Mahalo Energy Ltd.
TSX : CBM

Mahalo Energy Ltd.

November 15, 2005 09:00 ET

Mahalo Energy Ltd. Announces Third Quarter 2005 Results

CALGARY, ALBERTA--(CCNMatthews - Nov. 15, 2005) - Mahalo Energy Ltd. ("Mahalo" or the "Company") (TSX:CBM) is pleased to announce its third quarter 2005 results as follows:



HIGHLIGHTS

Three Months Nine Months
For the periods
ended September 30 2005 2004 2005 2004
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Financial
Petroleum and natural
gas revenue $ 3,533,596 $ - $ 5,232,219 $ -
Funds from operations(1) $ 1,955,114 $ - $ 2,441,748 $ -
Per share - basic and
diluted(1) $ 0.05 $ - $ 0.09 $ -
Net Income (loss) $ 508,167 $ - $ (1,741,204) $ -
Per share - basic and
diluted $ 0.01 $ - $ (0.07) $ -
Capital expenditures $ 26,803,892 $ - $ 43,155,079 $ -
Weighted average common
shares outstanding -
basic and diluted 36,117,171 - 26,390,220 -

Common shares
outstanding at end
of period 40,582,770 - 40,582,770 -
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Operating
Average Daily Production
Natural gas (mcf/day) 3,748 - 2,229
Average Selling Price
Natural gas ($/mcf) 10.25 - 8.60

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(1) Funds from operations and funds from operations per share are not recognized measures under Canadian generally accepted accounting principles ("GAAP"). Funds from operations is calculated by taking net income and adding back non-cash balances such as depletion, depreciation and accretion, stock compensation expense and future income taxes. Management believes that funds flow from operations is a useful supplemental measure to analyze operating performance and provide an indication of the results generated by the Company's principal business activities. Mahalo's method of calculating these measures may differ from other companies, and accordingly, they may not be comparable to measures used by other companies.

Mahalo Energy Ltd. is pleased to present our third quarter progress report to our shareholders. The Company continues to execute a disciplined business plan and strategy, and with less than one year of operations, we have successfully overcome many performance hurdles and have established Mahalo as material unconventional North American gas player.

Mahalo began trading on the Toronto Stock Exchange under the symbol "CBM" on July 29, 2005. This report relates to activity and results that have occurred predominantly through the period of July 2005 to September 2005.

The Company has assembled a strong management team, an experienced, seasoned board of directors and is continuing to add new geological, engineering and accounting staff as required. The accounting and operational processes are in place, improving our ability to rapidly grow our asset base in both Canada and the United States. Mahalo has assembled an attractive land base in Canada and the United States and at the time of writing this report, our accessible land is approximately 345,000 net acres of prospective coal bed methane and shale gas lands.

The Company's US and Canadian acreage gives it a solid predictable production base and a large inventory of development opportunities in coal and shale. The recent addition of prolific shale acreage differentiates Mahalo from its peers because of the larger reserve and production additions these shale resource plays can generate.

In the Poteau Oklahoma field, Mahalo was active through the months of July, August and September despite hurricanes and adverse weather. A total of 10 horizontal wells were brought on stream, bringing the Poteau producing well count to 12 vertical (6 net to Mahalo) and 31 horizontal wells (15.5 net). Mahalo closed the Island/Shelton production purchase on August 1, 2005 and the daily production from these properties was 982 mcf/d for the third quarter.

Subsequent to the end of the quarter, Mahalo closed its Lakeview Oklahoma transaction for approximately $28,000,000 USD (net of purchase price adjustments). This acquisition provides the company with 50,000 net acres of coal bed methane and shale gas land, 3,750 mmcf/d of current production and up to 1,400 drilling opportunities. The area experience for Shale production associated with vertical Caney and Woodford shale zones vary between 400 - 550 mmcf per day at a capital cost of $700,000, however, horizontal drilling generates considerably stronger day rates ranging from 1.0 - 1.75 mmcf per day at capital costs of $1.3 million. The reserves per shale zone can vary between 1.5 bcfe - 3.0 bcfe/well.

In Canada, Mahalo commenced its Mannville horizontal CBM drilling program with the first two wells of a multi well drilling program. The wells were drilled in Corbett Creek, northwest of Edmonton, and are directly offsetting the current Trident/Nexen horizontal development. The coal encountered in these two wells gave strong indications of gas, and will be on production in the fourth quarter of 2005, following facility construction.

Mahalo is commencing with its Wizard Lake, Horseshoe Canyon drilling program located in the prolific Edmonton/Calgary corridor. This drilling activity will be undertaken in the fourth quarter 2005, with a five well program. Following the Wizard Lake project, an additional twelve Horseshoe Canyon wells and eight Mannville horizontal wells are planned for the Bittern Lake area for the remainder of 2005 and the first part of 2006. Mahalo will be evaluating multiple coal seams in the Mannville with this horizontal program.

Mahalo has also enlarged its position in the greater Camrose area by entering into a five section farm-in arrangement that targets a prolific Mannville play that will be developed horizontally in the first quarter of 2006.

The Company's production exit rate in 3rd quarter increased to 5.3 mmcf/d. Current production is 9.5 mmcf/d (post Lakeview acquisition).

Mahalo has established an attractive portfolio of assets for its shareholders, and we believe the following strengths will allow us to deliver robust growth.

- Access to in excess of 345,000 net acres of undeveloped lands exhibiting CBM and shale potential

- High working interest contiguous land positions in Canada (Horseshoe Canyon and Mannville) and the United States (CBM and shale gas)

- Joint ventures in place with Vectra CBM LLC and Williams Energy Corp, both in the Arkoma basin of Oklahoma, USA

- Proven proprietary drilling techniques

- Strong management and experienced board of directors

- Strong balance sheet

As a result of the successes of our third quarter drilling, Mahalo is extremely encouraged by the application of the Hartshorne horizontal drilling methodology applied to the Mannville prospects in Canada. Entering into the fourth quarter 2005 and into 2006, Mahalo has now commenced full scale Mannville and Horseshoe Canyon development.

Financial Operations: Mahalo's 2005 capital expenditures to the end of September were $30,634,625 in the USA and $12,246,246 in Canada. The expenditures were primarily for the Poteau drilling program and Island /Shelton acquisition in the USA and to secure land and drilling opportunities in Canada. In the 3rd Quarter the company drilled 11 gross wells (5.6 net wells), year to date 41 gross wells ( 20.5 net) 39 of these wells were horizontally drilled and the company continues to enjoy a 100% drilling success rate.

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 the Canadian economic conditions, and (xiii) fluctuations in currency exchange rates and interest rates.

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
    Website: www.mahaloenergy.com
    or
    Mahalo Energy Ltd.
    201b, 218 - 8th Avenue S.W.
    Calgary, Alberta T2P 1B5
    (403) 262-9623
    (403) 262-7049 (FAX)