NAL Energy Corporation
TSX : NAE

NAL Energy Corporation

September 12, 2011 18:30 ET

NAL Energy Corporation Provides an Operations Update

CALGARY, ALBERTA--(Marketwire - Sept. 12, 2011) - NAL Energy Corporation ("NAL" or the "Corporation") (TSX:NAE) provides an operations update on its Cardium and Mississippian light oil projects in central Alberta and southeast Saskatchewan and its liquids rich natural gas projects in northwest Alberta and northeast British Columbia.

HIGHLIGHTS:

  • August average production volume of approximately 29,000 boe per day is demonstrating a positive trend from the second quarter average volume of 26,758 boe per day;
  • Consistent Cardium performance at Garrington with new frac techniques delivering production results that meet or exceed NAL's Cardium type curve;
  • Positive production results from down-spacing to four wells per section at Westward Ho which is expected to increase NAL's Cardium drilling inventory and add incremental reserves;
  • Encouraging initial production results on first two Lochend wells in 2011 program are exceeding internal expectations and management estimates that 30 day IP rates will be in the range of 200 – 400 boe per day;
  • Continuing to expand the Mississippian prospect inventory in the greater Hoffer area with new oil pool discoveries on Neptune and Oungre blocks.

CARDIUM OPERATIONS

The Corporation currently has one rig operating in the Garrington area and one in the Cochrane area and is expecting to drill approximately 30 (18 net) Cardium wells in 2011. NAL's Cardium production has grown from approximately 750 boe per day (gross) in late 2008 to a forecasted rate of approximately 3,200 boe per day (gross) by the end of 2011. The Corporation currently has a five year drilling inventory in the greater Garrington area.

In 2011, NAL has continued to optimize drilling and completion techniques in its Cardium drilling program. The most significant improvements have been realized through switching to water based frac's from oil, and moving to higher per-well frac density (75 metre inter-frac spacing from 100 metre previously) and smaller per frac tonnage (15 tonnes versus 20 tonnes previously). In addition, the Corporation has moved to 400 metre inter-well spacing (four wells per section) in selected areas at Garrington with positive results. These enhancements are expected to increase NAL's drillable location inventory and add incremental reserves.

The Corporation has undertaken a farm-out program of its less prospective Cardium acreage to evaluate land that does not meet its risk profile. Results have been within the range of expectations and NAL will continue to participate selectively in follow-up locations.

Pad drilling continues to be highly effective in reducing facility and pipeline costs, addressing surface access concerns from landowners and working around challenges associated with surface geography. In addition, this operation allows drilling to continue through break-up, taking advantage of better access to equipment during the second quarter.

LOCHEND CARDIUM OIL PLAY EMERGING

NAL's 2011 Lochend Cardium oil program commenced drilling in the third quarter, with completion and tie-in activities progressing through the second half of the year. Industry activity in the Lochend area continues to advance the Corporation's knowledge in the play and has allowed NAL's technical teams to high-grade its locations into the most prospective areas. The Corporation expects to drill six (four net) Cardium wells in the area in 2011. Four of the wells have been drilled and two have recently been completed, tied-in and are on production. The 2011 program at Lochend is focused around the 3-17-27-3W5M well from the 2010 program. The 3-17 well has now been on production for 12 months and is currently producing at a rate of approximately 200 boe per day, exceeding NAL's Garrington type curve.

Production results from the first two wells from the Corporation's 2011 program are also encouraging and management estimates that 30 day IP rates will be in the range of 200 – 400 boe per day. It is expected that all six Lochend wells will be on-stream by the fourth quarter.

NAL's significant Lochend acreage position of approximately 65 gross sections was successfully acquired through crown land sales, acquisitions and strategic partnerships in 2009, before competition in the region increased land costs.

NAL has been leading an industry group in the area to participate in the construction of a gas gathering pipeline that now forms the back bone for required future gas conservation in the area. In addition to the gas gathering pipeline, NAL is constructing an oil and solution gas handling facility in the area with a designed throughput capacity of approximately 2,500 bbls per day of oil and 7 MMcf per day of solution gas. The battery is expected to be completed prior to year-end 2011.

