Midnight Oil Exploration Ltd.

Midnight Oil Exploration Ltd.

May 13, 2008 21:33 ET

Midnight Kicks Off Year With Highly Successful Gas Program

CALGARY, ALBERTA--(Marketwire - May 13, 2008) - Midnight Oil Exploration Ltd. (TSX:MOX) ("Midnight" or the "Company") today announces its financial and operating results for the three months ended March 31, 2008.

Midnight enjoyed an active and successful first quarter of 2008. We were active on the drilling and construction side on our gas prospects in the Peace River Arch and our light oil project area at Red Earth. We enjoyed 100% success in our drilling results and were able to tie-in a number of our gas wells drilled during the winter. We also completed construction of our Red Earth water injection facilities that will add proven reserves, increase production and reduce operating costs for Midnight for the balance of the year. The early results from both of these areas are very positive and we are particularly excited about our success and the opportunities we have generated in our Deep Basin gas play.

A significant strength of Midnight is the breadth and depth of our light oil and natural gas prospect inventory combined with the skill and expertise of our high-end technical team. As disclosed at year end, we planned to shift our investments from light oil prospects towards our natural gas prospects. Dating back to our earlier days as Midnight Oil & Gas Ltd., we built and pursued a highly successful program that targeted tight gas reservoirs of the Cadomin while we explored the high potential shallower Cretaceous/Falher zones. This tried and true approach to growth on the natural gas side slowed when gas prices weakened in 2006 and 2007. However, looking for stronger natural gas prices in 2008, we have returned to an aggressive natural gas strategy with excellent results to date.

Our strategy has three stages: first the detailed geologic and technical analysis that is Midnight's trademark and the foundation of our success, followed by large scale land assembly and prospect generation which positions us for drilling and development.

The ground work began earlier with comparison and analysis of similar Basin Centered Gas accumulations pursued and developed as resource plays in the U.S. By comparison, the "tight" gas sands of the Deep Basin are of a more conventional nature with higher porosity and permabilities and similarly large in situ reserve estimates. Based on our background work, we integrated our geotechnical team with our engineering team to carry out an analysis of drilling and completion techniques, including the rationale and applicability of horizontal drilling and the effect of staged and multi-zone large scale fracing techniques. These "tight gas resource" plays in the Deep Basin of Alberta are an excellent corporate fit for Midnight. By returning to the Deep Basin for these resource plays, we are able to focus our technical team's expertise and experience to the new challenge of unlocking these opportunities.

In our Deep Basin area, we drilled three gross (2.5 net) wells, pipelined and tied-in a recent discovery but more significantly expanded our land and prospect inventory base in this high potential multi-zone area. Most of our Deep Basin prospects afford us three-season access and based on this winter's success we plan to expand our Deep Basin program for the balance of the year.

At Elmworth, we drilled one gross (0.5 net) horizontal well targeting the tight conglomerate of the Cadomin formation. Wells in this area are expected to initially produce at rates of 3-5 mmcf/d and recover 2-3 bcf. We conducted a multi-zone completion on this well and are very encouraged by the initial results. Based on these results and the prospectivity of additional lands we hold in the area, we plan a follow-up to this well in the second half of the year.

At Red Rock, Midnight drilled two gross (2.0 net) successful multi-zone discovery wells that identified potential similar to our Elmworth well. Due to spring break-up we were unable to complete and tie-in these wells, however, as soon as weather permits, we will complete one well (likely on stream early in Q3) with the second well to be completed and placed on stream later in the year. By executing on this aggressive late season drilling of these prospects we were able to acquire large tracts of land through farm-ins and significantly expand our landholdings in this area to approximately 19,000 gross (17,000 net) acres.

Also, in the Red Rock area we tied in and placed on stream one gross (0.5 net) well that was completed in 2007 that is producing at rates of approximately 1.0 mmcf/d. This well and numerous other wells we have in our Deep Basin area are potential candidates for staged multi-zone re-completions. Based on this continued success and the additional experience and information gained through the area, we have identified a number of potential drilling and completion follow-ups.

