Exall Energy Corporation announces results for the three months ended June 30, 2012

CALGARY, Aug. 14, 2012 /CNW Telbec/ - Exall Energy Corporation ("Exall " or the "Company") (TSX: EE) is pleased to announce its International Financial Reporting Standards ("IFRS") compliant financial and operating results for the three months ended June 30, 2012.  Exall's public filings can all be found at www.exall.com or www.sedar.com.

Highlights:

• Interpretation of the 56 section 3D seismic program in the Mitsue area acquired in the first quarter of 2012 is progressing with initial indications of 20 Tier I, 12 Tier II and 46 Tier III locations identified on nine Gilwood channel trends (a description of Tier criteria is attached in the main body of this press release),
  
  
• Four enhanced recovery applications submitted to the ERCB in 2012 have been approved to date with one new well active, starting injection April 1, 2012,
  
  
• Two additional water injection wells in projects which had previously been approved by the ERCB were given Directive 51 Operational Approval to initiate injection, effective June 6, 2012 with injection commencing immediately thereafter,
  
  
• Injection of produced water into the Water Disposal Well drilled and completed by Exall during Q1 has begun on a temporary basis and upon completion of the short tie-in to the battery is expected to reduce trucking and disposal costs by $50,000 per month net to Exall,
  
  
• Field construction of the main power line by ATCO has been completed with installation of distribution system ongoing with substantial savings in rental and fuel costs upon completion, expected to be approximately $100,000 per month net to Exall,
  
  
• The first well of the summer-fall program has been successfully drilled horizontally, completed and placed on production at the rate of 275 bopd (198 bopd net) through the Exall gathering and treating facilities, and
  
  
• The second well of the program has been drilled horizontally into over 200 meters of excellent reservoir quality sand and cased, and is waiting on completion and testing.
  

HIGHLIGHTS	Three months ended June 30				Six months ended June 30
(in thousands of Canadian dollars)	2012	2011	% change		2012	2011	% change
Financial ($)
Gross sales	7,794	7,459	4		16,398	14,842	10
Funds from operations	4,289	3,484	23		8,416	7,663	10
Netback per boe (6:1) ($)	55.70	52.82	5		53.78	50.50	6
Funds from operation per share - basic	0.07	0.06	17		0.13	0.16	(19)
Comprehensive income	1,209	1,445	(16)		2,274	3,202	(29)
Comprehensive income per share - basic	0.02	0.02	-		0.04	0.05	(20)
Capital expenditures, net	4,742	6,667	(29)		32,909	18,693	76
Net debt (excluding convertible debentures)					35,497	12,789	338
Convertible debentures					23,000	-	100

Production

Exall's average daily production for the second quarter of 2012 increased 23 percent to 1,106 barrels of oil per day ("boe/d") from 896 boe/d in the second quarter of 2011. As at June 30, 2012 Exall's net exit production rate and productive capacity were as outlined below:

Field		Net Wells		Current Net Production BOEPD		Expected Timing
Allowable Production
	Marten Mountain, Alberta	9.8		1,169
	Jayar, Alberta	3.6		60
	Overlea, Alberta	2.0		16
	Bow Island, Alberta	0.2		2
Total Allowable Production				1,248
Current Test Production
	Marten Mountain, Alberta	0.0		0
Current Over Production (NOWPP)*
	Marten Mountain, Alberta	0.0		0
Total Current Production				1,248
Current Shut In Allowable Production
	Re- Pressure Reservoir and Optimization	1.4		340		August 2012
	New Drill Behind Pipe	0.7		150		September 2012
Company Productive Capability		16.3		1,734

*NOWPP = New Oil Well Production Period

Low reservoir pressure in the eastern extent of the South Marten Mountain waterflood project resulted in reduced production from four wells. An application was submitted for an amended waterflood scheme which included the addition of three producing wells to the scheme and conversion of one well to water injection. Exall has received approval by the ERCB for the amended waterflood scheme. Water injection in the eastern extent of the South Marten Mountain waterflood project commenced April 1, 2012. Once pressure has been re-established, production from the three wells included in the amended application should net Exall approximately 340 BOEPD.

