Exall Energy Corporation signs agreement to sell Jayar Property

CALGARY, Sept. 28, 2012 /CNW Telbec/ - Exall Energy Corporation ("Exall" or the "Company") (TSX: EE) and (TSX: EE.DB) is pleased to announced that it has signed an agreement to sell its non-operated and non-core operations in the Jayar, Alberta area.  Exall's public filings can all be found at www.exall.com or www.sedar.com.

Highlights:

• Jayar Property production is 72% gas, 16% oil and 12% liquids,
• Disposition proceeds equal to $1,800,000,
• Cash flow metric is 7.5 times, based on an annualized Jayar 2012 cash flow of $240,167,
• Per flowing barrel metric is $29,508 per boe/d, based on an average 2012 production rate of 61 boe/d (weighted 72% gas),
• Proven plus Probable metric is $6.54 per boe, based upon the February 29, 2012 AJM Deloitte Reserve Report estimate of 288,000 boe less 7 months production of 12,924 boe.

Jayar Disposition

Exall has entered into an agreement to sell its 14.5% non-operating working interest in its Jayar, Alberta property the ("Property") to a private company (the "Acquirer") effective September 30, 2012.  The Acquirer will pay cash proceeds to Exall of $1,800,000 on closing.  In addition, Exall is also entitled to receive 50% of the proceeds in excess of $1,800,000 resulting from the sale of the Property by the Acquirer, in certain circumstances, provided such sale occurs within 24 months of the effective date of the transaction.  Warren Coles, Exall's VP-Finance and CFO, holds a 20% interest in the share capital of the Acquirer and is also an officer and a director of the Acquirer.

Exall received two other offers to purchase the Property during the summer 2012 months, all of which were considered by the Company's board of directors with the Acquirer's offer being deemed to be the most beneficial to Exall at a board meeting held on September 24, 2012.  All the directors of the Company are independent for purposes of this transaction.

The disposition metrics of the transaction are 7.5 times cash flow, $29,508 per flowing boe/d (61 boe/d (72% gas)) and $6.54 per Proved plus Probable boe (275,076 Proved plus Probable boe remaining effective October 01, 2012).

ATB Corporate Financial Services published (August 31, 2012) Gas Weighted Transaction (>70%) Metrics for Q3 2012 are $23,134 per flowing boe/d and $5.21 per Proven plus Probable boe.

As a result of the disposition Exall's production mix will be 97% Light Sweet Crude, and 3% Natural Gas plus Liquids.

Exall will utilize the disposition proceeds of $1,800,000 to continue to fund its North Marten Mountain development program and evaluate and prove up the 2012 3D seismic program. This program has seen continued success most recently with the three wells drilled during the summer of 2012 highlighted as follows:

• The first well of the summer-fall program was 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 summer-fall program was successfully drilled horizontally, completed and placed on production at a stable rate of 175 bopd (128 bopd net) through the Exall gathering and treating facilities,
• The third well of the program was successfully drilled, completed as a slant-hole and production tested. The well produced 500 barrels of clean oil during the last 24 hours of the test. The well was equipped and tied in and on production September 26, 2012.

As a result of Mr. Coles' interest in the Acquirer, the transaction was subject to approval under Part V of the Toronto Stock Exchange ("TSX") Company Manual.  The Company has applied for and received the conditional acceptance of the transaction and remains subject to receipt of final acceptance by the TSX.

Production and Waterfloods

As previously announced Exall's average daily production for Q3 is estimated to be approximately 1,100 boepd, in line with the previous two quarters.

Four enhanced recovery applications submitted to the ERCB in 2012 have been approved, three are active and on the fourth, the conversion of a currently shut in oil well to injection well and drilling of the water source well is scheduled for October. The enhanced recovery applications group the approvals into three project areas which the Company terms the South, Central and North Waterfloods.

The "Central Waterflood Area", which includes the first three wells drilled in the Marten Mountain area, continues to perform well, having produced over 820 mboe to date from two producing wells and one water injector. Two wells were added to the project under the ERCB approval, including a water injection well and a new oil well which currently is producing 165 boepd. The project is now producing 350 to 400 BOEPD (275 BOEPD net).

Low reservoir pressure in the South Waterflood project resulted in reduced production from four wells. Exall has since received approval from the ERCB for an amended waterflood scheme. Water injection in the eastern extent of the South Marten Mountain waterflood project commenced April 1^st, 2012 and early positive indications of re-pressurization and well response have been tempered by early water breakthrough.

Although the South Waterflood Area had shown positive response and increased well production, it continues to under-perform. One well has been identified for a water shutoff procedure which is scheduled for early October, and a high-water cut well has been shut in to direct energy to oil-producing areas in the reservoir. Increased production from the three wells included in the amended application was expected to net Exall approximately 340 BOEPD, however due to the water breakthrough and subsequent flood modifications and well workovers, that expectation has been reduced in the interim to 100 BOEPD, expected in late Q3. That estimate will be reviewed pending results observed from the optimization efforts.

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.

As a result of the Waterfloods, Exall currently estimates an average 2012 production rate of approximately 1,150 boe/d after taking into account the sale of the Property.

Exall Energy currently has 63,413,854 common shares, and $23.0 million principal amount of convertible unsecured subordinated debentures outstanding. The Company's common shares and convertible unsecured subordinated debentures are listed on the Toronto Stock Exchange under the trading symbols EE and EE.DB, respectively.

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, regulatory approvals, 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]
 
Warren Coles
VP - Finance & CFO
Tel: [phone] x 224
[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]
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