter Results

CALGARY, ALBERTA--(CCNMatthews - Nov. 8, 2005) -

NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES

Grey Wolf Exploration Inc. (TSX:GWE) ("Grey Wolf") today announced that during the third quarter of 2005 the Company continued to achieve increases in cash flow and net earnings as a result of strong commodity prices and rising production levels. Highlights include:



(unaudited)
$000's Three months Nine months
except per ended ended
share September 30, Percent September 30, Percent
amounts 2005 2004 Change 2005 2004 Change
--------------------------------------------------------
Financial
Oil and
natural gas
revenue $ 11,377 $ 5,657 101 $ 28,855 $ 17,000 70
Cash flow from
operations 7,700 3,613 113 17,713 8,800 101
Per share -
basic 0.25 0.28 (11) 0.66 0.68 (3)
Per share -
diluted 0.24 0.28 (14) 0.64 0.68 (6)
Net income 3,143 1,215 159 3,450 1,610 114
Per share -
basic 0.10 0.09 11 0.13 0.12 8
Per share -
diluted 0.10 0.09 11 0.12 0.12 -
Average daily
sales
(boe per day) 2,181 1,511 44 2,108 1,558 35
Capital
expenditures $ 14,597 $ 3,352 335 $ 19,054 $ 8,090 136
Basic
weighted
average
shares
outstanding 30,802,360 13,002,360 137 27,020,675 13,002,360 108

Note: The number of shares in 2004 are presented on a post-split basis.

Operations
Production
Crude oil -
barrels per
day 212 110 93 228 113 102
Natural gas -
Mcf per day 10,309 7,499 37 9,969 7,773 28
NGLs - barrels
per day 251 151 66 219 149 47
boe - barrels
per day 2,181 1,511 44 2,108 1,558 35

Average sale prices
Crude oil
(per barrel) $ 75.40 $ 54.76 38 $ 66.61 $ 49.69 34
Natural gas
(per Mcf) 9.03 6.41 41 7.85 6.40 23
NGLs
(per barrel) 58.17 48.06 21 56.15 44.36 27
Per boe 56.70 40.68 39 50.15 39.83 26

Operating netback
(per boe) $ 41.04 $ 28.28 45 $ 35.73 $ 23.91 49
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Abbreviations
bbl equals barrels
bbl/d equals barrels per day
Mcf equals million cubic feet
Mcf/d equals million cubic feet per day
boe equals barrels of oil equivalent
(000) equals stated in thousands
NGL equals natural gas liquids
GJ equals gigajoule


The calculation of barrels of oil equivalent ("boe") is based on a conversion ratio of six thousand cubic feet of natural gas to one barrel of oil to estimate relative energy content and does not represent a value equivalency - boes may be misleading, particularly if used in isolation.

"Cash flow from operations", "Cash flow from operations per share - basic and diluted", and "Cash flow from operations per share - diluted", are not measures that have any standardized meaning prescribed by Canadian GAAP and are considered non-GAAP measures. Therefore, these measures may not be comparable to similar measures presented by other issuers. These measures have been described and presented in this management's discussion and analysis in order to provide shareholders and potential investors with additional information regarding the Company's liquidity and its ability to generate funds to finance its operations.

Management utilizes "Cash flow" as a key measure to assess the ability of the Company to finance operating and capital activities. All references to cash flow from operations throughout this report are based on cash flow before changes in non-cash working capital.

Operating and Financial Highlights

Grey Wolf's operating results for the third quarter of 2005 were primarily influenced by its successful drilling program within its core areas and continued strength in commodity prices.

During the third quarter, Grey Wolf drilled a total of 12 gross (10.4 net) wells, resulting in 11 gross (9.4 net) gas wells and one gross (1.0 net) oil well. Please refer to our News Release dated October 24, 2005 for complete details relating to the 2005 drilling program.

