Mahalo Energy Ltd.
TSX : CBM

Mahalo Energy Ltd.

March 27, 2006 08:30 ET

Mahalo Energy Achieves Strong Financial and Operations Results in 2005

CALGARY, ALBERTA--(CCNMatthews - March 27, 2006) - Mahalo Energy Ltd. (TSX:CBM) (the "Company" or "Mahalo") is pleased to announce its financial and operating results for the year ended December 31, 2005.

2005 Reserve/Financial Highlights

- Significant Reserves Expansion: Mahalo's active drilling program in both Canada and the United States resulted in proved plus probable ("P+P") reserve bookings of 44,738 MMcf (7,456 Mboe) and total proved reserves of 23,150 MMcf (3,858 Mboe) of coalbed methane ("CBM") and natural gas as evaluated by Sproule Associates Limited ("Sproule") in their report dated March 22, 2006.

- Large Resource Play: Mahalo is currently planning a resource-in-place study with Sproule that will evaluate all of its CBM and shale gas resource potential. Results are not available at this time as Mahalo's shale gas acreage in the U.S. is significantly more time consuming to fully evaluate than CBM.

- Capital Spending Efficiency: Finding and development ("F&D") costs including future development capital costs were $8.65/boe for P+P reserves and $12.20/boe for proved reserves. Finding, development and acquisition ("FD&A") costs including future development capital costs were $10.95/boe for P+P reserves and $16.18/boe for proved reserves.

- Recycle Ratios in 2005 were 4.54X on a proved plus probable basis and 3.22X on a proved basis (free cash flow per boe of $39.24 divided by F&D reserve addition costs per boe).

- Reserve Life Index was 15.9 years for proved plus probable reserves and 8.2 years for proved reserves based on Q4 2005 average natural gas sales of 7,733 Mcf/d (1,289 boe/d).

- Funds from Operations for 2005 grew to $6,563,528 in Mahalo's first year of operation.

- Solid Production Growth: Natural gas sales volumes grew from a Q1 2005 average of 257 Mcf/d (43 boe/d) to an average of 7,733 Mcf/d (1,289 boe/d) in Q4 2005, with a 2005 exit sales rate of 10,200 Mcf/d (1,700 boe/d). Average daily natural gas sales in 2005 were 3,616 Mcf/d (603 boe/d).

- Excellent Breakeven Profile: Mahalo's portfolio of properties has an economic breakeven threshold range for field gas prices of between $2.25 and $3.50 Cdn per Mcf.

- Drill Bit Success: In 2005; Mahalo drilled and operated three gross (2.2 net) Mannville horizontal CBM wells, 11 gross (8.7 net) Horseshoe Canyon CBM wells and one service well within its Canadian properties. Mahalo also participated in 41 gross (3.7 net) CBM wells on jointly operated Canadian properties and 41 gross (20.9 net) horizontal CBM wells on jointly operated U.S. properties. Mahalo had 100% drilling success in 2005.

Operations Update

Since the beginning of 2006, Mahalo has drilled six operated Mannville horizontal CBM wells in Canada with a seventh well currently underway. Mahalo has the services of one double drilling rig for its 2006 program, and an additional rig under contract commencing later in 2006. Mahalo has experienced improved cost efficiencies in operated drilling as a function of increased activity and process improvements.

As a result of continuing success, Mahalo's Canadian activities have been increased in its core operated properties at Corbett Creek, Camrose and Birch in Alberta. At Corbett Creek, Mahalo completed and brought on-stream its compression, dehydration and water injection facilities in February. The current compression capabilities are 5 Mmcf/d with potential expansion to over 10 Mmcf/d. At present the first Mannville horizontal CBM well is on production, the second producer is currently being dewatered and the third producer requires final pipeline tie-in. Current field production is over 600 mcf/d, with a continued active drilling program planned through 2006.

At Camrose and Birch, an additional five operated Mannville horizontal wells have been drilled by Mahalo in Q1 2006 with three of these wells already tied in and dewatering and the other two to be connected in the near future. Mahalo believes that the utilization of proprietary drilling techniques in the Camrose area has generated results that appear to be significantly better than for offset producers' horizontal wells. The Camrose area has accessible, available infrastructure, which has facilitated significant reductions in cycle time.

In the U.S. during Q1 2006, Mahalo has drilled and tied-in two (1.9 net) operated horizontal CBM wells on its Lakeview property while also participating in five (1.25 net) Woodford/Caney shale wells. Two of the five new shale wells are soon to be pipeline connected with the remainder to come on-stream in Q2 2006. Mahalo and its partners continue to drill and develop shale gas prospects within the Lakeview acreage and currently have an additional eight Woodford/Caney shale locations proposed for the 2006 development program.

In Q1 2006 Mahalo participated in four (2.6 net) horizontal CBM wells in Poteau. Mahalo continues to pursue its U.S. CBM program as planned for 2006.

