Petro-Reef Resources Ltd. Announces 2012 Q1 Results and Updated Reserves

CALGARY, ALBERTA--(Marketwire - May 28, 2012) - Petro-Reef Resources Ltd. (TSX VENTURE:PER), ("Petro-Reef" or the "Company") is pleased to release its March 31, 2012 financial and operating results and a summary of its updated reserve report dated May 1, 2012. This press release should be read in conjunction with the Company's March 31, 2012 filings on Sedar.

Financial Summary

		Three Months Ended March 31
		2012			2011		% Change
Oil and gas revenue	$	2,855,893		$	3,122,279		(9	)
Cash flow from operations		1,227,765			1,634,148		(25	)
Per share - basic and diluted		0.02			0.03		(32	)
Net loss		(111,382	)		(1,053,595	)	(89	)
Per share - basic and diluted		(0.00	)		(0.02	)	(90	)
Net debt		12,451,000			12,833,000		(3	)
Capital expenditures	$	846,000		$	3,616,000		(77	)
Shares outstanding - end of period		62,239,477			56,261,477		11

Total oil and natural gas revenue decreased by 9% to $2,855,893 for the three month period ended March 31, 2012 compared to $3,122,279 for the same period in 2011. For the three month period ended March 31, 2012, Petro-Reef generated cash flow from operations of $1,227,765 ($0.02 per basic share), a decrease of 25% compared to $1,634,148 ($0.03 per basic share) for the three month period ended March 31, 2011.

Daily Production

Three months ended March 31	2012	2011	% Change
	Average	Average
Crude Oil and NGL (bbl/d)	330	296	11
Natural Gas (mcf/d)	2,631	3,064	(14	)
Combined (boe/d)	769	807	(5	)

Daily production volumes decreased by 5% to 769 boe/d in the three months ended March 31, 2012 as compared to 807 boe/d for the same period in 2011. Oil volumes increased by 11% to 330 bbl/day quarter while gas production decreased by 14% to 2,631 mcf/day. In Q1 2012 oil and NGL production comprised 43% of total production as compared to 37% in Q1 2011.

Earnings and Cash Flow Summary

Three months ended March 31	2012		2011		% Change		2012		2011		% Change
CDN $							($ / boe	)	($ / boe	)
Gross Revenue	2,855,893		3,122,279		(9	)	41.29		42.99		(4	)
Royalties	(275,524	)	(513,058	)	(46	)	(3.98	)	(7.06	)	(44	)
Revenue after royalties	2,580,369		2,609,221		(1	)	37.31		35.92		4
Operating expenses	912,445		846,074		8		13.19		11.65		13
Operating netback	1,667,924		1,763,147		(5	)	24.11		24.28		-
Realized gain (loss) on risk management contracts	(97,938	)	175,135		(156	)	(1.42	)	2.41		-
General & administrative expenses	208,482		204,724		2		3.01		2.82		7
Interest expense	133,739		99,410		35		1.93		1.37		41
Cash flow from operations (1)	1,227,765		1,634,148		(25	)	17.75		22.50		(21	)
Unrealized gain (loss) on risk management contracts	(71,020	)	(903,673	)	(92	)	(1.03	)	(12.44	)	-
Other income	230,252		250,919		(8	)	3.33		3.45		(4	)
Stock based compensation	87,371		140,536		(38	)	1.26		1.93		(35	)
Accretion	10,964		16,943		(35	)	0.16		0.23		(32	)
Depletion and depreciation	1,400,044		1,637,618		(15	)	20.24		22.55		(10	)
Income before income taxes	(111,382	)	(813,703	)	-		(1.61	)	(11.20	)	-
Deferred income tax expense	0		239,892		(100	)	0.00		3.30		(100	)
Net Income (loss)	(111,382	)	(1,053,595	)	(89	)	(1.61	)	(14.51	)	(89	)
Per Share - Basic	(0.00	)	(0.02	)
Per Share - Diluted	(0.00	)	(0.02	)

Net Debt to Cash Flow from operations

	Three months ended		Year ended
	March 31, 2012		December 31,2011
Total funds flow from operations	$	1,227,765	$	3,149,636
Annualized funds flow from operations		4,911,060		3,149,636
Total net debt	$	12,450,960	$	12,832,532
Net debt to annualized funds flow from operations		2.53		4.07

The net debt as a multiple of annualized cash flow decreased from 4.07 at December 31, 2011 to 2.53 at March 31, 2012.

Netbacks

Three months ended March 31	2012		2011		% Change
	($ / boe	)	($ / boe	)
Operating netback ($/boe)
Revenue	41.29		42.99		(4	)
Royalties	(3.98	)	(7.06	)	(44	)
Operating expenses	(13.19	)	(11.65	)	13
Operating netback per boe	24.11		24.28		(1	)
Realized gain (loss) on risk management contracts	(1.42	)	2.41		(159	)
General and administrative expenses	(3.01	)	(2.82	)	7
Interest expense	(1.93	)	(1.37	)	41
Cash flow from operations per boe	17.75		22.50		(21	)

Petro-Reef realized a combined price per boe for the three month period ended March 31, 2012 of $41.29 representing a 4% decrease compared to the realized price per unit of production of $42.99 for the same period in 2011. The price of oil increased by 3% and the price of natural gas decreased by 42% over the same period last year.

