Mahalo Energy Ltd.
TSX : CBM

Mahalo Energy Ltd.

May 15, 2008 16:40 ET

Mahalo Announces First Quarter 2008 Results

CALGARY, ALBERTA--(Marketwire - May 15, 2008) -

(NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR DISSEMINATION IN THE UNITED STATES. ANY FAILURE TO COMPLY WITH THIS RESTRICTION MAY CONSTITUTE A VIOLATION OF U.S. SECURITIES LAW.)

Mahalo Energy Ltd. ("Mahalo" or the "Company") (TSX:CBM) is pleased to announce it results for the three months ended March 31, 2008.



Summary of Results Three Months Ended
March 31
2008 2007
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Financial ($000's except per share)
Petroleum and natural gas revenue 13,418 10,432
Operating netback (1) 7,426 6,081
Net income (loss) (494) (1,036)
Per share - basic & diluted (0.01) (0.02)
Funds from operations (1) 5,371 3,494
Per share - basic (1) 0.09 0.06
Capital expenditures 8,507 8,819
Proceeds from sale of oil and gas assets - 14,183
Net debt, end of period (1) 56,545 43,023
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Operational
Average daily sales volumes (boe) (1) 3,403 2,624
Average selling price ($/boe) 43.33 44.18
Operating netback ($/boe) 23.98 25.75
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(1) Refer to advisories regarding non-GAAP financial measures and barrel of
oil equivalent ("boe") measures.


Q1 2008 Highlights

- Increased sales revenues by 29 percent, funds from operations by 54 percent and average daily sales volume by 30 percent from a year earlier.

- Achieved a 25 percent reduction in current quarter operating expense to $6.74 per boe from $8.94 per boe in first quarter 2007 through operating efficiencies and rationalization of assets.

- Drilled 11 (5.5 net) wells, including 9 (3.5 net) in the United States and 2 (2.0 net) in Canada.

Financial

Mahalo generated funds from operations of $5.4 million on sales of $13.4 million and recorded a net loss of $0.5 million during the three months ended March 31, 2008. This compares with funds from operations of $3.5 million, sales of $10.4 million and a net loss of $1.0 million in first quarter 2007. Additional information regarding our first quarter results is set out in our Management's Discussion and Analysis for the three months ended March 31, 2008.

Operational

In first quarter 2008, the Company spent $8.5 million which included $6.8 million on drilling and completions, facilities and infrastructure undertakings and $1.7 million on land and seismic. During the quarter, 11 (5.5. net) wells were drilled and completed resulting in 10 (4.5 net) wells capable of immediate production and one horizontal well that will require remedial re-entry and testing to further assess its potential.

Sales of oil and gas averaged 3,403 boe per day during first quarter 2008 compared with 3,542 boe per day in fourth quarter 2007. The reduction was caused by a number of factors including gas gathering interruptions at our Poteau, Oklahoma field, weather-related issues and some operational difficulties. In addition, although 10 (4.5 net) producing wells were drilled and completed in first quarter 2008, four of the wells did not come on stream until late in the quarter. The remaining six wells began producing in second quarter 2008.

While the Company continues to pursue resource opportunities in both Canada and the United States, it remains committed to its Oklahoma Hartshorne CBM assets; this play area has demonstrated repeatable, long life reserves with low declines. We also continue to spend research capital to become even more effective with our CBM development and to gain a better understanding of Shale stimulation which we believe is imperative to economically unlocking this huge resource. In first quarter 2008, Mahalo drilled 9 (3.5 net) successful CBM wells at Lakeview.

In Canada, while continuing to pursue a better understanding of Mannville and Horseshoe CBM, Mahalo has drilled and completed a number of conventional natural gas wells, primarily at Tofield in Alberta. The wells have shown strong economics and high initial deliverability. While these wells come with different production and reserve replacement challenges, they offer an opportunity to be good production back-fillers and solid cash contributors, especially at current prices. During first quarter 2008, Mahalo drilled an additional gas well at Tofield which came on stream in April. A shallow oil well drilled at Kinsella in Alberta during the quarter will require re-entry and further testing to assess its productive potential.

Fiscal 2008 will again be an active year for Mahalo; however, such efforts will still represent a minor draw on a prospect inventory that currently includes 450+ United States locations, including 212 net Hartshorne CBM wells; the remaining inventory involves Shale prospects.

With an ongoing opportunity of this magnitude, Mahalo will continue directing a significant portion of its capital spending towards its United States resource asset base. Mahalo is also committed to capture additional Hartshorne CBM acreage which will help grow production and reserves. As previously stated, the Company's shale resource is large and capital intensive to exploit. Mahalo will continue its shale development efforts in 2008, ideally through a suitable joint venture arrangement. Mahalo will also actively recruit staff for its US resource technical team in 2008.

Outlook

In March, Mahalo provided 2008 guidance to its shareholders. The guidance assumed a full year average projected production rate of 4,050 boe per day and funds from operations of approximately $30 million, based on an average realized natural gas price of Cdn $7.60 per Mcf. The recent strength in North American gas prices is highly encouraging; however, Mahalo knows that gas prices in the longer term will remain highly unpredictable. The Company is confident that it will meet its full year targets; it will also retain an appropriate level of flexibility in its 2008 and future spending plans.

A majority of projected capital spending of $41 million for 2008 relates to properties in the United States. The Company plans to drill 15 net Hartshorne CBM wells in second quarter 2008, on the way to an estimated 42 net Hartshorne CBM wells for the full year. Our United States program also includes seismic to improve CBM and shale drilling co-ordinates. The 2008 capital spending program is based on expectations involving sales volumes, realized commodity prices, operating netbacks and other matters and is therefore subject to modification.