Outlook

Exall has continued to focus its capital in development of its Gilwood Channel Play in the Marten Mountain Prospect area through the first half of 2012.  Five gross (3.28 net) wells have been spud with seven gross (4.66 net) wells drilled and cased through the first six months of 2012 adding three gross (2.13 net) producing wells which were tied in and were on stream by June 30, 2012 through Company-owned pipeline and battery facilities.  One gross (0.72 net) Water Source well and one gross (0.36 net) Water Disposal well were drilled, completed and tied in during the first half of 2012.

During the first quarter of 2012, Exall successfully completed the proprietary data acquisition of 51 sections of an 86 section 3D seismic programs in the Mitsue area. During the second quarter of 2012 the data was processed and interpreted. Interpretation of the 56 section 3D seismic program in the Mitsue area acquired in the first quarter of 2012 is progressing with initial indications of 20 Tier I, 12 Tier II and 46 Tier III locations identified on nine Gilwood channel trends. The following table is a description of Tier criteria utilized in the identification of these locations:

	Tier I	Tier II	Tier III
Number of Locations	20	12	46
Chance of Success %	75%	50%	25%
Proximity to Production	Less than 1 mile direct offset to production	1-2 mile 'reasonable' extension to production	Greater than 2 miles or not on established trend
Continuity	Seismic 'channel' anomaly contiguous to production	May have breaks in continuity, clarity	May be removed from proven production trends
Seismic Consistency	Consistent thru versions, filters	Consistent thru versions, filters but shows more variability	Inconsistent thru versions, filters
Well Control/Risk Profile	Dev NC & Outpost, infill or stepout wells, low risk	Outpost, de-risked thru drilling Tier I, low to med risk	Outpost and NPW, de-risked thru drilling Tier I & II, med to high risk
Exall Internal Reserves Category	PUD and Probable	Probable to Possible	Possible to Contingent

Four enhanced recovery applications submitted to the ERCB in early 2012 have been approved to date with one new water injection well active, starting injection April 1, 2012.

Two additional water injection wells in projects which had previously been approved by the ERCB were given Directive 51 Operational Approval to initiate injection, effective June 6, 2012 with injection commencing immediately thereafter. The Directive 51 Operational Approval is the final step in the ERCB requirements and is necessary prior to initiating injection.

The fourth approval includes the three "Seismic Channel" wells. A permanent road, under construction, is expected to be completed by the end of the month. Drilling of a water source well and conversion of the injection well is expected be completed during Q3, with injection beginning thereafter.

Injection of produced water into the Water Disposal Well drilled and completed by Exall during Q1 has begun on a temporary basis and upon completion of the short tie-in to the battery is expected to reduce trucking and disposal costs by $50,000 per month net to Exall.

Field construction of the main power line by ATCO has been completed with installation and equipping of the wellsite distribution systems ongoing. Upon completion of the power system Exall will terminate rental of six generators currently utilized to generate power for high-output submersible pumps and a rental sales gas compressor. The cost saving of the rentals and associated diesel fuel is expected to be approximately $100,000 per month net to Exall.

Finally, the summer-fall drilling program has begun. The first two wells in the summer-fall program were re-entry horizontal wells drilled from existing multi well pads with facility tie-ins. The locations allow for direct tie-in on wellsite into a pipeline header designed for the anticipated successful wells which significantly accelerates the on production date.

The first well of the program, located in the southern pool area, was a re-entry side-track of a well drilled in Q1. The original well was drilled horizontally into an zone of clean sand with good gas shows, although apparently poor permeability. The well  has been successfully drilled horizontally, completed and placed on production at the rate of 275 bopd (198 bopd net) through the Exall gathering and treating facilities.