Figure 1: 2011 Lochend Drilling Program

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GROUND CONDITIONS IMPROVING IN SOUTHEAST SASKATCHEWAN

NAL currently has four rigs operating targeting Mississippian light oil in southeast Saskatchewan. The majority of drilling in Saskatchewan has been focused in the greater Hoffer area where 48 (24 net) wells have been drilled since 2010. Of these 48 wells, 45 are currently on production and internal expectations are that production in the area will grow to over 1,800 bbls of oil per day (gross) by year end from approximately 200 bbls of oil per day (gross) in 2010.

At Hoffer, results-to-date continue to validate a significant light oil resource in the area. Similar to the results in the Corporation's Cardium program, individual outcomes at Hoffer have varied, with initial first month production averages of 40 – 300 bbls per day. In 2011, NAL's drilling program has identified two new pool discoveries in the greater Hoffer area at Neptune and Oungre. These discoveries have validated the play's potential and added significant additional Mississippian light oil drilling inventory for 2012 and beyond.

Figure 2: Activity Summary – Greater Hoffer Area

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NAL has been testing different drilling techniques in its Hoffer program over the past 12 months. The Mississippian reservoir does not require fracture stimulation as is needed with the Corporation's Cardium light oil play in Alberta. In particular, the Corporation has recently been utilizing underbalanced drilling techniques on a number of wells which have delivered enhanced initial production results.

The Corporation continues to add to its significant land base in the area with over 11 sections of land acquired adjacent to existing producing acreage. Potential for continuity of the play across the acquired acreage is supported by mapping that reflects the stratigraphic nature of the play, the presence of bypassed pay in several well bores and observations made from NAL's proprietary 3D seismic.

Construction of a central gathering, treating and water disposal facility at Hoffer is expected to be completed by year-end 2011. Throughput capacity of the facility is designed to be 5,000 bbls per day of oil and water. Once commissioned, operating costs in the area are expected to drop to approximately $6 per boe from $10 per boe at present.

A formal investigation into the cause of the fire and assessment of the damages is ongoing at Star Valley, where the Corporation previously announced a fire at its oil battery. No estimate of when operations will resume is available at this time. This outage continues to impact production volumes by approximately 300 boe per day net to the Corporation.

LIQUIDS RICH NATURAL GAS OPPORTUNITIES

NAL currently has three Wilrich wells (70 percent WI) in the Pine Creek area of northern Alberta with a fourth well currently being tied-in. These high deliverability wells have provided strong capital efficiencies, in the $10 per boe range, which offset the Corporation's higher cost but higher rate of return oil programs. As a result of restricted third party facility access, NAL's Wilrich production ultimately has more deliverability than is being produced.

During the month of August, gross combined producing rates from the first two Wilrich wells averaged approximately 13.5 MMcf per day at a reservoir drawdown of approximately 35 percent. To date, these wells have produced a cumulative gas volume in excess of 3 Bcf. The recently completed 4-6-56-19W5 horizontal Wilrich well was production tested at a final rate of 7.2 MMcf per day with a sandface pressure of approximately 2,000 psi. NAL plans to continue drilling its inventory of Wilrich opportunities in this area in 2012.

At Fireweed in northeast British Columbia, NAL's Doig production performance has been in line with expectations. Two 100 percent WI wells drilled in Q1 2011 have been on production continuously since early July 2011, when Spectra's McMahon facility turnaround was completed. These wells have exhibited higher free condensate production ratios than NAL's previously drilled Doig wells in the area, with initial free condensate in the range of 50 - 75 bbl per MMcf, versus 20 - 25 bbl per MMcf previously. This property continues to be limited by gas gathering system bottlenecks, which impact existing production when new, high deliverability horizontal wells are brought on production. As a result, the Corporation's drilling plans here target to keep existing infrastructure fully utilized with volumes net to the Corporation in the 2,300 boe per day range.

