Mahalo Energy Ltd.
TSX : CBM

Mahalo Energy Ltd.

January 16, 2006 09:00 ET

Mahalo Energy Ltd. Announces Commercial Gas Rates at First Corbett Creek Well and Provides Guidance and Update

CALGARY, ALBERTA--(CCNMatthews - Jan. 16, 2006) - Mahalo Energy Ltd. ("Mahalo" or the "Corporation") (TSX:CBM) is pleased to announce its 2006 guidance and provide an operations update.

2006 GUIDANCE

Mahalo has received board approval for its 2006 budget and guidance. Capital expenditures are set at $53.2 million Cdn, with plans to drill 102 gross (62 net) wells within our North American asset base, which are forecast to result in average 2006 field production of 16.0 mmcf per day (14.9 sales) with an exit rate of 19.1 mmcf per day field production (17.8 sales). The estimated 2006 cash flow is $32 million (Cdn), assuming an average realized gas price of $10.90 (Cdn) per mcf. This budget will be funded by cash flow and Mahalo's bank line. Mahalo's 2006 year-end debt to trailing cash flow ratio is estimated at 0.9:1.

OPERATIONS UPDATE

Mahalo's field production rate entering 2006 reached 11 mmcf per day plus an additional 2 mmcf per day behind pipe. Mahalo Energy has been operating for less than 1 year and in this short time has developed numerous capital projects. The Corporation is generally pleased with its ability to execute operations in an expedient manner; however, 5 projects were delayed due to regulatory and equipment / manpower delays. The delayed projects have been scheduled for completion and the installation of required infrastructure will occur over the next several weeks. The key additions to production will be from Corbett Creek, Alberta and Lake View, Oklahoma. These on stream projects will increase Mahalo's production to an estimated 13 mmcf per day. Mahalo has started 2006 with a busy drilling schedule; currently the Corporation has 6 drilling rigs running pursuing CBM and Shale prospects.

In Canada during the fourth quarter of 2005, Mahalo drilled 2 Mannville horizontal wells at Corbett Creek as well as 15 Horseshoe Canyon wells at Wizard Lake, Bittern Lake, Bronson Lake, Pembina, Alberta and Fort Pitt, Saskatchewan. These wells are scheduled for tie-in during Q-1 2006 with production increases to follow.

The Corbett Creek project mentioned above looks promising with the first Mannville horizontal well producing above commercial rates after only 1 month of dewatering. The gas rate is estimated at 500 mcf per day and gas is being incinerated while the pipeline is being constructed. The Corporation believes the drilling of Mannville coals utilizing Mahalo's proprietary drilling process is the most efficient method of realizing economic deliverability. Mahalo continues to drill within the Mannville coal and is developing on-going locations within the Corbett field.

In Oklahoma USA during the fourth quarter the Corporation continued to drill and develop the Poteau field with the drilling of 10 horizontal coal bed methane wells. Mahalo continues to realize positive results from water lift initiatives on certain CBM wells, and from earlier pipeline modifications, such that the gross production from the Poteau field in less than one year has increased from 300 mcf per day (gross) to a 2005 exit rate of 9.7 mmcf per day (gross). The field is now producing from 41 horizontal Hartshorne wells and the 2006 capital program will continue to exploit this field.

The Lakeview field acquisition (closed November 2, 2005) provided Mahalo the opportunity to participate in the drilling of 2 Woodford Shale wells. The completion of these two locations is scheduled to occur in the first quarter of 2006. Mahalo turned on stream a horizontal Hartshorne CBM well located within the Lakeview field in late December/05 and currently the well is producing 1.6 mmcf per day (gross). Mahalo's working interest in this well is 43.8 percent. As a result of this success, the Corporation is pursuing several follow up opportunities in the Hartshorne coal.

Since the closing of the Lakeview acquisition Mahalo has been busy preparing for the development of Shale and CBM locations. This will include participation in a 3D seismic shoot, the identification of the most optimum cycle time area for transportation and processing off-takes for new gas. The Corporation has been actively evaluating independent well operation notices from within this new area and anticipates robust drilling activity commencing in the first quarter of 2006.

Banking Arrangement

Mahalo is also pleased to announce that it has entered into a three year $50,000,000 USD Senior Credit Facility with the Union Bank of California. The current approved borrowing base is $14,000,000 USD.

Further information about the Corporation can be found at www.mahaloenergy.com.

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.

Forward Looking Statements

Certain information regarding the Corporation set forth in this document, including management's assessment of the Corporation's future plans and operations contains forward looking statements that involve substantial known and unknown risks and uncertainties. These forward looking statements are subject to numerous risks and uncertainties, some of which are beyond the Corporation's and management's control, including but not limited to, the impact of general economic conditions, industry conditions, fluctuation of commodity prices, fluctuation of foreign exchange rates, imperfection of reserve estimates, environmental risks, industry competition, availability of qualified personnel and management, stock market volatility, timely and cost effective access to sufficient capital from internal and external sources. The Corporation's actual results, performance or achievement could differ materially from those expressed in or implied by, these forward looking statements and accordingly, no assurance can be given that any of the events anticipated to occur or transpire from the forward looking statements will provide what, if any benefits to the Corporation.

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
    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