Mahalo Energy Ltd.
TSX : CBM

Mahalo Energy Ltd.

August 14, 2007 16:45 ET

Mahalo Energy Ltd.: News Release

CALGARY, ALBERTA--(Marketwire - Aug. 14, 2007) -

(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 its results for the three and six months ended June 30, 2007.



Summary of Results

Three Months Ended Six Months Ended
Jun 30 Jun 30 Jun 30 Jun 30
2007 2006 2007 2006
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Financial
($000's except per share)
Petroleum and natural gas revenue 10,871 8,714 21,303 17,106
Operating netback (1) 5,378 4,533 11,458 9,371
Net income (loss) (171) (802) (1,207) (257)
Per share - basic & diluted 0.00 (0.02) (0.02) (0.01)
Funds from operations (1) 3,545 3,955 7,038 7,970
Per share - basic (1) 0.06 0.08 0.12 0.18
Capital expenditures (2) 13,364 94,401 22,183 126,357
Proceeds from sale of oil
and gas assets 91 - 14,274 -
Net debt, end of period (1) 52,038 52,528 52,038 52,528
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Operational
Average daily sales
volumes (boe) (1) 2,805 2,294 2,715 1,992
Average selling price ($/boe) 42.58 41.74 43.35 47.43
Operating netback ($/boe) 21.06 21.71 23.32 25.99
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(1) Refer to advisories regarding non-GAAP financial measures.
(2) Corporate and property acquisitions include deemed value of non-cash
consideration.


Q2 2007 Highlights

- Realized average daily oil and gas sales of 2,805 boe in second quarter 2007 with June's average being 3,190 boe per day and June exit at 3,200 boe per day.

- Completed expansion of Kayla West pipeline system allowing tie in of additional Hartshorne CBM volumes previously held behind pipe.

- Spudded first operated horizontal Woodford shale in Hughes County, Oklahoma.

- Re-entered the second well of a multi-lateral Mannville CBM program in Corbett Creek, Alberta.

Financial

Mahalo generated funds from operations of $3.5 million on sales of $10.9 million and recorded a net loss of $0.2 million in an environment of continued softness in natural gas prices during the three months ended June 30, 2007.

Operational

The Company averaged 2,805 boe per day of oil and gas sales during second quarter 2007, primarily CBM natural gas. In early June, the Company completed the previously announced expansion of the Kayla West pipeline transportation system, freeing up constrained production from a number of Hartshorne CBM wells in the United States. This allowed the Company to exit the second quarter with record oil and gas sales volumes of approximately 3,200 boe per day.

Mahalo is now actively operating prospects in both Canada and the United States and continues to benefit from a strong relationship with partners who operate a certain number of our prospects. This brings a better balance to our overall resource management.

The Company was very active in the second quarter with the selective drilling of 16.0 (10.4 net) wells. We drilled Canadian Mannville CBM horizontals, US Hartshorne CBM horizontals and Woodford Shale wells and also participated in some seismically determined conventional prospects.

The on-going development of the Hartshorne coal was a primary objective in the second quarter. Mahalo drilled 5 Hartshorne coal wells in the Lakeview area during this period. Two of the wells were operated by Mahalo. Four of the 5 wells were completed as producers. Two of the four wells were placed on production with initial gross production rates of 575 Mcf per day and 1.4 Mmcf per day. The other 2 horizontals are currently being tied in.

During second quarter 2007, Mahalo drilled and cased a 100 per cent owned Hartshorne tight sand horizontal well in Poteau, Oklahoma. Although drilling results differed from expectations, the project returned valuable information regarding Hartshorne tight sand horizontal drilling. The well is currently being equipped with a plunger lift and is expected to produce in a range of 100 to 150 Mcf of CBM per day.

The Company stimulated two standing Caney shale wells in our Lakeview, Oklahoma property in the second quarter. The results are still premature from a dewatering perspective; production peaked at over 1.5 Mmcf per day during initial clean up and current rates are in the 200 to 300 Mcf per day range.

The Company has spudded a follow up well to its first horizontal Woodford shale well in Hughes County, Oklahoma. This second Woodford well, operated by Mahalo, was cased in August; the well will be stimulated utilizing a multi-stage high-volume stimulation program.

In Canada, Mahalo is focusing its CBM efforts at its Corbett Creek, Alberta property. Our primary focus is to expedite the dewatering phase of exploiting this massive resource. During first quarter 2007, the Company re-entered an existing well producing from the Mannville through a single horizontal lateral and subsequently completed the well as a multi-lateral, three legged producer. Productivity has since improved from 200 Mcf per day to over 1.0 Mmcf per day. The dewatering time improved noticeably; the original dewatering time was estimated at 3 to 6 months. The multi-lateral well delivered CBM production within 6 weeks.

During second quarter 2007, Mahalo re-entered a second well at Corbett, drilled an additional two lateral legs and brought the well back on production in mid-July. This second multi-lateral well is demonstrating the same production trend as seen in the first well; a noticeable improvement in accelerated dewatering and CBM production capability. The Company is encouraged by the recent results at Corbett Creek and with existing infrastructure already in place to support related reserves and expedited production, Corbett may become a very favorable project.

Outlook

Mahalo continues to strategically plan its 2007 activity around a Cdn $38 million capital expenditure program. In light of the current low gas price environment and continued gas pricing uncertainty, Mahalo will continue to focus its drilling primarily on lower risk CBM prospects and selective conventional prospects. The Company expects to drill 10 additional Hartshorne CBM wells in the Lakeview area in the latter half of 2007. Five of the wells will be operated by Mahalo.

The Company will also continue to selectively advance its higher risk/higher reward shale drilling prospects. The drilling activity surrounding Mahalo's shale lands is providing the Company with good insight into third party technical successes and adding value in the Company's on-going work-up of grass roots shale prospects.

Additional Information

Mahalo's unaudited consolidated financial statements and related managements' discussion and analysis for the three and six months ended June 30, 2007 have been filed on SEDAR 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 - Certain matters discussed in this document may be considered forward-looking statements. Such statements include declarations regarding management's intent, belief or current expectations. 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. Mahalo undertakes no obligation to update or revise any forward-looking statements, except as required by law.

Non-GAAP Financial Measures - The terms "funds from operations", "funds from operations per share, "operating netback "and "net debt" are not recognized measures under Canadian Generally Accepted Accounting Principles ("GAAP") and are therefore referred to as non-GAAP financial measures. Funds from operations represent cash from operating activities before change in related non-cash working capital. Operating netbacks are calculated by subtracting royalties and operating and transportation costs from sales revenues. Net debt as calculated by the Company represents long-term debt less working capital (excluding unrealized gain or loss on financial instruments). Management believes that these non-GAAP measures are useful supplemental measures to provide shareholders and potential investors with additional information regarding the Company's liquidity, operating performance and ability to generate funds to finance its operations. The Company's method of calculating these measures may differ from other companies and accordingly, they may not be comparable to measures used by other companies. These measures should not be construed as an alternative to net earnings, as determined in accordance with GAAP, as an indication of the Company's performance.

Barrel of Oil Equivalent Measures - Disclosure provided herein in respect of barrel of oil equivalent ("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.

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