The second well of the drilling program, located at the north end of the Marten Mountain trend and on the seismically defined channel extension, was a re-entry sidetrack from a vertical well which intersected a clean, thick sand with low permeability. The well has been drilled horizontally into over 200 meters of excellent reservoir-quality sand and cased. Completion and testing is scheduled for the coming week and it is expected that the well will be placed on production in early September. The well is located on the Exall North Road, a newly built all-weather access road which will allow year-round access to a number of new well pads.

Exall is a light oil-weighted company with high operating margins. This puts the Company in a favorable position to exploit existing opportunities and potentially take advantage of opportunities that arise. Exall will continue to focus on organic growth through exploitation and expansion of its existing oil producing properties.

Results of Operations

Production

		Three months ended June 30						Six months ended June 30
Daily production		2012		2011		% Change		2012		2011		% Change
Oil (bbl/d)		1,004		757		33		1,004		827		21
NGLs (bbl/d)		25		22		14		20		24		(16)
Natural gas (mcf/d)		464		698		(34)		531		715		(26)
Total production (boe/d) (6:1)		1,106		896		23		1,112		970		15

Production for the second quarter of 2012 averaged 1,106 boe/d a 23 percent increase over the same quarter in 2011.  On a year over year basis production has increased 15 percent to 1,112 boe/d in 2012 due primarily to the continued drilling success at Marten Mountain / Mitsue, Alberta.

For the Six months ended June 30, 2011 oil and natural gas liquids accounted for 92 percent of production which is expected to increase as the oil production from additional successful drills in the Marten Mountain area of Alberta are placed on production.

Commodity Pricing

		Three months ended June 30						Six months ended June 30
Average sales prices realized		2012		2011		% Change		2012		2011		% Change
Oil ($/bbls)		83.01		102.22		(19)		87.37		93.65		(7)
NGLs ($/bbls)		51.59		65.80		(22)		57.20		62.63		(9)
Natural gas ($/mcf)		2.25		4.46		(50)		2.37		4.28		(45)
Weighted average ($/boe) (6:1)		77.44		91.52		(15)		81.01		84.54		(4)

The average price received per boe in the second quarter of 2012 decreased 15 percent over the same period in 2011 to $77.44. The average price received per boe in the first Six months of 2012 decreased 4 percent over the same period in 2011 to $81.01.

The price for light, sweet oil at Edmonton in 2012 averaged $81.68 per barrel in the second quarter and $86.53 for the first six months of 2012, down from an average of $95.56 for the first six months of 2011.  Alberta natural gas at AECO averaged $1.90 per mcf in the second quarter of 2012, $2.15 per mcf for the first Six months of 2012 and is currently trading at approximately $2.46 per mcf.

The Company's Marten Mountain oil production attracts a price approximating the Edmonton light, sweet oil price due to its high quality.  The Company's Marten Mountain gas production attracts a premium price due to its high heat content. The Company has not entered into any commodity hedges to date.

Oil and Gas Production Sales

		Three months ended June 30								Six months ended June 30
		2012				2011				2012				2011
		$		%		$		%		$		%		$		%
Oil		7,582		97		7,044		94		15,961		97		14,019		94
NGLs		117		2		131		2		208		1		270		2
Natural gas		95		1		284		4		229		2		553		4
Total		7,794		100		7,459		100		16,398		100		14,842		100

Oil and gas sales in the second quarter of 2012 increased 4 percent from the same period in 2011 as a result of the 23 percent increase in production and the 15 percent decrease in commodity prices received on a period over period basis. For the six months ended June 30, 2011 oil and gas sales increased 10 percent to $16,398 with oil and liquids sales contributing 98 percent of the sales.  The 10 percent increase for the six months ended June 30, 2011 from the same period in 2011 was a result of the 15 percent increase in production and the 4 percent decrease in commodity prices received on a period over period basis.

