Purcell Energy Ltd.

Purcell Energy Ltd.

March 23, 2005 07:00 ET

Purcell Energy Reports 2004 Year-End Reserves, Gas Discoveries At Tenaka, B.C.




MARCH 23, 2005 - 07:00 ET

Purcell Energy Reports 2004 Year-End Reserves, Gas
Discoveries At Tenaka, B.C.

CALGARY, ALBERTA--(CCNMatthews - March 23, 2005) - Purcell Energy Ltd.
(TSX:PEL) announces its oil and gas reserves and operations overview for
its 2004 year-end, as well as an update on its drilling activities at
Tenaka, B.C. during the first quarter of 2005. Gilbert Laustsen Jung
Associates Ltd. ("GLJ") prepared the reserves evaluation. As a result of
ongoing production and operations challenges at Fort Liard and an
inability to complete several well workovers prior to finalization of
the reserves report, the Company experienced a reduction in its proved
and probable natural gas reserves attributed to Fort Liard. As the
original gas in place remains unchanged, Purcell's expectation is that,
over time, optimization activity at Fort Liard would restore a
substantial amount of the lost production and support recognition of
additional reserves recovery.

This winter, the Company's three-well drilling program on its Tenaka
project was 100 percent successful. There is significant follow-up
potential with a multi-well development program scheduled to begin next
winter. All three wells were completed as Slave Point producers and
production tested. The wells are currently being tied in for production
before the end of March 2005. Purcell estimates aggregate sustained net
production of 600 to 700 barrels of oil equivalent per day ("boe/d")
from the three wells. The Company's working interest in the project
averages about 36 percent. As the drilling at Tenaka occurred after the
2004 year-end, the reserves associated with the three wells will be
booked in the first half of 2005.

December 31, 2004 Reserves Highlights

- Total gross proved plus probable reserves evaluated at forecast prices
are assessed at 13.6 million barrels of oil equivalent ("mmboe").

- Gross proved reserves evaluated at forecast prices are assessed at 8.3

- Excluding the revision of Fort Liard reserves, on a proved plus
probable basis, gross reserves additions totalled 2.38 mmboe and
replaced 139 percent of total Company production.

- Based on annualized fourth-quarter 2004 production of 4,597 boe/d,
Purcell's reserves life indices ("RLI") are 4.9 years for proved
reserves and 8.1 years for proved plus probable reserves. Based on first
quarter 2005 forecast production the RLI is 5.7 years on a proved basis
and 9.3 years on a proved plus probable basis.

- Purcell sold minor properties in 2004 aggregating proved plus probable
reserves of 1.9 mmboe.

- Technical revisions of the Fort Liard reserves of 22.5 billion cubic
feet ("bcf") reduced proved and probable natural gas reserves attributed
to Fort Liard to 21.2 bcf as a result of performance of the wells.

- On a proved plus probable basis, Fort Liard reserves are 26 percent of
total gross reserves.

- 75 percent of proved plus probable reserves are natural gas.

Tenaka, B.C. Update

The successful drilling program at Tenaka during the first quarter of
2005 will add substantial reserves and production this year to Purcell's
present base production capability of approximately 4,000 boe/d. Of even
greater importance is the potential for significant reserves and
production to be added as the project is developed over the next several
years. The Tenaka acreage includes approximately 50,000 acres of
contiguous lands west of the Adsett gas field in northeast British
Columbia. This area is about 50 kilometers south of Fort Nelson. The
wells targeted separate Slave Point prospects identified on 300 km2 of
3D seismic shot over the past two years. Each well was production tested
over several days.

