Masters Energy Inc.
TSX : MSY

Masters Energy Inc.

February 21, 2008 16:05 ET

Masters Energy Inc. Achieves Strong Reserve Growth

CALGARY, ALBERTA--(Marketwire - Feb. 21, 2008) - Masters Energy Inc. (TSX:MSY) ("Masters" or "the Company") is pleased to provide the results of its independent reserve evaluation prepared by McDaniel & Associates Consulting Ltd. ("McDaniel") in accordance with NI 51-101 for the year ended December 31, 2007. The evaluation has been prepared using Alberta's existing royalty program.

Highlights of the reserve evaluation include:

- Net asset value (NAV) per fully diluted common share is $6.65 for proved and probable reserves ("2P") and $8.41 proved, probable and possible reserves ("3P") based on a discount rate of 10%, before income taxes.

- Net present value (NPV) of proved and probable reserves discounted at 10%, before income taxes, increased 60% to $122.8 million compared to December 31, 2006.

- NPV of proved, probable and possible reserves, discounted at 10% before income taxes, amounted to $154.1 million.

- Proved and probable reserves per 100 common shares issued and outstanding, increased 75% to 53.9 boe.

- Replaced 2007 production by 7.2 times on a proved and probable basis and 9.4 times on a proved, probable and possible basis.

- Reserve life index is 14.7 years proved and probable and 16.9 years proved, probable and possible based on 2007 production.

Total proved plus probable reserves increased 73% over the previous year from 4,790 mboe to 8,280 mboe as a result of exploration and development activity, property acquisitions and the recognition of reserves associated with the proposed enhanced oil recovery project at Little Bow. McDaniel recognized incremental recovery factors of 13.5% and 18% for 2P and 3P reserves, respectively. As of December 31, 2007, the Company proved and probable reserve mix is comprised of 79% crude oil and natural gas liquids and 21% natural gas.

The following tables summarize Masters working interest reserves and estimated associated values at December 31, 2007:



Summary of Gross(1) Oil and Gas Reserves (2)
----------------------------------------------------------------------------
Crude Natural Gas Natural Total
Reserves Category Oil Liquids Gas Equivalent(3)
----------------------------------------------------------------------------
(mbbl) (mbbl) (mmcf) (mboe)
Proved - developed producing 1,802 20 5,338 2,712
Proved - non-producing 305 8 1,129 501
Proved - undeveloped - - - -
----------------------------------------------
Total Proved 2,107 28 6,447 3,213
Probable 4,425 16 3,758 5,067
----------------------------------------------
Total Proved and Probable 6,532 44 10,225 8,280
Possible 1,220 1 76 1,234
----------------------------------------------
Total Proved, Probable
and Possible 7,752 44 10,301 9,514
----------------------------------------------
----------------------------------------------

NOTES:
(1) "Gross" reserves means the total working interest (operated and non-
operated) share before deduction of royalties payable to others and
excluding any royalty interests (approximately 28 mboe) of Masters.
(2) May not add due to rounding.
(3) Natural gas converted at 6 mcf equivalent to one barrel of crude oil

Summary of Oil and Gas Reserve Estimated Net Present Values ("NPV") of
future net revenue (1) based on forecasted prices and costs.
Reserves Category Before Income Taxes Discounted at
----------------------------------------------------------------------------
($ million) 0% 5% 10% 15%
-----------------------------------------

Proved - developed producing 72.5 61.2 53.2 47.3
Proved - non-producing 11.7 9.7 8.3 7.2
Proved - undeveloped - - - -
-----------------------------------------
Total Proved 84.2 70.9 61.4 54.5
Probable 146.0 91.2 61.4 43.0
-----------------------------------------
Total Proved and Probable 230.2 162.0 122.8 97.5
Possible 58.0 40.1 31.3 25.7
-----------------------------------------
Total Proved, Probable
and Possible 288.2 202.2 154.1 123.2
-----------------------------------------
-----------------------------------------
NOTE:
(1) May not add due to rounding.


Masters crude oil, natural gas and natural gas liquids ("NGLs") reserves were evaluated using McDaniel's product price forecasts effective January 1, 2008. The following table summarizes McDaniel's forecasted benchmark prices and the prices Masters would receive after adjusting for quality differential and heat value:



Oil Natural Gas NGLs
------------------------ -------------------- ---------------------
Bow River AECO
Medium Spot Edmonton
Benchmark Company Benchmark Company Benchmark Company
---------------------------------------------------------------------
($/bbl) ($/bbl) ($/GJ) ($/mcf) ($/bbl) ($/bbl)
2008 64.70 63.89 6.45 6.75 61.60 69.63
2009 62.30 61.88 7.00 7.42 60.20 69.79
2010 59.70 58.69 7.00 7.55 58.00 72.83
2011 57.00 55.54 7.00 7.52 55.80 68.39
2012 56.20 54.40 7.10 7.63 55.20 66.12
2013 55.30 53.44 7.30 7.88 54.70 62.06


Future prices increase at a rate of approximately 2.0 percent per year for
oil, natural gas and natural gas liquids after 2013.

Masters' NAV per share at December 31, 2007 is as follows:

($ thousands, except as indicated) 2P Reserves 3P Reserves
----------------------------------------------------------------------------
Reserves value (10% discount before tax) (1) 122,821 154,092
Undeveloped acreage (2) 8,384 8,384
Net debt (unaudited) (20,788) (20,788)
-----------------------------
Basic net asset value 110,417 141,688
Projected proceeds on exercise of options and
warrants (fully diluted) 7,625 7,625
-----------------------------
Fully diluted net asset value 118,042 149,313
-----------------------------
-----------------------------
Common shares outstanding (thousands)
- Basic 15,356 15,356
- Diluted 17,751 17,751
Net asset value per common share ($)
- Basic 7.19 9.23
- Diluted (3) 6.65 8.41
(1) The reserves values are based on before tax future cash flows as
evaluated by the Company's independent qualified reserves evaluators,
McDaniel & Associates Consultants Ltd. using their future commodity
price forecast, then in effect.
(2) The land values are determined using an estimated value of $100 per
undeveloped acre.
(3) Calculated using outstanding common shares, options and warrants at
year-end.