Royalties

		Three months ended June 30						Six months ended June 30
		2012		2011		% Change		2012		2011		% Change
Royalties $		856		2,220		(61)		2,767		4,275		(35)
Average royalty rate (%)		11		30		(63)		17		29		(41)
Royalties ($/boe)		8.51		27.24		(69)		13.67		24.35		(44)

The decreased royalty rate and royalties per boe paid in the second quarter of 2012 is reflective of two facts; 1) during the second quarter of 2012 commodity prices declined by approximately 15 percent from those received during the second quarter of 2011, and 2) Exall had a significant amount of its production coming from the 3.0 gross (2.13 net) wells brought on during the later part of the first quarter that were producing under the Now Oil Well Production Period and as such were paying a maximum royalty rate of 5 percent.

The decreased royalty rate and royalties per boe paid in the first six months of 2012 is reflective of two facts; 1) during the first six months of 2012 commodity prices declined by approximately 4 percent from those received during the first six months of 2011, and 2) Exall had a significant amount of its production coming from the 3.0 gross (2.13 net) wells brought on during the later part of the first quarter that were producing under the Now Oil Well Production Period and as such were paying a maximum royalty rate of 5 percent.

Oil and Gas Production Expenses

		Three months ended June 30						Six months ended June 30
$		2012		2011		% Change		2012		2011		% Change
Operating expenses		1,332		978		36		2,744		1,701		63
Operating expenses ($/boe)		13.23		12.00		10		13.56		6.68		103

Operating expenses in the second quarter of 2012 increased 36 percent from the same period in 2011, primarily as a result of; 1) increases in operator costs by $33, reflective of increased production operations, 2) increased equipment rental costs of $119, associated with the rental of a second compressor, costs which were substantially reduced with the installation of the electric drive compressor in the second quarter of 2012, 3) increased fuel and power costs of $122 as a result of the rental of the second compressor, costs which were significantly reduced with the installation of the electric drive compressor in the second quarter of 2012, and 4) increased costs associated with equipment maintenance of $$61, costs which will be reduced as a result of the installation of the electric drive compressor in the second quarter of 2012.  On a per boe basis, operating costs increased 10 percent, to $13.23 per boe due the previous items listed.

For the reasons stated above, the operating expenses for the six months ended June 30, 2011 increased 63 percent from the same period in 2011, and on a per boe basis, operating costs increased 103 percent, to $13.56. Management is confident that as production increases during the remaining six months of 2012, and with the completion of the installation of the electric drive compressor at the Company's Mitsue battery in June of 2012, the per boe cost of operations will return to more historical levels.

Operating Netback

Exall realized the following netbacks from oil and gas operations:

		Three months ended June 30						Six months ended June 30
Netback per boe (6:1) $		2012		2011		% Change		2012		2011		% Change
Production revenue		77.44		91.52		(15)		81.01		84.54		(4)
Royalties		8.51		27.24		(69)		13.67		24.35		(44)
Operating expenses		13.23		12.00		10		13.56		9.69		103
Operating netbacks ($/boe)		55.70		52.82		5		53.78		50.50		6

Operating netbacks in the second quarter of 2012 increased 5 percent to $55.70 per boe compared to the second quarter 2011 operating netbacks of $52.82 per boe.  This is primarily the result of the overall royalty price improvement of 69 percent on a second quarter over second quarter basis.

On a six month period over six month basis, 2012 operating netbacks increased by 6 percent to $53.78 per boe.  Again, this is primarily the result of the overall royalty price improvement of 44 percent on a six month over six month basis The decreased royalty rate and royalties per boe paid in the first six months of 2012 is reflective of two facts; 1) during the first six months of 2012 commodity prices declined by approximately 4 percent from those received during the first six months of 2011, and 2) Exall had a significant amount of its production coming from the 3.0 gross (2.13 net) wells brought on during the later part of the first quarter that were producing under the Now Oil Well Production Period and as such were paying a maximum royalty rate of 5 percent.