Realized losses on risk management contracts on a per unit of production basis were $1.42 for the three month period ended March 31, 2012 compared to a gain of $2.41 for the same period in 2011.

Royalties on a per unit of production basis decreased 44% to $3.98 for the three month period ended March 31, 2012 compared to $7.06 for the same period in 2011. The effective royalty rate decreased to 9.6% of gross revenue for the three month period ended March 31, 2012 from 16.4% for the same period in 2011.

Production and operating expenses on a per unit of production basis increased 13% to $13.19 for the three months ended March 31, 2012 compared to $11.65 for the same period in 2011.

Operating netbacks were $24.11/boe in Q1 2012 versus $24.28 in Q1 2011.

On a per unit of production basis general and administrative expenses increased by 7% to $3.01 and interest expense increased by 41% to $1.93 year over year.

For the three months ended March 31, 2012 cash flow netbacks per boe decreased by 21% over the same period in 2011.

Financial

At March 31, 2012 the Corporation had two operating facilities with a Canadian Chartered Bank. Facility A is a revolving operating demand loan with a maximum limit of $13,000,000. Facility B is a non-revolving acquisition/development demand loan that provides an additional $6,000,000 of financing. Interest is at prime plus 1.0% per annum for Facility A and prime plus 1.5% per annum for Facility B. Petro-Reef has the ability to borrow by way of Bankers Acceptances.

At March 31, 2012 the balance owing on Facility A was $12,064,000 (December 31, 2011 - $12,511,000) and the amount owing on Facility B was nil (December 31, 2011 - nil).

The facilities are secured by a combined $60,000,000 floating charge debenture over all the Corporation's assets with a negative pledge and undertaking to provide fixed charges on the Corporation's major producing properties at the request of the bank. The facilities are repayable on demand. The facilities have a working capital covenant whereby the total current assets (including undrawn amounts under facility A) must be greater than 1.0x total current liabilities (excluding financial instruments and certain debt instruments). Petro-Reef's working capital ratio as calculated using its Canadian Chartered Bank formula as at March 31, 2012 was 1.36 (1.86 as at December 31, 2011). Petro-Reef is in compliance with its working capital covenant.

Reserves

A new independent reserves evaluation effective May 1, 2012 has increased the Company's proven plus probable reserve base by 10.6 percent, and the value (discounted at 10 percent) by 23.5 percent. The main reason for the material increase was the inclusion of the results of the 11-12 well drilled in Q1 2012. The Company believes that further successful development drilling will continue to significantly improve our reserve base.

The independent evaluation of gross proved plus probable reserves dated May 1, 2012 based on April 1, 2012 forecast prices and costs indicated a net increase to 1,851,800 BOE from 1,674,900 BOE at December 31, 2011 after extensions, technical revisions, discoveries, acquisitions, economic factors, and production. After considering the production for the period January 1 to March 31, 2012 of 69,200 BOE, the 2012 reserve additions totalled 246,100 BOE which represents an increase of 14.7% over the 2011 year end reserves.

Using a 10% net present value ("NPV"), the value of proved plus probable reserves at forecast prices and costs (before income taxes) was $40,496,000 as compared with proved plus probable reserves of $32,792,300 as at December 31, 2011 an increase of $7,703,700.

Petro-Reef's gross proved, probable plus possible reserves at May 1, 2012 totaled 2,527,300 BOE. Using a 10% NPV, the value of proved, probable plus possible reserves at forecast prices and costs (before income taxes) totaled $55,993,100.

Proved plus probable reserves were comprised of 61% crude oil and natural gas liquids and 39% natural gas (December 31, 2011 - 53% crude oil and natural gas liquids and 47% natural gas).

Of the total proved plus probable reserves reported (using forecast prices) Petro-Reef's reserves are 57% proved and 43% probable.

Based on proved plus probable reserves and 2012 average production volume, Petro-Reef's reserve life index was 5.3 years (38.7 years remaining life) on a proved plus probable basis at May 1, 2012 compared with 5.1 years (38.7 years remaining life) at the end of 2011. Petro-Reef's reserve life index (RLI) is an indication of the number of years it would take to deplete the Company's reserves.

Forward-Looking Statements: All statements, other than statements of historical fact, set forth in this news release, including without limitation, assumptions and statements regarding reservoirs, resources and reserves, future production rates, exploration and development results, financial results, and future plans, operations and objectives of the Corporation are forward-looking statements that involve substantial known and unknown risks and uncertainties. Some of these risks and uncertainties are beyond management's control, including but not limited to, the impact of general economic conditions, industry conditions, fluctuation of commodity prices, fluctuation of foreign exchange rates, environmental risks, industry competition, availability of qualified personnel and management, availability of materials, equipment and third party services, stock market volatility, timely and cost effective access to sufficient capital from internal and external sources. The reader is cautioned that assumptions used in the preparation of such information, although considered reasonable by the Corporation at the time of preparation, may prove to be incorrect. 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.

Reference is made to barrels of oil equivalent (BOE). Barrels of oil equivalent may be misleading, particularly if used in isolation. In accordance with National Instrument 51-101, a BOE conversion ratio for natural gas of 6 Mcf: 1 bbl has been used, which is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.