Pipelines are being constructed to tie in all three wells for production
in March 2005. The gas will be moved through the Adsett facility. Wells
in the Adsett area typically have low decline rates and long-life
reserves. Purcell has identified up to 12 drilling locations on 3D
seismic, including follow-up locations to this year's drilling and other
separate prospects. Additional contingent drilling locations are being
developed. The Company expects to drill as many as six wells next
winter. The Tenaka success comes after a four year full-cycle
exploration effort by Purcell, having first acquired acreage in the area
in February 2001. The project is a testament to Purcell's strategy to
patiently build interests in large prospective land blocks in northeast
B.C. Including Tenaka, the Company currently owns approximately 136,000
net acres of undeveloped land in B.C. in high-impact deeper gas prone


Purcell has a reserves committee comprised of independent directors that
reviews the qualifications and appointment of the independent reserves
evaluator. The committee reviewed GLJ's reserves evaluation, the
processes used to determine the Company's reserves and discussed the
reserves evaluation with GLJ. Summary information is provided in this
news release. Additional disclosure, in accordance with the requirements
of NI 51-101, will be provided in the company's annual information form
to be filed with SEDAR on or before March 31, 2005.

As a direct result of well performance and the Company's inability to
complete well workovers at Fort Liard and resolve production problems
prior to issuance of the reserves evaluation, the Company's proved and
probable natural gas reserves were reduced from 43.7 bcf to 21.2 bcf for
the property. There was no reduction to the original raw gas in place
resource of 695 bcf. The reserves revision was caused by the reduction
of the estimated recovery factor assigned to proved and probable
reserves for the Fort Liard wells to a range of 20 to 30 percent from a
previous range of 45 to 55 percent. The adjacent analogue Pointed
Mountain gas pool that produced a total of 320 bcf of sales gas
recovered an estimated 55 percent of the original raw gas in place over
its twenty-year life.

In Purcell's view, the main difference between the Fort Liard wells and
the Pointed Mountain wells is that the Fort Liard wells were completed
open-hole, whereas the Pointed Mountain wells were cased. Purcell
believes that well workovers and recompletions of the existing Fort
Liard wellbores have the potential to significantly reduce water
production and thereby enhance the ultimate recovery factor for the gas
pool. In the past five years the gas pool produced approximately 94 bcf
of sales gas. Prior to operations currently underway at Fort Liard, no
attempts have been made to recomplete the wells by targeting and
shutting-off specific water producing fractures. The current operations
include conducting production logging of the wells to identify gas and
water-producing fractures, installation of packers to isolate water
production and implementation of gas-lift where required. As validation
of this strategy, the 3K-29 well drilled in early 2004 but previously
considered unproductive, recently produced gas for the first time. A
number of operations will be completed prior to spring break-up, with
the balance to be finished later in the second quarter of 2005.
Purcell's net share of costs associated with these operations is
estimated to be $2.5 million. The property's current production is
approximately 800 boe/d net to Purcell, or about 20 percent of current
total Company production of approximately 4,000 boe/d. Successful
workovers could increase net production from Fort Liard to over 1,500

In other areas, during 2004 the Company added reserves at Pembina,
Doris, Pigeon Lake, and Penhold in central Alberta, and Tatagwa in
southeast Saskatchewan. Sales of several minor properties during the
year reduced proved and probable reserves by an aggregate of
approximately 1.9 mmboe.

The December 31, 2004 GLJ evaluation was prepared utilizing the
methodology and definitions in National Instrument 51-101 ("NI 51-101").
The reserves are presented as the total Company interest reserves before
royalties ("Gross Reserves") and after the deduction of royalties ("Net
Reserves"). The numbers in the following tables may not add due to

Summary of Oil and Gas Reserves
Forecast Prices and Costs
As at December 31, 2004

Crude Oil Heavy Oil NGLs Gas
(mbbls) (mbbls) (mbbls) (mmcf)
Gross Net Gross Net Gross Net Gross Net
producing 1,437 1,211 436 397 387 257 25,743 20,427
non-producing 85 73 0 0 163 109 6,450 4,866
Undeveloped 8 3 0 0 81 54 1,933 1,573
Total Proved 1,530 1,286 436 397 631 420 34,126 26,866
Probable 433 369 104 94 223 156 27,311 21,521
Total Proved
Plus Probable 1,963 1,656 540 491 854 577 61,436 48,387