Abandonment Expense

		Three months ended June 30						Six months ended June 30
$ 000		2012		2011		% Change		2012		2011		% Change
Abandonment expenses, gross		-		-		-		402		-		100
Abandonment liabilities settled		-		-		-		(51)		-		100
Abandonment expenses, net		-		-		-		351		-		100
Abandonment ($/boe)		-		-		-		1.74		-		100

The abandonment expense represents the expense incurred above the carrying value of the decommissioning liabilities. During the first six months of 2012 Exall incurred $351, or $1.74 per boe, of decommissioning cost in order to abandon one water source well and one water injection well in the Overlea are of Mitsue, Alberta. The water source well was originally drilled in 2004, while the water injection well was drilled in 2002. These expenses are not indicative of the costs to abandon wells in the area as Exall encountered cementing problems during the abandonment operations.

Depletion, Depreciation and Amortization ("DD&A")

		Three months ended June 30						Six months ended June 30
$		2012		2011		% Change		2012		2011		% Change
Depletion & Depreciation		2,319		1,430		62		4,688		2,966		58
Amortization		4		3		33		8		6		33
Total		2,323		1,433		62		4,696		2,972		58
DD&A ($/boe)		23.09		17.59		31		23.20		16.92		37

Depletion is calculated using the unit-of-production method based on total estimated proved plus probable reserves.  DD&A for the second quarter of 2012 was $2,323 compared to $1,433 for the same period in 2011. DD&A in for the first six months of 2012 was $4,969 or $23.20 per boe compared to $2,972 or $16.92 per boe for the same period in 2011.  DD&A expense per boe in 2012 has increased from 2011; a result of continued successful drilling operations at Marten Mountain, Alberta. It is this continued drilling success which management believes will lead to increased reserve assignments by the Company's third party Reserve Engineers at year end resulting in DD&A per boe rates being reduced to more historical levels.

Administration Expenses

		Three months ended June 30						Six months ended June 30
$		2012		2011		% Change		2012		2011		% Change
Administration, gross		649		706		(8)		1,441		1,320		9
Overhead recoveries		(110)		(56)		96		(583)		(318)		83
Administration, net		539		650		(17)		858		1,002		(14)
Administration ($/boe)		5.36		7.98		(33)		4.24		5.71		(26)

General and administration costs represent the costs required to effectively operate a public company. The increase in costs from 2012 reflect the increased cost of staffing commitments made in conjunction with the increased production and capital expenditures in 2012 and 2011 as Exall continues to achieve positive results with regard to its drilling program in the Marten Mountain, Mitsue area.

General and administration expenses per boe in 2012 have decreased 33 percent from 2011 on a quarter over quarter basis, as a result of the 23 percent increase in production combined with the 8 percent decrease in gross administrative costs and the 96 percent increase in overhead recoveries.  General and administration expenses per boe in 2012 have declined 26 percent from 2011, on a year over year basis due to increased overhead recoveries as a result of the increased capital expenditures in 2012 and as a result of the increased production, a result of continued successful drilling operations at Marten Mountain, Alberta.  Management is continually monitoring general and administrative expenses to ensure that they are being managed effectively and efficiently.

Share Based Payment Expense

		Three months ended June 30						Six months ended June 30
$		2012		2011		% Change		2012		2011		% Change
Stock-based compensation		219		167		31		499		264		89
SBC ($/boe)		2.17		2.05		6		2.47		1.50		65

The share based payment expense represents the expense for options granted and are recorded over the vesting period of the options. Additional unamortized stock-based compensation costs will be charged to income over the remaining vesting period of the options outstanding as well as any additional options that may be granted in the future.  See note 9 of the June 30, 2012 interim financial statements for additional details on the options granted and outstanding.

Exall recorded $219 or $2.17 per boe of non-cash, stock based compensation expense for the three months ended June 30, 2012 and $499 or $2.47 per boe for the first six months of 2012. In comparison, Exall recorded $167 or $2.05 per boe of non-cash, stock based compensation expense for the three months ended June 30, 2011 and $264 or $1.50 per boe for the first six months of 2011.

