Marksmen Resources Ltd.

Marksmen Resources Ltd.

August 29, 2007 17:40 ET

Marksmen Resources Ltd.: Second Quarter Financial and Operating Results and Update of Activities

CALGARY, ALBERTA--(Marketwire - Aug. 29, 2007) - Marksmen Resources Ltd. (TSX VENTURE:MA) ("the Company or Marksmen") announces the Company's financial and operating results for the quarter ended June 30, 2007 and reports its progress on a number of corporate and operational fronts.


Quarter Ended 6 Months Ended
Period Ended 30-Jun-07 30-Jun-06 30-Jun-07 30-Jun-06
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Financial ($Cdn)
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Oil and Gas Revenue $ 247,494 $ 227,228 $ 459,580 $ 458,147
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Funds Flow from Operations(1) $ 31,795 $ 85,902 $ 85,401 $ 213,362
Per Share - Basic $0.00 $ 0.00 $ 0.00 $ 0.01
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Net Income (loss) $ (231,877) $ 9,017 $ (294,384) $ (40,061)
Per Share - Basic $ (0.01) $ 0.00 $ (0.01) $ (0.00)
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Capital Expenditures
Oil and Gas Operations $ 160,725 $1,146,349 $ 873,771 $1,506,539
Acquisition of RXO
Energy Inc. $1,421,082 - $1,421,082 -
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Weighted Average Shares
Basic 25,304,128 23,706,704 25,304,128 23,706,704
Fully Diluted 28,004,128 25,631,704 28,004,128 25,631,704
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Average Daily Production
(boe per day) 46 34 46 40
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Wells Drilled
Gross 1.00 1.00 5.00 2.00
Net 0.20 0.10 1.32 0.25
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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, future income
taxes and unrealized financial derivative costs. Management believes
that in addition to net income, funds 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

Operating Results

Total production for the six months ended June 30, 2007 was 8,342 boe or an average of 46 boe per day. This compares to an average of 40 boe per day in the six months ended June 30, 2006. With the closing of the RXO Energy Inc. ("RXO") acquisition on June 21, 2007, Marksmen picked up only 9 days of production from the RXO properties prior to period end. The Company will realize a full quarter of RXO production in the third quarter ended September 30, 2007. RXO was producing approximately 25 boe per day at June 30, 2007.

Crude oil and NGL production represented about 60% of total production in the six months ended June 30, 2007 (88% in the six months ended June 30, 2006). The remaining 40% of production (12% of production in 2006) is attributable to natural gas production from Marksmen's wells at Ferrier, Namao South and Eastmont in Alberta, and solution gas that was produced in conjunction with some of the Company's oil wells in southeast Saskatchewan.

Oil and gas revenue increased by 8.9% from $227,200 in the quarter ended June 30, 2006 to $247,500 in the quarter ended June 30, 2007. In the six months ended June 30, 2007, oil and gas revenue remained flat ($459,600 in 2007 versus $458,100 in 2006). The increase in revenue for both periods relates to the increased volume produced by the Company. Operating expenses were $12.58 per boe including transportation expense in the three months ended June 30, 2007 compared to $8.20 per boe for the same period in 2006. Operating expenses in the six months ended June 30, 2007 were $11.57 per boe compared to $8.40 per boe for the same period in 2006. Approximately $1.37 per boe is attributable to an annual surface lease rental incurred in June 2007.

Operating netbacks fell by $16.08 per boe or 28.6% from $56.32 in the three months ended June 30, 2006 to $40.24 in the three months ended June 30, 2007. For the six months ended June 30, 2007, operating netbacks fell by $8.90 per boe from $47.83 per boe in 2006 to $38.93 per boe in 2007, a decrease of 18.6%. Operating netbacks have declined year over year as natural gas has increased as a percentage of total production (40% of total production in 2007 versus 12% of total production in 2006) in conjunction with a year over year decline in natural gas prices of nearly 16%.

Update of Activities

During the quarter ended June 30, 2007, the Company incurred oil and gas capital expenditures of approximately $160,800. This compares to capital expenditures of $1,142,800 incurred in the previous year. For the six months ended June 30, 2007, Marksmen incurred oil and gas expenditures of $873,800 compared to $1,500,200 the previous year. These numbers do not include the cost of the RXO Energy Inc. acquisition that was completed in the period.