2004 Total 2003 Total
Reserves (mboe) Reserves (mboe)
Gross Net Gross Net
Developed producing 6,550 5,269 9,338 7,255
Developed non-producing 1,324 993 1,226 914
Undeveloped 410 319 3,023 2,270
Total Proved 8,284 6,581 13,587 10,439
Probable 5,312 4,207 5,000 3,766
Total Proved Plus Probable 13,596 10,788 18,587 14,205

Summary of Oil and Gas Reserves
Constant Prices and Costs
As at December 31, 2004

Crude Oil Heavy Oil NGLs Gas
(mbbls) (mbbls) (mbbls) (mmcf)
Gross Net Gross Net Gross Net Gross Net
producing 1,498 1,267 424 386 393 260 26,193 20,712
non-producing 89 75 0 0 164 109 6,469 4,878
Undeveloped 8 3 0 0 81 54 1,989 1,623
Total Proved 1,595 1,346 424 386 637 423 34,651 27,212
Probable 487 415 111 101 224 156 27,231 21,220
Total Proved
Plus Probable 2,081 1,761 535 487 861 579 61,882 48,432

2004 Total 2003 Total
Reserves (mboe) Reserves (mboe)
Gross Net Gross Net
Developed producing 6,680 5,366 9,563 7,425
Developed non-producing 1,331 997 1,229 909
Undeveloped 420 328 3,011 2,252
Total Proved 8,431 6,690 13,803 10,586
Probable 5,360 4,209 5,063 3,795
Total Proved Plus Probable 13,791 10,899 18,865 14,381

Reconciliation of Reserves
Forecast Prices and Costs (mboe)

Total Gross Reserves Total Net Reserves
Proved Probable Total Proved Probable Total
December 31, 2003 13,590 5,000 18,590 10,439 3,765 14,205
Extensions 1,540 390 1,930 860 339 1,199
Technical Revisions (3,850) 320 (3,530) (2,745) 472 (2,273)
Improved Recovery 20 10 30 349 (17) 332
Discoveries 120 60 180 98 40 138
Acquisitions 0 0 0 0 0 0
Dispositions (1,420) (470) (1,890) (1,149) (376) (1,525)
Economic Factors 0 0 0 44 (16) 28
Production (1,710) 0 (1,710) (1,316) 0 (1,316)
December 31, 2004 8,280 5,320 13,600 6,581 4,208 10,789

Summary of Net Present Values ($000s)
Forecast Prices and Costs, Before Income Taxes
As at December 31, 2004

Discounted per year at 0% 8% 10%
Developed producing 111,208 79,424 75,072
Developed non-producing 28,375 19,298 18,068
Undeveloped 5,081 2,910 2,622
Total Proved 144,664 101,632 95,762
Probable 104,054 63,356 57,972
Total Proved Plus Probable 248,717 164,987 153,733

Summary of Net Present Values ($000s)
Constant Prices and Costs, Before Income Taxes
As at December 31, 2004

Discounted per year at 0% 8% 10%
Developed producing 121,699 86,239 81,119
Developed non-producing 31,344 21,569 20,151
Undeveloped 6,114 3,667 3,319
Total Proved 159,157 111,475 104,589
Probable 116,926 73,114 66,914
Total Proved Plus Probable 276,084 184,589 171,503

2004 Operations

In 2004, Purcell drilled a total of 38 (15.9 net) wells, resulting in 24
(10.1 net) gas wells, 8 (3.3 net) oil wells and 6 (2.5 net) dry holes,
for an 84 percent success ratio. Much of the Company's drilling targeted
lower risk development opportunities in areas such as Pembina, Doris,
Penhold, Pigeon Lake and Tatagwa where most of the production was added
in the third and fourth quarters. In November several wells at Pigeon
Lake commenced production at a sustained level of 250 boe/d net to
Purcell. Additional drilling of up to five wells on the Pigeon Lake
lands is slated for the second and third quarters of 2005. Three wells
were tied in at Pembina in the fourth quarter that increased sustained
production from the area to 350 boe/d net. Two more wells drilled last
year will be tied in for production in early April, which is expected to
add 250 boe/d net. A multi-well drilling program at Pembina will
commence in the second quarter after spring break-up.