The Company's present bank credit facility expires in early 2009; negotiations are underway to extend or replace the facility. The Company is confident that it will accomplish this in a timely manner and under suitable terms and conditions.

Management announcement

Mahalo is pleased that Mr. James Burns, P.Geol, MBA, has joined Mahalo as Chief Operating Officer. Mr. Burns served most recently as the President and CEO of Essential Energy Services Trust and prior thereto, in senior positions with several energy companies including Dominion Exploration Canada Ltd. and Slade Energy Inc. He was also founder, President and CEO of Cedar Energy Inc.

Mr. Burns received a B.Sc. (Honours in Geology) from Carleton University and a Masters in Business Administration (Specialization in Finance) from the University of Calgary. His strong management and technical strengths will be an asset to Mahalo's growth in both Shale and CBM.

Additional Information

Mahalo's has filed its unaudited consolidated financial statements and related managements' discussion and analysis for the three months ended March 31, 2008 on SEDAR. The reports can be accessed electronically from the SEDAR system at www.sedar.com. For additional information on the Company, please go to the Company's profile on SEDAR or the Company's website at www.mahaloenergy.com.

Mahalo is a junior, unconventional natural gas producer, focusing on the development and production of coal bed methane and shale gas prospects in the United States and coal bed methane in Canada.

ADVISORIES

Forward-looking statements

Except for historical financial information contained herein, the matters discussed in this document may be considered forward-looking statements. Such statements include declarations regarding management's intent, belief or current expectations. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties; actual results could differ materially from those indicated by such forward-looking statements. Among the important factors that could cause actual results to differ materially from those indicated by such forward-looking statements are: (i) that the information is of a preliminary nature and may be subject to further adjustment, (ii) the possible unavailability of financing, (iii) risks related to the exploration and development of oil and gas properties, (iv) the impact of price fluctuations and the demand and pricing for oil and natural gas, (v) the seasonal nature of the business, (vi) start-up risks, (vii) general operating risks, (viii) dependence on third parties, (ix) changes in government regulation, (x) the effects of competition, (xi) dependence on senior management, (xii) impact of economic conditions, and (xiii) fluctuations in currency exchange rates and interest rates. The forward-looking statements contained in this document are made as of the date hereof and are expressly qualified by this cautionary statement. Mahalo undertakes no obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless so required by law.

Non-GAAP financial measures

The Company uses and makes reference to "funds from operations", "funds from operations per share", "operating netback" and "net debt". These terms do not have any standardized meaning, are not defined under Canadian Generally Accepted Accounting Principles ("GAAP") and are therefore referred to as non-GAAP financial measures. These non-GAAP measures should not be considered as an alternative to, or more meaningful than net earnings, cash provided by operating, financing and investing activities or other measures of financial performance or liquidity calculated in accordance with Canadian GAAP. The non-GAAP financial measures, as calculated and used by the Company, may not be comparable to similarly titled measures reported by other companies.

Funds from operations represent cash from operating activities before change in related non-cash working capital. Funds from operations per share are calculated using the weighted average shares outstanding, consistent with the calculation of earnings per share. These measures are used by Mahalo to assess its operating results and its ability to generate funds to finance future capital investments and service debt.

Operating netback presents a measure of net oil and gas revenue relative to realized commodity prices by deducting royalties and operating and transportation costs from oil and gas sales revenues. This non-GAAP measure is also used by the Company to assess comparability of petroleum sales and directly related costs between periods. There is no GAAP measure that is reasonably comparable to operating netback as calculated by the Company.

Net debt as calculated by the Company represents long-term debt, less working capital (excluding unrealized gain or loss on financial instruments) and is used by the Company to assess financial strength. There is no GAAP measure that is reasonable comparable to net debt as calculated by the Company.

Management considers these non-GAAP financial measures as useful supplemental measures to analyze operations, compare performance between periods and provide shareholders and potential investors with additional information. These non-GAAP measures are also used by certain research analysts to value and compare oil and gas exploration and production companies, and are frequently included in published research when providing investment recommendations.

Barrel of oil equivalent ("boe") volumetric measures

The oil and gas industry commonly expresses production, sales and reserves volumes on a barrel of oil equivalent ("boe") basis whereby natural gas volumes are converted at a ratio of six thousand cubic feet ("Mcf") to one barrel ("bbl") of crude oil. The boe measure is used by the Company to aggregate oil and gas volumes. The measure is also considered to be useful for comparisons with other industry participants. The conversion ratio is based on an approximate energy equivalency of these commodities at the burner tip and does not represent a value equivalency at the well head. This conversion may therefore be misleading, particularly if used in isolation.

The Toronto Stock Exchange has not reviewed and does not accept responsibility for the adequacy or accuracy of this press release.

Contact Information

  • Mahalo Energy Ltd.
    Duncan Chisholm
    President & CEO
    (403) 716-3114
    (403) 451-3501 (FAX)
    or
    Mahalo Energy Ltd.
    Bill Gallacher
    Chairman of the Board
    (403) 233-4451
    (403) 451-3501 (FAX)
    or
    Mahalo Energy Ltd.
    540, 734 - 7th Avenue SW
    Calgary, Alberta T2P 3P8
    (403) 451-3500
    (403) 451-3501 (FAX)
    Website: www.mahaloenergy.com