During the second quarter of 2007, Marksmen drilled 1 (0.20 net) horizontal well at Nottingham in southeast Saskatchewan. This well, which targeted the Tilston formation, was brought on production in July and is currently contributing approximately 8 boe per day to Marksmen. In addition, at period end, Marksmen was drilling a follow-up (0.10 net) well at Eastmont. This well, which targeted the Glauconite and Sunburst formations, was tested at a rate of approximately 1.4 mmcf per day and is expected to be tied-in on or about October 15, 2007.

As previously reported, Marksmen drilled a successful exploratory (0.50 net) natural gas well at Penhold, Alberta. There have been delays in bringing the well on production. This well is expected to be tied-in and on-production during the fourth quarter. As a result of the RXO acquisition, Marksmen now has a 100% working interest in this well. The initial start-up rate is expected to be in the range of 150 mcf per day.

On June 22, 2007, the Company announced that it had completed its acquisition of RXO Energy Inc. Marksmen issued 10,526,531 common shares at a deemed price of $0.135 per share to acquire 98.8% of the outstanding shares of RXO. The remaining 1.2% of RXO's outstanding common shares were subsequently acquired by Marksmen on July 25, 2007 by issuing an additional 129,210 Marksmen common shares. Total consideration to acquire RXO was 10,655,741 common shares at a deemed price of $0.135 per Marksmen common share or $2.84 million. According to the reserve report prepared by Reliance Engineering Group Ltd., RXO has proved plus probable reserves of 295,433 boe at December 31, 2006. As a result, Marksmen acquired the proved plus probable reserves at a value of $9.62 per boe.

With completion of the RXO acquisition, Marksmen acquired two core natural gas properties at Penhold and Alder Flats. Penhold contains both operated and non-operated conventional shallow sweet gas wells producing from the Edmonton Group while Alder Flats is comprised of operated shallow gas and Belly River oil and gas wells. Based on mapping and successful analogies, there is the potential to drill an additional 8 to 10 locations at Penhold. The Edmonton sands targeted by these wells are shallow, low-risk, and long-life reserves. The wells are located within easy reach of infrastructure and sales lines. In addition, completion of the RXO acquisition has allowed Marksmen to make the transition from a non-operator to operator.

In conjunction with the RXO acquisition, Marksmen completed a private placement of $2,250,955 in two tranches that were completed on June 21, 2007 and July 30, 2007. A total of 15,006,366 flow-through common shares were issued at a price of $0.15 per share.

On August 22, 2007, Marksmen announced that it had signed a Purchase and Sale Agreement with a third party to acquire certain lands and production in the Penhold area of Alberta. Under terms of the Purchase and Sale Agreement, Marksmen will acquire 2,321 net acres of land and approximately 42 boe per day of production. The purchase price of the acquisition is $1,700,000 of which a deposit of $150,000 has been paid. The effective date of the transaction is August 1, 2007 with closing of the transaction to occur on or about September 15, 2007. Marksmen expects to finance this acquisition with existing working capital and by increasing its bank line. By completing this acquisition, Marksmen will increase its working interest at Penhold from an average of 38% to over 90%. In addition to the development locations that come with the RXO acquisition, there is the potential of 5 further development locations assuming the production acquisition closes as planned.

Assuming that the Penhold acquisition is completed in September, the development program at Penhold for the remainder of 2007 will include the drilling of two (now at 98% working interest versus the previous 38% working interest) wells, the tie in of the one hundred percent 4-36 well, and work on the existing pipeline.

In the last half of the year, Marksmen anticipates that two additional horizontal wells will be drilled at Nottingham (Marksmen - 0.20 net). In addition, a follow-up vertical well (0.20 net) is scheduled to be drilled at Antler late in the third quarter or early in the fourth quarter. The Antler well is targeting the Midale formation. At Eastmont, the operator is contemplating the drilling of a third well prior to year end.

Management continues to seek additional merger and acquisition opportunities to complement the production growth that is being pursued through the low risk development drilling that is outlined above.

On behalf of the Board of Directors

Peter Malenica, President & CEO

Statements in this press release may contain forward-looking statements. Except for statements of historical fact, all statements in this press release - including, without limitation, statements regarding future plans and objectives of the Company - are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements.

References herein to "boe" mean barrels of oil equivalent derived by converting gas to oil in the ratio of six thousand cubic feet (Mcf) of gas to one barrel (bbl) of oil. Boe may be misleading, particularly if used in isolation. A boe conversion ratio of 6 Mcf: 1 bbl is based on an energy conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

The TSX Venture Exchange does not accept responsibility for the adequacy or accuracy of this release.

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