Grey Wolf Exploration Inc.

Grey Wolf Exploration Inc.

March 12, 2009 19:22 ET

Grey Wolf Provides Operational Update and Year End Results and Announces Appointment of Special Committee to Review Strategic Alternatives

CALGARY, ALBERTA--(Marketwire - March 12, 2009) -


Grey Wolf Exploration Inc. (TSX:GWE) ("Grey Wolf" or "the Company") is pleased to provide an operational update and announce its financial and operating results for the year ended December 31, 2008:

Grey Wolf's business plan aims to boost production and pay down debt within the limits of cash flow. To this end, expenditures and investments have been aimed at and limited to projects which can help achieve these aims. We are pleased to report that the strategy is working. As stated in the February 24, 2009 press release, our production level is over 3,100 boe/d.

At Petitot, the 2-17 Slave Point gas well, which came on-stream at 5 MMcf/d (700 boe/d after shrinkage) on February 20, has been producing steadily at that rate to date, without significant problems. The well was brought on-stream using in-house staff, ahead of schedule.

On September 10, 2008, Grey Wolf reported that its first 100% horizontal well in Pouce Coupe had been brought on production from the Lower Doig at a rate of 4.6 MMcf/d on August 15. The well is currently producing at a rate of 3.5 MMcf/d. Our recent horizontal well (Grey Wolf 50% working interest ("W.I.")), which came on-stream from the Lower Doig on December 24, 2008 at 2.7 MMcf/d, was still producing 1.7 MMcf/d at the end of February 2009. These results validate the benefits to be obtained from the application of horizontal drilling technology to Grey Wolf's large inventory of locations in the Doig and Montney reservoirs at Pouce Coupe.

On November 25, 2008, we reported that a 50% W.I. vertical well in Pouce Coupe was being completed and was expected to come on-stream in December of that year. The well came on production from the Baldonnel on January 16, 2009 at 2.25 MMcf/d and is currently producing at that rate.

A second vertical 50% well in Pouce Coupe was drilled to preserve an expiring lease. As expected, a marginal section was found in the lowermost Montney which upon completion produced enough gas to preserve the lease. Much better pay in the Lower Doig is waiting on completion, while an oil reservoir in the Gething is being evaluated.

A shallow well in Pouce Coupe, in which Grey Wolf holds a 50% W.I., was drilled to exploit shallower zones observed in a previously drilled deeper test with multiple pays. This shallow well was recently completed in the Paddy, and is currently producing at a controlled rate of 700 Mcf/d. The well came on production December 4, 2008.

2008 Year End Results

- Grey Wolf invested $38.2 million during the year ended December 31, 2008. This resulted in working interest proved plus probable reserve additions, after revisions, of 1,947 thousand barrels of oil equivalent ("Mboe"). These additions were offset by working interest annual production of 753 Mboe, resulting in 260 percent of production being replaced.

- Grey Wolf's 2008 capital program was aimed at exploring for new reserves and developing proved undeveloped and probable reserves. During the year, proved reserves, increased by 11 percent to 7,163 Mboe, while proved and probable reserves, increased by 9 percent to 14,105 Mboe.

- For 2008, finding and development costs for proved plus probable reserves, after revisions and before change in future development costs was $19.62 per boe, resulting in a recycle ratio of 1.7. When the change in future development costs is applied to the calculation, the finding and development costs increased to $28.71 per boe with a corresponding recycle ratio of 1.2.

- Daily production in 2008 averaged 2,058 boe per day and production during the fourth quarter of 2008 averaged 2,115 boe per day. Production was impacted by plant turn arounds, repair and curtailment at various times throughout the year.


($000's Three Months Ended Year Ended
except per Dec. 31, Dec. 31, Percent Dec. 31, Dec. 31, Percent
share amounts) 2008 2007 Change 2008 2007 Change


Oil and natural
gas revenue $ 8,770 $ 9,902 (11) $44,184 $36,194 22
Funds flow from
operations 3,700 3,670 1 20,726 15,113 37
Per share
- basic 0.09 0.11 (18) 0.49 0.45 9
Per share
- diluted 0.09 0.11 (18) 0.49 0.44 11
Net income
(loss) (1,072) (804) 33 873 (935) 193
Per share
- basic and
diluted (0.03) (0.02) 50 0.02 (0.03) 167
EBITDA 4,326 4,359 (1) 22,896 17,319 32
($ per boe) 26.30 22.50 17 33.97 25.29 34
Average daily
sales (boe per
day) 2,115 2,458 (14) 2,058 2,168 (5)
expenditures 7,515 7,177 5 38,196 49,841 (23)