Midnight has also enjoyed success (although at a much smaller interest) in our West Central area. Although not an area of focus for Midnight, our strategic ownership in this area allows us to participate with other industry partners and economically test and experience multi-zone multi-staged fracturing completion techniques applicable to the Deep Basin. During the quarter, our West Central area was very active as a result of a large scale farmout by one of our industry partners. This farmout initiated a more aggressive drilling program that allowed Midnight to selectively participate in these high potential prospects at an increased working interest. As a result, Midnight was active in participating in 6 gross (0.36 net) wells. The farmee was very successful with excellent results that exceeded our expectations and completed wells testing at rates of 3 mmcf/d to 7 mmcf/d. Two of these wells have been placed on stream and the remaining four (0.32 net) wells will be tied in and on stream during Q2. Midnight is well positioned in its West Central area with a large and highly prospective landholding that keeps us involved and current on the activities and techniques of a wide range of industry partners and prospects.

At Red Earth, Midnight was active in drilling, completing, and constructing of pipelines and water handling facilities. During the quarter, we drilled a stepout development well (0.25 net) that confirmed our mapping and the potential of our new waterflood pool. With capability of over 250 bbls/d the well was produced at an initial restricted rate of 120 bbls/d. Based on our waterflood investment, including the conversion of one well to a water injector, we have applied to the ERCB for Good Production Practice to allow us to produce this well at an unrestricted rate. This success opens up a number of additional locations which Midnight, as operator, will be pursuing later in 2008. Near the end of the quarter we completed the construction of our water handling facilities that will reduce operating costs to approximately $11/boe for the remainder of the year by reducing trucking costs and charges for water disposal at non-owned facilities.

At Midnight, we have an excellent foundation in our high value light oil asset base. Our oil program was highly successful and the resulting benefits will be spread out over ensuing quarters as we add additional reserves (including reserve additions from our waterflood) and realize reduced operating costs from the capital invested.

Midnight has an experienced and proven high-end team and an excellent risk balanced prospect inventory. During the quarter we had very good exploration success and our development activities delivered solid results. With the alignment of future development costs and reserve additions in our Red Earth area and the new drilling successes on our gas drilling program we have reduced our finding and development costs for the first quarter to $12.77 per boe proven ($10.42 per boe proven plus probable). These results are just the start of the recognition of the tremendous potential we have created and we are very excited to build on this momentum.

Midnight's increased investment in the Red Rock area and in Elmworth is part of Midnight's strategy to further increase our exposure to sweet natural gas prospects in the high potential Deep Basin. This strategy is set in place not only in anticipation of stronger natural gas fundamentals, which we are currently experiencing, but also with a longer term view that we will realize much higher gas prices as North America gas prices move closer to equivalent heating value prices with oil and settle over $10.00 per mcf. That said, we have been served well with our balanced portfolio of light oil and sweet gas opportunities that have resulted in Midnight consistently being in the top decile in industry for our revenue and netback per boe.

In response to the strengthening cash flow and highly successful results, the Midnight Board of Directors has agreed to an expanded capital budget of $35 million for the year focusing on our Deep Basin prospects.

During the first quarter in 2008, Midnight continued with its normal course issuer bid. The Company purchased and cancelled an additional 172,500 common shares at an average market price of $1.10 per share. To date, the Company has purchased and cancelled 405,200 common shares at an average market price of $1.12 per share reducing the total number of common shares outstanding at the end of Q1 to 47,422,629.

Q1 2008 financial and operational highlights with comparative data are as
2008 2007
---------- -------------------
Q1 Q4 Q1
Financial (000's, except for per share amounts)

Petroleum and natural gas sales $ 11,243 $ 10,811 $ 10,894
Royalties 2,541 1,649 1,990
Operating expenses 2,154 2,746 2,176
Transportation expenses 207 200 189
Netback $ 6,341 $ 6,216 $ 6,539

G&A - cash charge 811 1,128 713
Interest 396 369 339
Other income (103) (179) -
Funds from operations $ 5,237 $ 4,898 $ 5,487
Per share - Basic 0.11 0.10 0.11
- Diluted 0.11 0.10 0.11
Net income (loss) $ 8 $ (19) $ (424)
Per share - Basic 0.00 (0.00) (0.01)
- Diluted 0.00 (0.00) (0.01)

