Magnus Energy Inc.
TSX VENTURE : MEI.A
TSX VENTURE : MEI.B

Magnus Energy Inc.

December 18, 2006 14:22 ET

Magnus Energy Announces Operational Update

CALGARY, ALBERTA--(CCNMatthews - Dec. 18, 2006) - Magnus Energy Inc. (TSX VENTURE:MEI.A) (TSX VENTURE:MEI.B) ("Magnus" or the "Company") is pleased to announce an operational update.

Kakwa

Magnus is pleased to update the status of its exploration well at Kakwa in the Deep Basin area of northwestern Alberta. The Kakwa well has been drilled to its Total Depth of 3,192 metres and after a review of the open hole logs, the well was cased on December 12, 2006. The well has five potential gas zones that will be evaluated at this time. The Operator is expecting to begin completion operations immediately. Following production testing and evaluation of the various gas zones, the well will be tied into a nearby pipeline and placed on production in early 2007. Infrastructure is readily accessible with the tie-in point 1.6 kilometers away from the well, which provides access to the Cutbank and Musreau gas plants. Processing costs are reasonable at $0.39 per MCF for dehydration, processing, compression and transportation.

Magnus is participating in a farmin arrangement involving two major producing companies with Magnus paying 50% of the costs to earn a 45% BPO working interest and a 30% APO working interest in the Kakwa well. Magnus also earns a similar working interest in an offsetting section, together with the right to participate in follow-up opportunities.

Antler

Magnus and partners have drilled their first horizontal well (50% Magnus working interest) in the Torquay formation in the Antler area of southeastern Saskatchewan. The well was spudded on November 4 and rig released on November 13, 2006. The horizontal section of the well was drilled from intermediate casing point to a total measured depth of 2,082 metres with a total open hole lateral length of 955 metres. The well was then completed (without a frac) and swabbing began on November 19 continuing to November 23, 2006, with very good inflow of oil with essentially no water. The well was shut in for pressure build-up for 11 days. Production equipment was installed and the well was put on production on December 12, 2006. Production from the first five days totaled approximately 687 barrels of oil with no apparent water. The production rate on December 16 was 127 barrels of oil per day gross (63.5 barrels of oil per day net to Magnus). While these rates are very encouraging from an unstimulated horizontal well, the management of the Company emphasizes that these volumes are flush production and the well will be monitored closely until production volumes stabilize. The stabilized production volumes from this horizontal well will determine the Company's future path of vertical versus horizontal drilling to develop the Torquay formation on the Company's Antler lands. Three horizontal wells have been budgeted to be drilled in the first quarter of 2007. The gross cost to drill, case, complete and equip a horizontal well in Antler is estimated to be approximately $977,000.

The Company has completed core analysis and waterflood simulation work on the Torquay formation on its lands. Other companies operating in this Torquay pool have started waterflood pilot projects, examining both vertical wells and horizontal wells. The potential of waterflooding this field looks very promising, which could significantly increase production and reserves. Current estimates of recovery factors for the Torquay are 7% to 10% based on primary production and up to 30% for secondary recovery by conventional waterflooding. The Company has budgeted a waterflood pilot project for the third quarter of 2007. The management of the Company anticipates Antler to be a major area of exploration and development for Magnus in 2007 and beyond.

Retlaw

In Retlaw, the Company plans to recomplete a well for Sunburst oil production in the fourth quarter of 2006 and will continue to exploit this property with additional drilling planned for 2007. The Company estimates that there are a further 10 to 15 gross (9.3 to 13.8 net) Sunburst locations on the Company's lands in Retlaw based on 40 acre spacing.

Outlook

Magnus is optimistic that the projects currently underway, such as the horizontal well at Antler, the recompletion at Retlaw and the exploration well at Kakwa will add production and reserves. However, given larger than expected production declines at Paradise Valley, production problems at Leahurst and higher than expected declines in production from the Company's vertical wells in Antler, the Company will not meet its previously announced 2006 exit rate. Sales volumes for the fourth quarter to date excluding the Antler horizontal well averaged 400 BOE per day. With the recent completion of the Antler horizontal well and ongoing work at Paradise Valley and Leahurst, the Company is unable to accurately predict its 2006 exit rate at this time.

Since inception in 2005, Magnus has drilled 44 gross wells (30.45 net wells) with a 77% success rate (33 capable of production, 5 D&A, 5 suspended and 1 water disposal well) and based upon the independent reserves evaluation prepared by GLJ Petroleum Consultants as of September 30, 2006, Magnus has 2,061 MBOE of proven plus probable reserves for a 10% discounted present value of $35.275 million.

Murray Stewart, the President & CEO of Magnus, remarked, "The focus of the Company going forward will be on its core areas of Kakwa, Antler and Retlaw where the results are more predictable and the capacity exists to steadily add production and reserves."

Corporate

The Company also announces that Michael Binnion has resigned from the Board of Directors of the Company to devote his full attention to other interests. The Board of Directors of Magnus wishes Mr. Binnion every success in his future endeavors and thanks him for his contributions to the Company.

About Magnus Energy

Magnus is a junior oil and gas company focused on the acquisition, exploration, exploitation and development of oil and natural gas properties in Western Canada.

READER ADVISORY

This press release includes forward-looking statements and assumptions respecting the Company's strategies, future operations, expected financial results, financial sources, commodity prices, costs of production and quantum of oil and natural gas reserves and discusses certain issues, risks and uncertainties that can be expected to impact on any of such matters. By their nature, forward-looking statements are subject to numerous risks and uncertainties that can significantly affect future results. Actual future results may differ materially from those assumed or described in such forward-looking statements as a result of the impact of issues, risks and uncertainties whether described herein or not, which the Company may not be able to control. The reader is therefore cautioned not to place undue reliance on such forward-looking statements. The Company disclaims any intention or obligation to update or revise these forward-looking statements, as a result of new information future events or otherwise. In addition, the term BOE or BOE's may be misleading, particularly if used in isolation. A BOE (barrel of oil equivalent) conversion ratio of 6 Mcf per one (1) BOE is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

The TSX Venture Exchange has not reviewed and does not accept responsibility for the adequacy or accuracy of this release and has neither approved nor disapproved the contents of this release.

Contact Information

  • Magnus Energy Inc.
    Murray M. Stewart
    President and Chief Executive Officer
    (403) 233-4963
    (403) 262-9920 (FAX)
    Email: stewartm@magnusenergy.ca
    or
    Magnus Energy Inc.
    Stewart Larsen
    Chief Financial Officer
    (403) 233-4960
    (403) 262-9920 (FAX)
    Email: larsen@magnusenergy.ca
    or
    Magnus Energy Inc.
    Suite 1650, AMEC Place
    801 - 6th Avenue S.W.
    Calgary, Alberta T2P 3W2
    Website: www.magnusenergy.ca