Financing Costs

		Three months ended June 30						Six months ended June 30
$		2012		2011		% Change		2012		2011		% Change
Accretion expense - decommissioning liabilities		9		9		-		18		18		-
Accretion expense - convertible debentures		95		-		100		98		-		100
Interest		780		126		514		1,209		201		501
		884		135		550		1,325		219		505
Interest ($/boe)		7.75		1.66		367		5.97		1.25		378

Financing costs represent the costs required to effectively finance the capital program of Exall. Exall recorded $1,209 or $5.97 per boe of interest expense for the six months ended June 30, 2012. In comparison, Exall recorded $201 or $1.25 per boe of interest expense for the six months ended June 30, 2011. The significant increase in interest expenses from 2011 are directly attributable to the convertible debenture financing completed by the Corporation on March 29, 2012 and April 11, 2012 and the increased capital expenditures in 2012 as compared to 2011.

Additionally, Exall recorded $116 or $0.57 per boe of accretion expenses for the six months ended June 30, 2012. In comparison, Exall recorded $18 or $0.11 per boe of accretion expense for the six months ended June 30, 2011.

Comprehensive Income and Funds from Operations

		Three months ended June 30				Six months ended June 30
$ 000		2012		2011		2012		2011
Comprehensive income		1,209		1,445		2,274		3,202
Basic per share		0.02		0.02		0.04		0.05
Diluted per share		0.02		0.02		0.04		0.05
Funds from operations		4,289		3,484		8,416		7,663
Basic per share		0.07		0.06		0.13		0.16
Diluted per share		0.05		0.05		0.11		0.12

Liquidity and Capital Resources

Exall has a revolving demand credit facility with a Canadian chartered bank for $36.0 million that bears interest at the lender's base prime rate plus 1.50 percent which is reviewed periodically by the bank. At June 30, 2012, the Company had approximately $35.1 million outstanding on its revolving credit facility and an approximate working capital deficit, excluding bank indebtedness, of $0.4 million for total net debt of approximately $35.5 million. As at June 30, 2012, the Company was in compliance with the working capital covenant on its loan facility.

During the six month period ended June 30, 2012, the Company used funds received through its March 2012 and April 2012 brokered convertible debenture private placement and cash flow from operations to fund capital expenditures and other financial requirements.  In 2012, the Company's capital expenditures will be limited by the cash flow available from operations, additional debt or equity as market conditions may allow and potential asset sales if the Company so chooses.

On March 8, 2012, Exall announced that its bought deal offering, announced March 7, 2012, of 7.75% convertible unsecured subordinated debentures maturing March 31, 2017 (the "Debentures"), had been increased by $10 million, to $20 million.  The offering was underwritten by a syndicate of underwriters co-led by Stonecap Securities Inc. and Emerging Equities Inc. and including Acumen Capital Finance Partners Limited, Dundee Securities Ltd. and Raymond James Ltd.  Exall also granted the underwriters an over-allotment option to purchase up to an additional $3 million of Debentures on the same terms, exercisable in whole or in part for a period of 30 days following closing.  On April 11, 2012 the over-allotment option was exercised in full, as such the total gross proceeds to Exall from the sale of the Debentures was $23 million.

As part of its capital management program, Exall compares its net corporate debt (the total amount of bank loan, net of working capital, excluding convertible debetures) to the annual, or annualized, funds from operations before changes in working capital (See Advisories - Non-GAAP Measurement - Funds Flow). Maintaining a ratio of less than 2:1 is a Company target but can be subject to significant short-term fluctuations.