Petroleum and natural gas additions $ 11,632 $ 8,092 $ 12,582
Net debt 34,996 28,374 29,170
Total assets 169,706 164,681 159,594
Shares outstanding
Basic 47,423 47,595 47,828
Diluted 52,430 52,600 53,001

Average daily production
Natural gas (mcf/d) 5,239 5,573 6,891
Oil (bbls/d) 755 820 920
NGLs (bbls/d) 128 216 170
Combined (boe/d) 1,756 1,965 2,239

Average prices received
Natural gas ($/mcf) $ 7.95 $ 6.17 $ 7.82
Oil ($/bbl) 96.72 85.23 64.04
NGLs ($/bbl) 63.25 58.26 47.07
Revenue ($/boe) $ 70.35 $ 59.81 $ 54.06
Royalties 15.90 9.12 9.88
Operating expenses 13.48 15.19 10.80
Transportation expenses 1.30 1.11 0.93
Netback received ($/boe) $ 39.67 $ 34.39 $ 32.45

Midnight is a top quality junior exploration company with a high-end technical team with a proven track record. Our balanced sweet gas and light oil production base, our strong balance sheet and our high quality prospect inventory positions Midnight extremely well for the future.

Shareholders are invited to attend Midnight's 2008 Annual Meeting of Shareholders scheduled for 10:00 AM, Wednesday May 14, 2008 at the Sun Life Conference Centre, located at 140 4th Avenue S.W., Calgary, Alberta.

Copies of the consolidated financial statements and Management's Discussion and Analysis in respect thereof for the three months ended March 31, 2008 is being filed today with Canadian securities regulators and will be available on SEDAR and can be accessed at www.sedar.com or by visiting Midnight's website at www.midnightoil.ca.

Forward Looking Statements

Certain information contained within this press release, and in certain documents incorporated by reference into this document, may constitute forward looking statements. These statements relate to future events or our future performance. All statements other than statements of historical fact may be forward looking statements. Forward looking statements are often, but not always, identified by the use of words such as "seek", "anticipate", "budget", "plan", "continue", "estimate", "expect", "forecast", "may", "will", "project", "predict", "potential", "targeting", "intend", "could", "might", "should", "believe" and similar expressions. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward looking statements. We believe the expectations reflected in those forward looking statements are reasonable but no assurance can be given that these expectations will prove to be correct and such forward looking statements included in, or incorporated by reference into, this press release should not be unduly relied upon. These statements speak only as of the date of this press release and/or as of the date specified in the documents incorporated by reference into this press release, as the case may be.

Statements relating to "reserves" or "resources" are deemed to be forward looking statements, as they involve the implied assessment, based on certain estimates and assumptions, that the resources and reserves described can be profitably produced in the future. The forward looking statements contained in this press release and the documents incorporated by reference herein are expressly qualified by this cautionary statement. We do not undertake any obligation to publicly update or revise any forward looking statements except as required by securities law.

Basis of Presentation - The financial data presented below has been prepared in accordance with Canadian Generally Accepted Accounting Principles ("GAAP"). The reporting and the measurement currency is the Canadian dollar. For the purpose of calculating unit costs, natural gas is converted to a barrel equivalent ("boe") using six thousand cubic feet of natural gas equal to one barrel of oil unless otherwise stated.

Non-GAAP Measurements - Within the press release references are made to terms commonly used in the oil and gas industry. Funds from operations, funds from operations per share and netbacks are not defined by GAAP in Canada and are referred to as non-GAAP measures. Funds from operations per share is calculated based on the weighted average number of common shares outstanding consistent with the calculation of net income per share. Netbacks equal total revenue less royalties and operating and transportation expenses calculated on a per boe basis. Management utilizes these measures to analyze operating performance and leverage. Funds from operations is not intended to represent operating profit for the period nor should it be viewed as an alternative to operating profit, net income, cash flow from operations or other measures of financial performance calculated in accordance with Canadian GAAP. Funds from operations is commonly referred to as cash flow by research analysts and is used to value and compare oil and gas companies and is frequently included in published research when providing investment recommendations. Total boes are calculated by multiplying the daily production by the number of days in the period.

Midnight is a publicly listed junior oil and gas exploration and development company based in Calgary, Alberta. Midnight's shares trade on the TSX under the symbol "MOX".

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