OUTLOOK

NAL's development program for 2011 continues to be approximately 85 percent weighted toward oil and evenly balanced between Cardium oil projects in Alberta and Mississippian oil projects in Saskatchewan. These plays are expected to provide strong recycle ratios of two to three times based on oil netbacks of approximately $65 per boe and rates of return in excess of 30 percent.

With a drilling and completions program of approximately $80 million focused on the Corporation's Cardium and Mississippian light oil plays through the second half of 2011, NAL's exit rate is expected to be in the 29,500 - 30,000 boe per day range.

In Saskatchewan, the Corporation estimates that approximately 300 - 400 boe per day of production currently remains shut-in as a result of weather related disruptions. Full year production volumes are currently expected to be at the lower end of guidance in the 28,500 boe per day range, excluding the impact from the Star Valley outage where an estimate of when production at the facility will resume is unknown at this time.

August average production volume of approximately 29,000 boe per day is demonstrating a positive trend from the second quarter average volume of 26,758 boe per day.

FORWARD LOOKING STATEMENTS

This press release contains statements that constitute "forward-looking information" within the meaning of applicable securities legislation. Forward looking information is typically identified by words such as "anticipate", "estimate", "expect", "forecast", "may", "will", "could", "plan", "intend", "should", "believe", "outlook", "project", "potential", "target" and similar words suggesting future events or future performance. In addition, statements relating to "reserves" are forward-looking statements as they involve the implied assessment, based on certain estimates and assumptions, that the reserves described exist in the quantities estimated and can be profitably produced in the future. This press release contains forward-looking information pertaining to, among other things, potential reserve additions, drilling plans, anticipated 2011 production and production volume growth, anticipated 2011 capital expenditures, operating, drilling and completion costs, anticipated drilling density, the construction of additional facilities, netbacks and rates of return, finding and development and finding, development and acquisition metrics, the continuity of the Hoffer play, and the potential for future Mississippian (including Bakken) development.

Various assumptions were used in drawing the conclusions contained in the forward-looking information contained in this press release including, without limitation, with respect to commodity prices, capital expenditures, royalty rates, the success of NAL's drilling program and the production profile of NAL's oil and gas reserves.

Forward-looking information is based on current expectations, estimates and projections that involve a number of risks, which could cause actual results to vary and in some instances to differ materially from those anticipated by NAL and described in the forward-looking information contained in this press release. Undue reliance should not be placed on forward-looking information. The material risk factors include, but are not limited to, changes in commodity prices, unanticipated operating results or production declines, the impact of weather on NAL's ability to execute its capital program, risks inherent in oil and gas operations, the uncertainty associated with the interpretation of seismic data, the imprecision of reserve estimates, limited, unfavorable or no access to capital or credit markets, the lack of availability of qualified operating or management personnel, the inability to obtain industry partner and other third party consents and approvals, when required, general economic conditions in Canada, the United States and globally, changes in government regulation of the oil and gas industry, including environmental regulation, changes in royalty rates and other risk factors discussed in other public filings of the Corporation including the Corporation's current Annual Information Form. Readers are cautioned that the foregoing list of risk factors is not exhaustive.

Forward-looking information is based on the estimates and opinions of NAL's management at the time the information is released.

BOE CONVERSION

Throughout this press release, the calculation of barrels of oil equivalent (boe) is calculated at a conversion rate of six thousand cubic feet (mcf) of natural gas for one barrel of oil and is based on an energy equivalence conversion method. Boes may be misleading, particularly if used in isolation. A boe conversion ratio of 6 mcf:1 bbl is based on an energy equivalence conversion method primarily applicable at the burner tip and does not represent a value equivalence at the wellhead.

ABOUT NAL

NAL Energy Corporation generates returns for its shareholders by pursuing a strategy of acquiring, producing and selling crude oil, natural gas and natural gas liquids from assets based in southeastern Saskatchewan, central Alberta, and northeastern British Columbia.

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