Mahalo Energy Ltd.
TSX : CBM

Mahalo Energy Ltd.

October 14, 2008 19:26 ET

Mahalo Provides Operational Update, Notice of Management Changes

CALGARY, ALBERTA--(Marketwire - Oct. 14, 2008) -

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Mahalo Energy Ltd. (TSX:CBM) ("Mahalo" or the "Company") is pleased to announce the closing of the previously announced Canadian property sales, as well as provide an operational update and new guidance for the balance of 2008.

As described in the Company's press release on September 9, 2008, Mahalo has completed the sale of four properties in Canada for proceeds of $19.1 million net of customary adjustments. The proceeds have been used to reduce bank debt.

Operational Update

The Company is currently achieving excellent results in its Hartshorne CBM play with an average current first month production rate of 470 Mcf/d on wells drilled in 2008. This is substantially better than the current model rate of 350 Mcf/d per horizontal leg and Mahalo believes this to be a result of new completion technology applied to this development. Current average producing rate for all wells drilled in 2008 continues to validate the type curve used in our year end reserve projections which attribute an average proved reserve booking of over 400 MMcf per Hartshorne well.

Mahalo has also used its lateral re-entry drilling technique on 11 existing wells with an average 125% increase in pre re-entry production having been realized while spending an average 20% less capital than would have been required on a grass roots well. Although these wells show lower initial production rates than new wells, less "flush production" is observed and lower initial declines are evident. Mahalo believes this to be a function of wellbore proximity and believes ultimate reserve recovery will be identical to new wells. Mahalo is currently starting another round of multi-lateral re-entry drilling in its Lakeview field as a result of this success.

Mahalo's drilling activity in Oklahoma has created a more than 20% increase in Oklahoma natural gas production from 2008 entry levels of 12 MMcf/d to a current level of approximately 14.5 MMcf/d.

Current Company production is approximately 2,600 boepd net of all dispositions and the Company expects this to grow to over 3,000 boepd by year-end. Total capital spending is expected to be $40 million ($20.9 million net of divestitures) with a total of $10 million spent on shale and new land acquisitions. Total cash flow from operations for 2008 is expected to be approximately $21 million using an average realized price for the third and fourth quarters of $8.00 per mcf (inclusive of current hedging), and 2008 production should average 3,100 boepd. Mahalo is actively engaged in securing a new operated Hartshorne CBM core area in Oklahoma, and expects to have done so in the first half of 2009.



Hedging Update

Mahalo is currently entered into the following physical sale contracts in
the Arkoma basin in Oklahoma


Start End Volume Wellhead Price
(MMBTU/day) (CAD$/MMBTU)(1)
Current October 31, 2008 3,000 $ 8.22
Current October 31, 2009 1000 $ 7.78
November 1, 2008 June 30, 2009 2,750 $ 11.50
November 1, 2008 June 30, 2009 1,000 $ 11.40
Current January 31, 2009 975 $ 7.98
Current October 31, 2008 650 $ 7.89
Current October 31, 2008 1,300 $ 10.72
November 1, 2008 June 30, 2009 1,950 $ 11.36

(1) An exchange rate of $0.90 CAD / $1USD has been used in these prices

Shale Update

Mahalo has finished drilling operations on the first of a three well Caney shale pilot program which has been designed to test two new hydraulic fracturing techniques designed to mitigate production issues resulting from clay content in the shales. Mahalo has also participated in two additional non-operated Caney shale wells that are currently on production showing sustainable rates which Mahalo believes are very promising indications of the potential of the Caney shale. Mahalo will be completing all three of its pilot wells in Q1 of 2009 once all data has been analyzed and results are integrated into the fracture stimulation models.

Management Changes

Effective immediately Mr. Duncan Chisholm has resigned as President, Chief Executive Officer and a Director of the Company. Mr. Chisholm will continue to provide advice and support to management and the Board of Directors in a consulting capacity until December of 2009. Mr. James Burns, currently Chief Operating Officer, will become President and Chief Executive Officer and has been appointed to the Board of Directors. Mr. David Burton, currently Vice President of Engineering and Business Development, will become Chief Operating Officer, both appointments to be effective immediately.

Additional Information

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. For additional information on the Company, please go to the Company's profile on SEDAR or the Company's website at www.mahaloenergy.com.

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.

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.
    James Burns
    President and Chief Executive Officer
    (403) 716-3110
    (403) 451-3501 (FAX)
    or
    Mahalo Energy Ltd.
    Bill Gallacher
    Chairman of the Board
    (403) 233-4451
    or
    Mahalo Energy Ltd.
    David J Burton
    Chief Operating Officer
    (403) 716-3119
    (403) 451-3501 (FAX)
    or
    Mahalo Energy Ltd.
    540, 734 - 7th Avenue SW
    (403) 451-3500
    (403) 451-3501 (FAX)
    Website: www.mahaloenergy.com