Grey Wolf Exploration Inc.
TSX : GWE

Grey Wolf Exploration Inc.

March 23, 2006 10:21 ET

Grey Wolf Continues to Deliver Growth in Reserves, Production and Value

CALGARY, ALBERTA--(CCNMatthews - March 23, 2006) -

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

Grey Wolf Exploration Inc. (TSX:GWE) ("Grey Wolf" or "the Company") is pleased to announce its financial and operating results for the year ended December 31, 2005, and an operational update for the first quarter of 2006.

Highlights

- Cash flows from operations for the fourth quarter 2005 were $9.2 million, an 18% increase from third quarter 2005, and 136% greater than fourth quarter 2004;

- Total proved plus probable reserves at year end 2005 were 13,492 Mboe, up 143% from year end 2004. Grey Wolf's reserve life index is now 16.9 years, while its 2005 reserve replacement was 1,089% of 2005 annual production;

- Fiscal 2005 finding and development costs were $7.03 per boe proved or $4.94 per boe proved plus probable before including the change in future development costs, and $10.31 per boe proved or $12.52 per boe proved plus probable after including the change in future development costs.

- In fiscal year 2005, after a late start due to the IPO and a wet spring, Grey Wolf invested $42.9 million and drilled 24 gross (16.6 net) wells with a 98% success rate on a net well basis.

- Grey Wolf averaged 2,405 boe per day in the fourth quarter 2005, up 29% from 1,868 boe per day in the fourth quarter 2004. At the time of release, Grey Wolf's production is approximately 2700 boe per day.

- Grey Wolf achieved an impressive netback of $39.06 per boe in 2005. When combined with finding and development costs of $7.03 per boe, this yields a recycle ratio of 5.6.

- Net present value before tax of December 31, 2005 proved plus probable reserves using forecast pricing and discounted at 10% was increased by 167% to $206 million or $6.68 per share based on 30,802,360 shares outstanding.



Finance
------------------------------------------------------------------------

Three Months Ended Year Ended
------------------------------------------------------------------------
------------------------------------------------------------------------

($000's except per December December Percent December December Percent
share amounts) 31, 2005 31, 2004 Change 31, 2005 31, 2004 Change
------------------------------------------------------------------------
------------------------------------------------------------------------

Oil and natural
gas revenue 14,596 6,943 110 43,452 23,943 81
Cash flow from
operations 9,194 3,896 136 26,907 12,696 112
Per share
- basic 0.30 0.30 - 0.96 0.98 (2)
Per share
- diluted 0.29 0.30 (3) 0.94 0.98 (4)
------------------------------------------------------------------------
Net income 3,615 1,673 116 7,065 3,283 115
Per share
- basic 0.12 0.13 (8) 0.25 0.25 -
Per share
- diluted 0.11 0.13 (15) 0.25 0.25 -
------------------------------------------------------------------------
Capital
expenditures 23,836 6,670 257 42,890 14,760 191
Working capital
deficiency
including bank
revolving credit
facility 16,600 5,374
Weighted average
shares
(thousands)
Basic 27,974 13,002 115
Diluted 28,688 13,002 121
------------------------------------------------------------------------
------------------------------------------------------------------------

Operations
------------------------------------------------------------------------

Three Months Ended Year Ended
------------------------------------------------------------------------
------------------------------------------------------------------------
December December Percent December December Percent
31, 2005 31, 2004 Change 31, 2005 31, 2004 Change
------------------------------------------------------------------------
------------------------------------------------------------------------

Daily production
Crude oil (bbl/d) 276 147 88 240 121 98
Natural gas (mcf/d) 9,970 9,356 7 9,969 8,171 22
NGL's (bbl/d) 467 162 188 281 153 84
Boe/d @ 6:1 2,405 1,868 29 2,183 1,636 33
Average prices
(excluding
transportation)
Oil & NGL's ($/bbl) $60.97 $52.81 15 $61.30 $48.40 27
Natural gas ($/mcf) $11.37 $6.31 80 $8.74 $6.38 37
Operating expenses
($/boe@ 6:1) $5.39 $3.76 43 $5.01 $6.87 (27)
Operating netback
($/boe) $47.72 $30.22 58 $39.06 $25.72 52
Funds from
operations ($/boe) $41.55 $22.67 83 $33.78 $21.21 59
Drilling Activity
Gross wells 9 4 125 24 14 71
Working interest
wells 5.3 2.0 171 16.6 7.0 137
Success rate,
net wells 93% 100% 98% 100%


Oil and Gas Reserves

Information regarding the Company's December 31, 2005 reserves has been previously distributed in a media release dated February 22, 2006. The Company's reserves were evaluated for the year ended December 31, 2005 by DeGolyer and MacNaughton ("D&M") in accordance with the rules provided by National Instrument 51-101. The following table provides summary information presented in the D&M report effective December 31, 2005 and based on the D&M constant price and costs. Some of the information contained herein summarizes certain information contained in the D&M reserves report effective December 31, 2005. Grey Wolf will provide additional information in its Annual Information Form and other filings. The Grey Wolf crude oil, natural gas liquids and natural gas volumes provided herein are estimates only and there is no guarantee that the estimated reserves will be recovered. The actual crude oil, natural gas liquids and natural gas volumes eventually recovered may be greater than or less than the reserves estimates provided herein.



