Grey Wolf Exploration Inc.
TSX : GWE

Grey Wolf Exploration Inc.

August 08, 2008 10:32 ET

Grey Wolf Announces Summary Second Quarter 2008 Results

CALGARY, ALBERTA--(Marketwire - Aug. 8, 2008) -

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

Grey Wolf Exploration Inc. ("Grey Wolf") (TSX:GWE) today reported summary financial and operating results for the quarter ended June 30, 2008. The complete financial statements and management's discussion and analysis for the related periods are available at www.sedar.com or the corporate website at www.greywolf.ca.



The second quarter of 2008 resulted in:

Three months Six months
ended June 30, ended June 30,
($000's except per share amounts) 2008 2007 2008 2007

Oil and natural gas revenue $ 13,037 $ 10,168 $ 24,102 $ 17,198
Funds flow from operations 6,933 5,032 12,008 7,966
Per share - basic 0.16 0.16 0.28 0.25
Per share - diluted 0.16 0.15 0.28 0.25
Net income (loss) 855 303 (1,016) 310
Per share - basic and diluted 0.02 0.01 (0.02) 0.01
EBITDA 7,445 5,556 13,130 8,871
Operating netback ($ per boe) 45.24 29.98 38.92 29.37
Average daily sales (boe per day) 1,971 2,283 2,043 1,928
Capital expenditures 4,908 8,859 22,462 25,336


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.

NOTES: (a) "Funds flow from operations", "Funds flow - basic", and "Funds flow - 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 media release 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.

For the three months ended June 30, 2008, the Company recorded net income of $855 thousand ($0.02 per share) compared to net income of $303 thousand ($0.01 per share) in the same period of 2007. The increase was due to higher commodity prices, lower stock compensation expense, offset by a loss on financial instruments. For the six months ended June 30, 2008, the Company recorded a net loss of $1.0 million compared to net income of $310 thousand in the same period last year The net loss for the six month period was mainly due to a $5.1 million loss on commodity derivative contracts (2007 - nil). Of this total, $3.9 million was unrealized.

For the second quarter of 2008, funds flow from operations of $6.9 million ($0.16 per share) increased by 38% from $5.0 million ($0.16 per share) received last year. For the first six months of 2008, funds flow from operations increased 51% to $12.0 million from $8.0 million in the same period in 2007. The increase in funds flow from operations for the three and six month periods was primarily due to the increase in commodity prices and higher gas cost allowance credits received from the Crown.

Total production during the second quarter of 2008 averaged 1,971 boe per day, a decrease of 14% from the 2,283 boe per day recorded in the same period of 2007. The Company's second quarter production revenue from crude oil, natural gas liquids and natural gas sales increased 28% to $13.0 million from $10.2 million for the same period in 2007. The upturn in commodity prices was the main contributing factor for the increase in gross revenues for the second quarter of 2008 despite there was a 14% decrease in production volumes. The decrease in production was primarily due to the effect of normal decline rate.

For the six months ended June 30, 2008, production revenues rose 40% to $24.1 million from $17.2 million in the prior year. The increase was attributed to the rise in commodity prices and higher production volume. The Company's production averaged 2,043 boe per day or 6% over the 1,928 boe per day recorded last year. The lower production volume for the first six months of 2007 was related to production curtailments resulting from issues at third party facilities.

Operating netbacks increased 51% to $45.24 per boe for the second quarter of 2008 from $29.98 per boe last year. The increase was the result of higher commodity prices and lower royalty expenses, partially offset by the increase in production commodity derivative loss and transportation expenses. Operating netbacks of $38.92 per boe increased by 33% from $29.37 per boe recorded in the first six months of 2007. There were two reasons that contributed to the increase in transportation expenses in the first six months of 2008, from April 2007 forward, the Company's gas production was redirected to a different receipt station and effective January 1, 2008, TransCanada Pipelines charged higher transportation rates to its customers. This increase in the transportation rate was approved by the Energy Utility Board.

Capital expenditures during the second quarter of 2008 were $4.9 million, a decrease of 45% from $8.9 million in 2007. For the first six months of 2008, the Company spent $22.5 million compared to $25.3 million in the prior year. The issue of flow-through shares in 2007 required the Company to incur $18.7 million in qualifying expenditures. As a result, capital expenditures during the first six months of 2008 were directed at exploration expenses. At June 30, 2008, all of the $18.7 million had been incurred. The Company participated in 6 gross (5.5 net) wells during the first six months of 2008 compared to 5 gross wells (2.92 net wells) for the same period last year. Grey Wolf achieved an overall drilling success rate of 100% (net 100%) compared to 100% (net 100%) in 2007.

AMENDED AND RESTATED FINANCIAL STATEMENTS AND MANAGEMENT'S DISCUSSION AND ANALYSIS FOR THE PERIODS ENDED MARCH 31, 2008

On August 8, 2008, amended and restated Financial Statements and Management's Discussion and Analysis ("MD&A") for the periods ended March 31, 2008 were filed on the System for Electronic Document Analysis and Retrieval ("SEDAR") and supersede the versions filed on May 6, 2008. The amended and restated documents correct the method of reporting natural gas fixed price contracts entered into during the first quarter of 2008 as financial instruments and not physical hedges and therefore financial statement items as at and for the three months ended March 31, 2008 have been restated as follows:



As at March 31, 2008 Reported Adjustments Restated
----------------------------------------------------------------------------

Future income tax asset - 797 797
Financial instrument liability - 2,700 2,700
Retained earnings 5,110 (1,903) 3,207


Three months ended
March 31, 2008 Reported Adjustments Restated
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Loss on financial instruments - 2,700 2,700

Future income tax (recovery) 98 (797) (699)
Net income (loss) and
comprehensive income (loss) 32 (1,903) (1,871)
Earnings (loss) per share 0.00 (0.04) (0.04)


OPERATIONS UPDATE

As announced on August 5, 2008, Grey Wolf's first horizontal well in its Pouce Coupe Montney/Doig resource play tested at natural gas rates in excess of 10 million cubic feet per day ("MMcf/d"). The well continues to clean up frac fluid and is expected to be tied into a gas sales line within two weeks. We expect to produce the well between 3 and 4 MMcf/d while we monitor well performance. A second horizontal well in the Pouce Coupe area, this one owned 50 percent by Grey Wolf and partner operated, is scheduled to commence drilling within the next several weeks.

Grey Wolf also announced that it had entered into a non-binding letter of intent to sell its Ladyfern and Widewater minor properties. Proceeds will be used to pay down debt and increase flexibility to accelerate our horizontal development activity.

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".

Forward-Looking Statements - Certain statements contained in this Media Release constitute forward-looking statements. These statements relate to future events or our 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. 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. We believe the expectations reflected in those forward-looking statements are reasonable but no assurance can be given that these expectations will prove to be correct and such forward-looking statements included in this Media Release should not be unduly relied upon. These statements speak only as of the date of this Media Release. We assume no obligation to revise or update these statements except as required pursuant to applicable securities laws.

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