Capital expenditures for the third quarter of 2005 were $14.6 million, a substantial increase from the $3.4 million spent during the same period in 2004. The early spring break-up and unprecedented heavy rainfall during the second quarter had delayed our planned capital expenditures to the third quarter of 2005. The majority of the capital expenditures were directed to drilling and completion operations. Capital expenditures for the first nine months of 2005 totalled $19.1 million, a significant increase over the $8.1 million spent during the first nine months of 2004.

Natural gas production increased by 37 percent to average 10,309 Mcf per day during the third quarter of 2005 compared to 7,499 Mcf per day during the same period in 2004. Crude oil production increased 93 percent to 212 bbl per day during the third quarter of 2005 versus 110 bbl per day during the third quarter of 2004. On a combined basis, Grey Wolf's production averaged 2,181 boe per day, a 44 percent increase over the comparable period in 2004. This continued growth is the result of Grey Wolf's successful 2005 drilling program, combined with production optimization initiatives. During the third quarter, the Industry experienced delays in receiving regulatory approval of pipeline permits and shortage of crews and equipment in the Service Industry due to the elevated level of drilling activity. These factors have prolonged the time required to tie-in our new wells drilled during the third quarter of 2005 and we expect this situation to continue into 2006.

Record earnings of $3.1 million were achieved during the third quarter of 2005, up 159 percent from the $1.2 million recorded in the third quarter of 2004. Cash flow from operations increased 113 percent to $7.7 million during the third quarter of 2005, compared to $3.6 million in the third quarter of 2004. The growth in both earnings and cash flow from operations in the third quarter of 2005 were attributable to an increase in both production levels and commodity prices.

Net earnings of $3.5 million during the first nine months of 2005, increased 114 percent from $1.6 million in the first nine months of 2004. The increase in earnings resulted from higher production levels and commodity prices, offset by the non-recurring expenses of $4.1 million related to the early repayment of a US$35.0 million term loan on February 28, 2005. Cash flow from operations increased 101 percent to $17.7 million during the first nine months of 2005, compared to $8.8 million for the same period in 2004.

Grey Wolf's third quarter operating netback was $41.04 per boe, 45% higher than last year. Our high quality production base, combined with low cost operations, allows us to achieve a superior netback, relative to our peer group. Operating netbacks rose 49 percent to $35.73 per boe for the first nine months of 2005, compared to $23.91 per boe for the first nine months of 2004. The Company was able to eliminate excess firm transportation costs which resulted in lower transportation costs per unit. In addition, we do not have commodity price or foreign currency hedges in place, allowing us to take full advantage of the high commodity price environment.

Outlook

During the fourth quarter, Grey Wolf will continue to execute its aggressive drilling program and has now contracted two drilling rigs for the remainder of the 2005 - 2006 winter drilling season. "Our 2006 capital program is currently under review and complete information is scheduled to be released on November 15th, following approval by the Board of Directors." stated Robert L. G. Watson, Chairman and Chief Executive Officer.


Grey Wolf is an independent Alberta-based, junior oil and natural gas company involved in the development and production of natural gas and crude oil in the Western Canadian Sedimentary Basin. Its common shares trade on the Toronto Stock Exchange under the symbol "GWE".

Complete financial information for the quarter ended September 30, 2005, is provided in the Grey Wolf's unaudited financial statements and management's discussion and analysis ("MD&A") available on SEDAR at www.sedar.com or on the Company's website located at www.greywolf.ca.

Forward-Looking Statements - Certain information set forth in this document, including management's assessment of Grey Wolf's future plans and operations, contains forward-looking statements. By their nature, forward-looking statements are subject to numerous risks and uncertainties, some of which are beyond Grey Wolf's control, including the impact of general economic conditions, industry conditions, volatility of commodity prices, 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 and ability to access sufficient capital from internal and external sources. 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. Grey Wolf's actual results, performance or achievement could differ materially from those expressed in, or implied by, these forward-looking statements. No assurance can be given that any of the events anticipated will transpire or occur, or if any of them do so, what benefits Grey Wolf will derive from them. Grey Wolf disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

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