------------------------------------------------------------
Barrels of Oil
Crude Oil NGL s Natural Gas Equivalent
------------------------------------------------------------
WI Net WI Net WI Net WI Net
Mbbl Mbbl Mbbl Mbbl MMcf MMcf Mbbl Mbbl
------------------------------------------------------------

Proved
Producing 400 363 491 367 22,015 18,182 4,560 3,760
Non-producing 263 213 244 153 13,054 9,753 2,683 1,992
Undeveloped 256 219 122 83 6,222 4,935 1,415 1,124
------------------------------------------------------------------------
Total proved 919 795 857 603 41,291 32,870 8,658 6,876
Probable 667 559 426 271 22,451 16,949 4,834 3,655
------------------------------------------------------------------------
Total proved
& probable 1,586 1,354 1,283 874 63,742 49,819 13,492 10,531
------------------------------------------------------------------------

Notes:

(1) WI means, Grey Wolf's working interest (operating and non-operating)
share before deduction of royalties and excluding any royalty
interest of the Company.

(2) Net reserves means, Grey Wolf's working interest (operated and
non-operated) share after deduction of royalty's obligations, plus
Grey Wolf's royalty interest in reserves.

(3) A barrel of oil equivalent (boe) is derived by converting natural
gas to oil in the ratio of six thousand cubic feet of natural gas
to one barrel of oil equivalent. A boe conversion may be misleading,
particularly if used in isolation, as it is based on an energy
equivalency conversion method primarily applicable at the burner
tip and may not represent a value equivalency at the wellhead.

(4) May not add due to rounding.

The following reconciliation of Grey Wolf's working interest (note 1)
reserves compares changes in the Company's reserves as at December 31,
2004 to the reserves as at December 31, 2005.

------------------------------------------------------------
Total Proved Total Proved Plus Probable
------------------------------------------------------------
Oil NGL's Gas Mboe Oil NGL's Gas Mboe
Mbbls Mbbls MMcf @ 6:1 Mbbls Mbbls MMcf @ 6:1
------------------------------------------------------------
Balance,
Dec. 31,
2004 332 352 15,676 3,296 736 544 25,638 5,554
Additions 680 526 28,295 5,922 1,135 832 42,639 9,074
Revisions (7) 77 660 180 (199) 4 (1,196) (396)
Production (86) (98) (3,340) (740) (86) (97) (3,339) (740)
------------------------------------------------------------------------
Balance,
Dec. 31,
2005 919 857 41,291 8,658 1,586 1,283 63,742 13,492
------------------------------------------------------------------------

Notes:

(1) Working interest reserves, means Grey Wolf's working interest
(operating and non-operating) share before deduction of royalties
and excluding any royalty interest of the Company.

(2) May not add due to rounding.


Capital Program Efficiency

The efficiency of the Company s capital program for the year ended
December 31, 2005 is summarized below:

---------------------------------------------------------------------
Proved plus
Proved Probable
---------------------------------------------------------------------
Capital expenditures ($ thousands) 42,890 42,890
Change in future development capital
($ thousands) 20,050 65,570
---------------------------------------------------------------------
Total costs ($ thousands) 62,940 108,640
Reserves additions including revisions (Mboe) 6,102 8,679
---------------------------------------------------------------------
Finding and development costs without change
in future capital ($/boe) 7.03 4.94
Finding and development costs with change in
future capital ($/boe) 10.31 12.52
---------------------------------------------------------------------

Operating netback ($/boe) 39.06 39.06
Finding and development costs ($/boe) 7.03 4.94
---------------------------------------------------------------------
Recycle ratio 5.6 7.9
---------------------------------------------------------------------

Reserves additions including revisions (Mboe) 6,102 8,679
Total production 2005 (Mboe) 797 797
---------------------------------------------------------------------
Reserves replacement 766% 1,089%
---------------------------------------------------------------------

Total working interest reserves (Mboe) 8,658 13,492
Fourth quarter 2005 production (boe/d) 2,405 2,405
Total 2005 production (boe/d) 2,183 2,183
---------------------------------------------------------------------
RLI based on fourth quarter annualized
production (years) 9.9 15.4
RLI based on 2005 annual production (years) 10.9 16.9
---------------------------------------------------------------------

Notes:

(1) "Cash flow from operations" is calculated as cash provided by
operating activities from the statement of cash flows. "Cash flow
from operations" does not have a standardized measure prescribed
by Canadian Generally Accepted Accounting Principles and therefore
may not be comparable with the calculations of similar measures
for other companies.