Masters Little Bow Enhanced Oil Recovery Project

Masters is proceeding toward implementing an alkaline surfactant polymer ("ASP") flood at the Company's Little Bow property. Masters has contracted an engineering consulting firm, specializing in enhanced oil recovery, to evaluate the Company's oil producing property at Little Bow. The oil pool has produced for a total of 30 years and has been under waterflood for 25 of those years. The Company currently produces approximately 700 barrels per day (net to Masters) of crude oil at Little Bow.

The enhanced oil recovery specialist estimates that based on the results of the core studies, an incremental 15 to 20 percent of the original oil in place is expected to be recovered by implementing an ASP flood.

The ASP flood is designed to decrease interfacial tension and improve the vertical sweep efficiency, resulting in a higher ultimate oil recovery than would be achieved with the existing waterflood. Analogous oil reservoirs have experienced incremental oil recoveries between 12 and 25 percent of original oil in place.

Further detailed engineering design and reservoir simulation studies are being carried out before construction of the ASP facility begins. We expect to be able to refine our estimate of the total cost of the project, including the cost of the facilities, field infrastructure and injection chemicals, by mid-March. An application to implement the enhanced oil recovery project is expected to be submitted to the ERCB subsequent to completing the engineering work currently underway.

McDaniel estimates that the Little Bow pool has 34 million barrels of original oil in place, of which, approximately 31 percent has been recovered to date and approximately 40% will be recovered by the existing waterflood. By implementing the ASP flood, incremental reserves, net to Masters, have been estimated by McDaniel to be 3.7 and 4.9 million barrels (13.5 and 18.0 percent incremental recovery factors) for the 2P and 3P cases, respectively. The allocation of reserves and associated values of the ASP project are as follows:



Reserves Proved Probable Possible Total 3P
----------------------------------------------------------------------------

Crude oil (mbbl) - 3,660 1,220 4,880
Natural gas (mmcf) - 229 76 305
Natural gas liquids (mbbl) - 2 - 2
BOE (mboe) - 3,700 1,233 4,933
--------------------------------------

NPV, discount at 10% before tax (1)
($ thousands) - 42,555 31,272 73,826
----------------------------------------------------------------------------
(1) Includes initial capital expenditures of $28.8 million for facilities
construction and future capital for ASP chemical for the period 2008 to
2014 of $31 million.


Based on independent laboratory results, reservoir simulation studies and analogous reservoirs utilizing alkaline surfactant polymer floods, Masters is confident that the reserves assigned to the probable and possible categories will transfer to the proved and probable categories in the future.

Outlook

At December 31, 2007, Masters had 84,000 net acres of undeveloped land and net debt of $20.8 million (unaudited). During the first quarter of 2008, the Company will continue to exploit its undeveloped land base and intends to direct a majority of its capital spending to drill six (5.3 net) wells, all Company operated, in the Peace River Arch and Panny areas of Alberta. The Company also intends to proceed towards the implementation of the enhanced oil recovery project at Little Bow.

To reduce its exposure to fluctuating commodity prices Masters has entered into a fixed price financial contract as follows:



Daily Notional
Product Index Term Volume Price Received
----------------------------------------------------------------------------
Apr. 1/08 -
Gas Fixed AECO-C Oct. 31/08 2,500 GJ $7.745 per GJ


Currently, the Company production is approximately 1,650 to 1,700 boe per day (50% crude oil and 50% natural gas). As at February 15, 2008, Masters has 15,311,679 common shares outstanding with management and directors representing approximately 14% of the basic shares outstanding.

The Company anticipates that the 2007 year end and fourth quarter financial results will be released in mid March 2008.

Masters Energy Inc. is an Alberta based corporation engaged in the business of acquiring or exploring for and developing oil and natural gas reserves in western Canada. Masters' common shares are listed on the Toronto Stock Exchange under the trading symbol "MSY". Additional information regarding Masters may be viewed on the SEDAR website (www.sedar.com) or the Company's website (www.mastersenergy.com).

ADVISORIES

The calculations of barrels of oil equivalent ("boe") are based on a conversion rate of six thousand cubic feet ("mcf") of natural gas to one barrel ("bbl") of crude oil. Boe's may be misleading, particularly if used in isolation. A boe conversion ratio of 6 mcf : 1 bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.

Certain information regarding the Company, including management's assessment of future plans and operations, may constitute forward-looking statements under applicable securities law and necessarily involve risks associated with oil and gas exploration, production, marketing and transportation such as loss of market, volatility of commodity prices, currency fluctuations, uncertainties of reserve estimates, environmental risks, competition from other producers and ability to access sufficient capital from internal and external sources: as a consequence, actual results may differ materially from those anticipated. The Company assumes no obligation to update the forward-looking statements contained herein or to update the reasons why actual results could differ from those contemplated by the forward-looking statements, unless so required by applicable securities law.

Contact Information

  • Masters Energy Inc.
    Geoff Merritt
    President and CEO
    (403) 290-1785
    or
    Masters Energy Inc.
    Randall Boyd
    Chief Financial Officer
    (403) 290-1785
    Website: www.mastersenergy.com