Total assets 169,355 150,332 13


Three Months Ended Year Ended
Dec. 31, Dec. 31, Percent Dec. 31, Dec. 31, Percent
2008 2007 Change 2008 2007 Change

Daily production
Crude oil -
barrels per day 197 238 (17) 228 289 (21)
Natural gas -
Mcf per day 10,142 11,791 (14) 9,726 9,968 (2)
NGLs - barrels
per day 228 254 (10) 209 218 (4)
boe - barrels
per day 2,115 2,458 (14) 2,058 2,168 (5)

Average prices
Oil and NGLs
($ per
barrel) $ 55.41 73.20 (24) 88.95 66.90 33
Natural gas
($ per Mcf) 7.07 6.06 17 8.41 6.53 29
($ per boe) 45.06 43.79 3 58.67 45.73 28

($ per boe
@ 6:1) 10.83 12.73 (15) 11.54 11.16 3

($ per boe) 26.30 22.50 17 33.97 25.29 34

Drilling Activity
Gross wells 1 2 9 12
Working interest
wells 0.5 1.5 7.0 8.6
Success rate,
net wells 100% 33% 100% 88%

"Funds flow from operations", "Funds flow - basic", "Funds flow - diluted", and "Netbacks" 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. Grey Wolf calculates netbacks and operating netbacks based on revenues less royalties and production expenses. However, our method of calculating these measures may differ from other companies and accordingly, may not be comparable to measures used by other companies.

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.

The management's discussion and analysis, full financial statements and annual information form associated with this release will be posted on the Company's website and was filed on SEDAR today.

To reduce the potential impact of changes in interest rates on the Company's cash flow and to lock in low interest costs, subsequent to year end, Grey Wolf entered into a one year Interest Rate Swap fixing its base lending rate at 1.18% for a total amount of $40.0 million as a means of managing the interest rate risk. The contract commences on May 4, 2009 and expires on May 4, 2010.

The Company also entered into the following natural gas derivative

Period Volume Type Pricing Terms
Apr 1, 2009 - Dec 31, 2009 6,000 GJ/day Fixed $5.90(1) (AECO CDN$/GJ)
Jan 1, 2010 - Dec 31, 2010 2,000 GJ/day Cap $7.95(2) (AECO CDN$/GJ)
Jan 1, 2010 - Dec 31, 2011 4,000 GJ/day Cap $8.455(3) (AECO CDN$/GJ)

The impact of these transactions is to establish a fixed price for a portion of the Company's 2009 natural gas production in exchange for setting an upper limit on prices the Company will receive on a portion of its 2010 and 2011 production.


(1) Approximately $6.79 per Mcf based on Company's realized heating value.

(2) Approximately $9.14 per Mcf based on Company's realized heating value.

(3) Approximately $9.72 per Mcf based on Company's realized heating value.

In other news, the Company has been actively seeking transactions in an effort to enhance the value of the Company. The Company's Board has decided to accelerate and significantly step up its efforts on this front and to this end, has appointed a Special Committee of independent directors with a mandate to consider all possible alternatives for the Company. Mr. Jim Smith will act as Chairman of the Committee. The Special Committee has appointed CIBC World Markets Inc. and Peters & Co. Limited as financial advisors to assist it in its mandate.

Mr. John B. Maher has tendered his resignation from the Board of Directors of Grey Wolf Exploration Inc. to focus on his primary business commitments. The Board and management thank Mr. Maher for his contributions to Grey Wolf's development and wish him well in his future endeavours. The Board has chosen not to replace Mr. Maher until the next annual meeting of shareholders, and, in the interim, have appointed Mr. Mark Smith to the Audit and Governance Committee and Mr. James Smith to the Reserves Committee.

Grey Wolf is an Alberta-based oil and natural gas company involved in the exploration, development and production of natural gas and crude oil in the Western Canadian Sedimentary Basin. Grey Wolf operates horizontal resource plays in the Doig and Montney of the Peace River Arch and the Horn River Shale at Petitot. Conventional operations include the gas reservoirs of the Slave Point at Petitot and the gas reservoirs in the Cardium, Viking and Mannville at Caroline. The Company's 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 Annual Information Form 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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