Debt to Funds From Operations Ratio^(1)		Funds From Operations in Quarter		Annualized		Net Corporate Debt		Debt to Funds From Operations
2010 Q3 - September 30, 2010		3,837		15,348		10,492		0.7
2010 Q4 - December 31, 2010		3,023		12,092		14,174		1.2
2011 Q1 - March 31, 2011		4,179		16,716		9,806		0.6
2011 Q2 - June 30, 2011		3,484		13,936		12,789		0.9
2011 Q3 - September 30, 2011		4,715		18,860		24,204		1.3
2011 Q4 - December 31, 2011		6,274		25,096		32,645		1.3
2012 Q1 - March 31, 2012		4,127		16,508		37,971		2.3
2012 Q2 - June 30, 2012		4,287		17,148		35,497		2.1
(1) See Advisories Non-GAAP Measurements - Funds From Operations

While Q2 2012 debt to funds from operations are higher than the targeted 2:1 ratio, the debt was incurred in order to complete the aggressive 56 section 3D seismic program and the aggressive land acquisition program which has yielded an increase of 134,815 net acres. The results of the 3D Seismic program are expected to de-risk multiple drilling locations on a significant portion of the acreage acquired from Q2 2011 to Q1 2012. Had the 3D Seismic program and the land acquisition programs not been completed the debt to funds from operations would have been approximately 1.4:1.

Going Concern Assessment

The consolidated financial statements have been prepared on a going concern basis which contemplates the realization of assets and the discharge of liabilities in the normal course of business for the foreseeable future. As at June 30, 2012, the Company had a working capital deficit, excluding bank indebtedness, of $420, a cash flow from operating activities of $8,416 and a comprehensive income of $2,274, and for the 3 months ended June 30, 2012, a cash flow from operating activities of $4,289 and a comprehensive income of $1,209.

On March 8, 2012, Exall announced that its bought deal offering, announced March 7, 2012, of 7.75% convertible unsecured subordinated debentures maturing March 31, 2017 (the "Debentures"), had been increased by $10 million, to $20 million.  The offering was underwritten by a syndicate of underwriters co-led by Stonecap Securities Inc. and Emerging Equities Inc. and including Acumen Capital Finance Partners Limited, Dundee Securities Ltd. and Raymond James Ltd.  Exall also granted the underwriters an over-allotment option to purchase up to an additional $3 million of Debentures on the same terms, exercisable in whole or in part for a period of 30 days following closing.  On April 11, 2012 the over-allotment option was exercised in full, as such the total gross proceeds to Exall from the sale of the Debentures was $23 million.

Fair Value of Financial Instruments

The Company's financial instruments as at June 30, 2012 include cash, accounts receivable, accounts payable, accrued liabilities, convertible debentures and the bank indebtedness.  The fair value of accounts receivable, accounts payable and accrued liabilities approximate their carrying amounts due to their short terms to maturity.  The Company's bank debt bears interest at a floating market rate and accordingly the fair market value approximates the carrying value.  The Company's convertible debentures have been classified as debt, net of issue costs and net of the value of the conversion feature at the date of issue which has been classified as part of shareholders' equity. The liability portion is measured at amortized cost and will accrete up to the principal balance at maturity using the effective interest rate method. The accretion and the interest paid are expensed as a finance expense in the consolidated statement of earnings and comprehensive income. The value of the conversion feature was determined at the time of issue as the difference between the principal value of the debentures and the discounted cash flows assuming a 9.00% rate for the 7.75% debentures. Additional information concerning the Company's financial instruments and related risks are in note 14 to the consolidated financial statements.

Capital Expenditures

		Three months ended June 30						Six months ended June 30
$		2012		2011		% Change		2012		2011		% Change
Land		-		1,579		(100)		225		1,950		(88)
Geological & Geophysical		238		43		453		9,511		1,774		436
Drilling and completions		2,646		4,226		(37)		17,514		12,606		39
Equipping, Tie-ins & Facilities		1,857		818		127		5,657		2,363		139
Administrative assets		1		-		100		2		-		100
Exploration & development expenditures		4,742		6,667		(28)		32,909		18,693		76
Asset retirement costs		80		34		135		114		55		107
Total Capital Expenditures		4,822		6,701		(28)		33,023		18,748		76

Oil and gas property expenditures were $4,742 for the second quarter of 2012.  During the second quarter of 2012 the Company began the drilling operations on the first well of the summer-fall program. The well, located in the southern pool area, is a re-entry side-track of a well drilled in Q1. The well was drilled horizontally into an zone of clean sand with good gas shows, although apparently poor permeability. The side-track is planned to intersect better quality reservoir in a more central channel location, with completion of the well scheduled to occurr during the third quarter of 2012. Oil and gas exploration and development expenditures were $6,667 for the second quarter of 2011.  During the second quarter of 2011 the Company participated in drilling of 1.0 gross wells (0.7 net), in the Marten Mountain / Mitsue area.

