Mahalo Energy Ltd.

Mahalo Energy Ltd.

November 16, 2006 16:09 ET

Mahalo Updates 2006 CBM Drilling Results and Revises Drilling Focus

CALGARY, ALBERTA--(CCNMatthews - Nov. 16, 2006) -

(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 provide additional information on its 2006 coal bed methane (CBM) drilling success in the United States and its intention to focus a majority of its 2007 investment capital on US CBM development activity.

CBM Results

Mahalo has had significant drilling success in its Lakeview, Oklahoma CBM development program in 2006. The average initial production rate for wells drilled in the first three quarters of 2006 was 775 Mcf per day, significantly higher than area averages. In third quarter 2006, the Company drilled a well with an initial production rate in excess of 2 MMcf per day.

The following graph illustrates initial production rates, on a well by well basis, for Lakeview CBM wells drilled by Mahalo in the first nine months of 2006. The Company credits these results to significant advancements in internal prospect selection, utilization of horizontal drilling and improved completion techniques.

Please see the following link for Lakeview CBM Drilling Results (2006):

Note: Individual well names and locations are withheld for competitive reasons.

Mahalo also realized continued improvement in average initial production rates for Lakeview CBM drilling on a quarter over quarter basis in 2006.

Quarter - 2006 Average Initial Production
--------------- ----------------------------
1 456 Mcf/d
2 517 Mcf/d
3 1,101 Mcf/d

Mahalo continues to identify new drilling prospects on its Lakeview acreage and currently plans to drill over 56 locations in 2007. Of these 56 locations, 16 are on lands in which Mahalo has a 100 per cent working interest. The Lakeview block consists of approximately 185,000 (56,000 net) acres and ultimate well density is expected to be no less than 6 wells per section on all coals thicker than 2 feet. The Company expects its inventory of drillable CBM locations to grow substantially as a result of this program.

These wells have a low capital cost of approximately US $550,000 per well. This cost structure, combined with predictable well performance, is currently delivering extremely robust economics. The Company predicts economic breakeven at production rates as low as 100 Mcf per day based on a non-escalated US $5.00 per MMBtu NYMEX gas price. Based on an average per well production rate of 775 Mcf per day, Mahalo's economic parameters indicate drilling is economic down to US $2.00 per MMBtu NYMEX gas pricing.

Based on these drilling results, uncertainty caused by current gas pricing volatility and Mahalo's continuing emphasis on portfolio management and resource allocation, a majority of Mahalo's near and medium term capital investment will be directed toward US CBM prospects.

Other Developments

Mahalo has reduced drilling and related activity in Canada in fourth quarter 2006 in favor of higher return opportunities offered by its expansive inventory of CBM projects in the United States. Mahalo will focus its Canadian efforts on sampling its two core Mannville CBM development areas, Corbett Creek and Wizard Lake, as well as its position in an emerging dry Mannville CBM play.

Mahalo's ongoing US Woodford and Caney shale play has advanced significantly as a result of a 2006 core analysis and 3-D seismic program. The industry has seen significant advances in shale gas completion technology in 2006. Mahalo will continue to monitor such advances with a view towards gaining additional knowledge and modifying planned completion techniques that can better exploit this play. Shale represents a tremendously large resource: successful exploitation can involve a significant funding challenge. The Company will work diligently in developing financially attractive partnership arrangements to allow for inclusion of shale gas drilling and development in its 2007 budget.

Resource Study

Mahalo expects to release, prior to year-end 2006, its Contingent and Discovered Resource Study which will quantify the magnitude of its coal and shale resource. The Company is confident that its portfolio management strategy will enhance its ability to effectively and economically develop these resources.

Forward-looking Estimates

The Company currently expects to exit fiscal 2006 with a production rate in the range of 3,100 to 3,300 Boe per day. This estimate takes into account the reallocation of capital to US CBM activity and the impact of non-core asset divestitures completed to date. Mahalo expects to generate funds from operations of Cdn $15 to $17 million for full year 2006 (December 2006 annualized of approximately Cdn $22 to $25 million). Net debt, being debt plus working capital, is estimated at approximately Cdn$ 46 million at year-end 2006. The expected debt level assumes that no further non-core asset divestures will be completed prior to December 31, 2006. The Company anticipates further non-core asset divestures, which, if completed as expected, should reduce the net debt level to below Cdn $30 million by the end of first quarter 2007.

About Mahalo

Mahalo is a junior, unconventional natural gas producer, focusing on the production and development of coal bed methane and shale gas deposits in the United States and Canada.

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.

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

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. Mahalo undertakes no obligation to update or revise any forward-looking statements, except as required by law.

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 and CEO
    (403) 716-3114
    (403) 451-3501 (FAX)
    Mahalo Energy Ltd.
    540, 734 - 7th Avenue S.W.
    Calgary, Alberta T2P 3P8
    (403) 451-3500
    (403) 451-3501 (FAX)