(2) "Operating netback" - Grey Wolf calculates operating netback as
Company gross revenues less royalties and production expenses.

(3) The aggregate of the exploration and development costs incurred in
the most recent financial year and the change during that year in
estimated future development costs generally will not reflect total
finding and development costs related to reserves additions for
that year.

Reserves Values

The before tax estimated future net revenues associated with Grey
Wolf's reserves effective December 31, 2005 and based on D&M's forecast
prices and December 31, 2005 constant prices are summarized in the
following table:

---------------------------------------------------------------------
Forecast Prices Constant Prices
------------------------------------------------
Proved 5% 10% 5% 10%
---------------------------------------------------------------------
Producing 128 105 154 123
Non-producing 54 43 70 55
Undeveloped 23 17 32 24
---------------------------------------------------------------------
Total proved 205 165 256 202
Probable 60 41 91 63
---------------------------------------------------------------------
Total proved and
probable 265 206 347 265
---------------------------------------------------------------------

Notes:

(1) The estimated future net revenues are stated before deducting
future estimate site restoration costs, but include the Alberta
Royalty Tax Credit, and are reduced for estimated future
abandonment costs (of undiscounted $1,272,831 for total proved
reserves and undiscounted $2,006,846 for total proved plus
probable reserves) and estimated capital for future development
associated with the reserves.

(2) Constant pricing assumptions include $70.90 per bbl Edmonton
posting adjusted to stream for oil and $9.99 per Mcf Alberta
AECO Hub posting for gas assuming a heating value of 1000 BTU/SCF.

(3) May not add due to rounding.


2006 Operational Update

To date, Grey Wolf has participated in the drilling of 12 gross (7.5 net) wells of which 11 gross (6.5 net) have been cased. Of the cased wells, four gross (2.2 net) have been completed. These four wells tested a combined rate to Grey Wolf working interest of over 700 boe per day from nine zones. We expect they will stabilize at a lower rate. None of this production is currently on-stream.

In addition, nine wells previously drilled in 2005 or prior were completed in fourteen zones during the first quarter of 2006. Test results net to Grey Wolf working interest showed the combined test rate to be over 800 boe per day and our experience indicates that once the wells come on production they will stabilize at a lower rate. Only one of these wells is currently on production.

Seven gross (4.3 net) cased wells remain to be completed and we expect results from these completions to be similar to the average test production per well for wells completed to date.

Three drilling rigs are currently operating and we expect these 3 wells (2.2 net) to be finished drilling over breakup. Combined with the 12 gross (7.5 net) wells drilled to date, our first quarter 2006 drilling program will total 15 gross (9.7 net) wells.

Construction of pipelines and facilities are in progress and we expect over the next two to six months the results of our first quarter 2006 program will come on production.

Current production is approximately 2,700 boe per day, which includes the Pouce Coupe well previously shut in due to sour gas facility restrictions, and one existing well in the Caroline field that was completed in a new behind pipe upper zone.

We remain confident that we will achieve our production guidance of a yearly average of 3,200 boe per day during 2006.

Outlook

Daily production increased from 1,636 in 2004 to 2,183 boe per day in 2005 and proved plus probable reserves grew from 5,553 Mboe at December 31, 2004 to 13,492 Mboe at December 31, 2005, which was achieved by in house generated exploration and development drilling in our core areas, primarily in the Peace River Arch. Further exploitation of newly discovered reserves alone provides two years of continuous drilling, without taking into account generation of new projects. Grey Wolf's cost of finding ranks with the best in the industry, and since drilling in the future will simply be continued exploitation of existing core areas, similar results in reserves, production and value can be confidently predicted.

The Company's Board of Directors has approved a budget of $55 million for fiscal year 2006. To date 15 gross (9.7 net) wells have been drilled, or are currently drilling and a full scale program of completion, equipping and tie-ins is underway. As predicted, first quarter drilling has yielded very good results to date, an excellent window to the future.

Because of the strong emphasis on exploitation of recent successes Grey Wolf will enjoy a low risk profile. With the recent installation of required infrastructure, delay time between rig release and on production date will be minimal, as future tie-in distances are dramatically reduced.

All in all, the future at Grey Wolf is bright. Management and staff are experienced and motivated to achieve the corporate goals. The plan is clear, the activity is scheduled and our seasoned staff ensures the highest success, the lowest cost, and the lowest risk available to our program.

The Management's Discussion and Analysis ("MD&A") and full financials associated with this release are posted on the Company's website and on SEDAR.

Grey Wolf Exploration Inc. ("Grey Wolf" or the "Company") is engaged in the business of exploration for, development and production of crude oil, natural gas and natural gas liquids in the Provinces of Alberta and British Columbia.

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.

Contact Information