The Company has acquired additional rights in 25,600 gross (20,851 net) acres of undeveloped land in the Mitsue area, during the six months ended June 30, 2012. As at June 30, 2012, the Company had 195,520 gross acres (145,096 net acres) of undeveloped land in Canada, primarily in the Marten Mountain / Mitsue area of Alberta.

Drilling Activities

		Drilled				Completed				Tied In				Dry
Periods ended June 30, 2012		3 Mnths		6 Mnths		3 Mnths		6 Mnths		3 Mnths		6 Mnths		3 Mnths		6 Mnths
Gross		0.00		5.00		0.00		6.00		0.00		3.00		0.00		0.00
Net		0.00		3.28		0.00		3.92		0.00		2.13		0.00		0.00
		Drilled				Completed				Tied In				Dry
Periods ended June 30, 2011		3 Mnths		6 Mnths		3 Mnths		6 Mnths		3 Mnths		6 Mnths		3 Mnths		6 Mnths
Gross		1.00		5.00		2.00		2.00		2.00		2.00		0.00		0.00
Net		0.66		3.48		1.44		1.44		1.44		1.44		0.00		0.00

About Exall

Exall is a junior oil and gas company active in its business of oil and gas exploration, development and production from its properties in Alberta. Exall Energy is currently developing the new Mitsue area "Marten Mountain" discovery in north-central Alberta.

Exall Energy currently has 63,413,854 common shares outstanding. The Company's common shares are listed on the Toronto Stock Exchange under the trading symbol EE.

Reader Advisory

This news release contains forward-looking statements, which are subject to certain risks, uncertainties and assumptions, including those relating to results of operations and financial condition, capital spending, financing sources, commodity prices and costs of production. By their nature, forward-looking statements are subject to numerous risks and uncertainties that could significantly affect anticipated results in the future and, accordingly, actual results may differ materially from those predicted. A number of factors could cause actual results to differ materially from the results discussed in such statements, and there is no assurance that actual results will be consistent with them. Such factors include fluctuating commodity prices, capital spending and costs of production, and other factors described in the Company's most recent Annual Information Form under the heading "Risk Factors" which has been filed electronically by means of the System for Electronic Document Analysis and Retrieval ("SEDAR") located at www.sedar.com. Such forward-looking statements are made as at the date of this news release, and the Company assumes no obligation to update or revise them, either publicly or otherwise, to reflect new events, information or circumstances, except as may be required under applicable securities law.

For the purposes of calculating unit costs, natural gas has been converted to a barrel of oil equivalent (boe) using 6,000 cubic feet equal to one barrel (6:1), unless otherwise stated. The boe conversion ratio of 6 mcf: 1 bbl is based on an energy equivalency conversion method and does not represent a value equivalency; therefore boe may be misleading if used in isolation. This conversion conforms to the Canadian Securities Regulators' National Instrument 51-101 - Standards of Disclosure for Oil and Gas Activities. 

 

SOURCE: EXALL ENERGY CORPORATION

Exall Energy Corporation
Frank S. Rebeyka
Vice Chairman
Tel: [phone]
 
Roger N. Dueck
President & CEO
Tel: [phone] x 223
[email protected]

Please visit Exall Energy's website at: www.exall.com

Renmark Financial Communications Inc.
Maurice Dagenais: [email protected]
Nadia Marks : [email protected]
Tel.: [phone] or [phone]
www.renmarkfinancial.com