Mahalo's current production is approximately 13,200 Mcf/d (12,300 Mcf/d sales) or 2,200 boe/d (2,046 boe/d sales). Mahalo's president and CEO, Duncan Chisholm, commented that the impressive growth realized in only one year going from 257 Mcf/d (March 2005) to the current 13,200 Mcf/d is a testament to the quality of the operations and production group as well as to the asset base we have assembled.

During the first two months of 2006, Mahalo has realized an average gas sales price of approximately $9.90/mcf, including fixed price arrangements. Mahalo is unable to accurately predict the trend of natural gas commodity prices for the balance of the year but has taken steps to ensure its 2006 capital spending program remains flexible and will adjust the program should natural gas prices, other economic conditions or unexpected changes warrant.



Summary of Results for 2005
------------------------------------------------------------------------
2005 Financial
Highlights Three months ended Year ended
-----------------------------------------------------
($, except shares) Mar 31, June 30, Sept 30, Dec 31, Dec 31,
2005 2005 2005 2005 2005
------------------------------------------------------------------------
Natural gas sales 186,059 1,512,564 3,533,596 8,152,613 13,384,832
------------------------------------------------------------------------
Net income
(loss) (2,265,255) 15,884 508,167 730,782 (1,010,422)
------------------------------------------------------------------------
Funds from
operations (35,753) 522,387 1,955,114 4,121,780 6,563,528
------------------------------------------------------------------------
Capital
expenditures 3,720,593 12,467,983 26,691,943 46,117,913 88,998,432
------------------------------------------------------------------------
Bank debt - 8,000,000 - 3,483,000 3,483,000
------------------------------------------------------------------------
Shareholders'
equity 4,556,904 14,250,504 71,768,519 84,804,297 84,804,297
------------------------------------------------------------------------
Common shares,
end of period 22,400,000 26,471,087 40,582,770 42,750,441 42,750,441
------------------------------------------------------------------------
2005 Operational
Highlights Three months ended Year ended
-----------------------------------------------------
($, except volumes) Mar 31, June 30, Sept 30, Dec 31, Dec 31,
2005 2005 2005 2005 2005
------------------------------------------------------------------------
Natural gas volumes
------------------------------------------------------------------------
Average Sales
(Mcf/d) 257 2,643 3,748 7,733 3,616
------------------------------------------------------------------------
Total Sales (MMcf) 23.1 240.5 344.8 711.4 1,319.8
------------------------------------------------------------------------
Operating
netback ($/Mcf)
------------------------------------------------------------------------
Average realized
price 8.05 6.29 10.25 11.46 10.14
------------------------------------------------------------------------
Royalties 2.01 1.72 2.59 2.86 2.56
------------------------------------------------------------------------
Operating and
transportation 0.67 1.12 0.61 1.23 1.04
------------------------------------------------------------------------
Netback 5.37 3.45 7.05 7.37 6.54
------------------------------------------------------------------------


Mahalo has filed its Annual Information Form which contains the annual National Instrument 51-101 F1, F2 and F3 information, the Company's year-end 2005 financial statements and Management's Discussion and Analysis on SEDAR. The reports can be accessed electronically from the SEDAR system at www.sedar.com, or at www.mahaloenergy.com.

About Mahalo

Mahalo is a junior, unconventional natural gas producer, focusing on the production and development of deeper Mannville coal bed methane deposits in western Canada and is successfully developing both coal bed methane and shale gas prospects in the United States.

Disclosure provided herein in respect of boe units may be misleading, particularly if used in isolation. A boe conversion ratio of six thousand cubic feet of natural gas to one barrel of oil is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

Information in this press release contains forward-looking statements including expectations of future production and components of cash flow and earnings. Investors are cautioned that assumptions used in the preparation of such information may prove to be incorrect. Events or circumstances may cause actual results to differ materially from those predicted, a result of numerous known and unknown risks, uncertainties, and other factors, many of which are beyond the control of Mahalo. These risks include, but are not limited to; the risks associated with the oil and gas industry, commodity prices and exchange rate changes. Industry related risks could include, but are not limited to; operational risks in exploration, development and production, delays or changes in plans, risks associated to the uncertainty of reserve estimates, health and safety risks including, without limitation, blowouts and spills, and the uncertainty of estimates and projections of production, costs and expenses. The risks outlined above should not be construed as exhaustive. Investors are cautioned not to place undue reliance on any forward-looking information. Mahalo undertakes no obligation to update or revise any forward-looking statements.

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

Contact Information

  • Mahalo Energy Ltd.
    Duncan Chisholm
    Chief Executive Officer
    (403) 262-9623
    (403) 262-7049 (FAX)
    or
    Mahalo Energy Ltd.
    Milton Porter
    Chief Financial Officer
    (403) 262-9623
    (403) 262-7049 (FAX)
    or
    Mahalo Energy Ltd.
    201B, 218 - 8th Avenue S.W.
    Calgary, Alberta T2P 1B5
    Website: www.mahaloenergy.com