In the twelve month period ended December 31, 2004, Purcell's production
averaged 4,679 boe/d compared to 4,220 boe/d in 2003. Production was
fairly steady throughout the year with declines at Fort Liard and
production lost through asset sales effective July 1, 2004 being offset
by new production from drilling and field optimization. The Company's
production was weighted 74 percent to natural gas.

In the fourth quarter of 2004, production averaged 4,597 boe/d, weighted
72 percent to natural gas. Fort Liard contributed 1,100 boe/d (24
percent) to production in the fourth quarter compared to 1,700 boe/d (35
percent) in the first quarter of 2004.

Production for the first quarter of 2005 is now expected to average
4,000 boe/d. This is lower than the previous forecast of 4,300 boe/d due
to no contribution from restored production from Fort Liard workovers.
Production in the first quarter was expected to be less than fourth
quarter 2005 because of the sale effective December 31, 2004 of minor
properties with production of 320 boe/d. However, with the new
discoveries at Tenaka and new well tie-ins at Pembina, Penhold and Doris
in Alberta, and Milo, B.C., production is still forecast to average
5,000 boe/d in the second quarter, with the potential to have average
production for 2005 of 5,300 to 5,400 boe/d. The 2005 forecast remains
dependant on the timing of various projects, in particular the
completion of well workovers at Fort Liard.

Fort Liard Strategic Options

Over the past two years, Purcell's production from the Fort Liard
property has been volatile and unpredictable. Also, production has
declined significantly. This has made it difficult to reliably forecast
total Company production and the resulting cash flow. In addition,
capital has been invested without the expected production results. All
of this has meant that the Company's positive results and solid growth
in other areas have been overwhelmed by the ongoing challenges at Fort
Liard. Purcell is investigating a number of strategic alternatives for
the Fort Liard property. These include retaining the property and
continuing with the current remedial field operations, selling the
property at an appropriate time in the future, spinning the property
into a separate stand-alone entity, or other creative alternatives.
There is no fixed time frame for deciding on the appropriate strategy.

Purcell plans to release its 2004 financial and operating results on or
before March 31, 2005.

Purcell is a Canadian junior oil and gas company with producing
properties and exploratory prospects in Alberta, Saskatchewan, British
Columbia and the Northwest Territories. Through a balance of
exploration, development and asset exploitation, Purcell has built a
diversified production base in its core areas in western Canada. Purcell
strives to grow its production and reserves to increase shareholder
value, while exposing its shareholders to significant upside potential
from high-impact exploration plays. Purcell's growth will be driven by
internally generated prospects on approximately 304,000 net acres of
undeveloped land, of which about 136,000 net acres are in northeast
British Columbia.

This news release contains forward-looking financial and operational
information with respect to Purcell, including earnings, cash flow,
production, and capital expenditures projections. These projections are
based on the Company's expectations and are subject to a number of risks
and uncertainties that could cause actual results to differ materially
from forecasts. These risks and uncertainties include general economic,
market and business conditions, commodity prices, well production rates,
drilling success, timing, the imprecise nature of reserves estimates,
service industry conditions, and the successful implementation of the
company's business strategy. There is no representation by Purcell that
actual results achieved during the forecast period will be the same, in
whole or in part, as those forecast.


In this news release the term barrel of oil equivalent ("boe") may be
misleading, particularly if used in isolation. A boe conversion ratio of
one boe for 6,000 cubic feet of natural gas is based on an
energy-equivalency conversion method primarily applicable at the burner
tip and does not represent a value equivalency at the wellhead. All boe
conversions in this news release are derived by converting gas to oil in
the ratio of six thousand cubic feet of gas to one barrel of oil.


Contact Information

    Purcell Energy Ltd.
    Jan M. Alston
    President & C.E.O.
    (403) 269-5803
    Purcell Energy Ltd.
    Bruce Murray
    (403) 269-5803
    Iradesso Communications Corp.
    Peter D. Knapp
    (403) 503-0144 ext. 202