Exall Energy Corporation updates drilling, production and waterflood operations

CALGARY, Sept. 24, 2012 /CNW Telbec/ - Exall Energy Corporation ("Exall " or the "Company") (TSX: EE) is pleased to update drilling, production and waterflood operations in the Marten Mountain, Mitsue area.  Exall's public filings can all be found at www.exall.com or www.sedar.com.

Highlights:

• Current production estimate for Q3 is 1,100 boepd,
• The second well of the Summer-Fall program has been 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 has been 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 is currently being equipped and tied in with an expected production start of mid-week,
• The next well, the fourth of the 2012 Summer-Fall drilling program is scheduled to spud the first week of October,
• Interpretation of the 56 section 3D seismic program in the Mitsue area acquired in the first quarter of 2012 has identified nine Tier I and II Gilwood channel locations in the northern portion of the coverage which Exall is in the process of permitting surface access for drilling during the coming year. Six of the locations are classified as Exploratory,
• 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 oilwell to injection well and drilling of the water source well is scheduled for October. The 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 and it continues to produce 190 to 240 boepd from two producing wells and one water injector,
• Although the "South Marten Waterflood Area" has shown positive pressure response and increased well production, it continues to under-perform, in terms of well responses and early water production. 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,
• Exall is continuing to look at options for facilities alterations to remedy high producing well backpressure in the North Channel wells. Pipeline pressure on the North leg of the gathering system is high due to the 220 meter elevation change along the route over Marten Mountain. The Company believes  that the back-pressure is inhibiting maximum production from the wells in that area and will be taking appropriate measures to remedy the problem,
• After considerable weather delays due to heavy summer rains, the Exall North Road, accessing the new North Waterflood area wells and new drilling locations has been completed, allowing all weather access to the new area,
• Disposal of produced water into the Water Disposal Well drilled and completed by Exall during Q1 is now pipelined from the battery, which 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 and installation of distribution systems on the wellsites has been completed with substantial anticipated savings in generator rental and fuel costs, expected to be approximately $100,000 per month net to Exall,

Drilling Results

The second well of the Summer-Fall program, drilled in August, was placed on production September 10 at a stabilized rate of 175 BOEPD (128 BOEPD net) through the Exall gathering and treating facilities. The well was a northerly stepout drilled on the seismically-defined channel.

The third well of the program has been 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 is currently being equipped and tied in with an expected production start of mid-week. This well was the first of up to six infill wells to be drilled between the North Waterflood and the Central Waterflood areas.

The next well, the fourth of the 2012 Summer-Fall drilling program is scheduled to spud the first week of October. The fourth well also an infill well and is a northerly extension of the Central Waterflood area, although not seismically defined, as the bottom-hole location lies under Lesser Slave Lake Provincial Park. A water source well for the North Waterflood area is also scheduled for drilling in early October.

Interpretation of the 56 section 3D seismic program in the Mitsue area acquired in the first quarter of 2012 has identified nine Tier I and II Gilwood channel locations (see August 14, 2012 press release for definitions) in the northern portion of the 3D coverage which Exall is in the process of permitting surface access for drilling during the coming year. Six of the locations are classified as Exploratory.

Production and Waterfloods

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 oilwell to injection well and drilling of the water source well is scheduled for October. The 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 drill 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 oilwell 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 received approval from the ERCB for the 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.

Facilities

Exall is continuing to look at options for facilities modifications to remedy high producing well backpressure in the North Channel wells. Pipeline pressure on the North leg of the gathering system is high due to the 220 meter  elevation change along the route over Marten Mountain. The Company believes that the back-pressure is inhibiting maximum production from the wells in that area and will be taking appropriate measures to remedy the problem.

After considerable weather delay due to heavy summer rains, the Exall North Road, accessing the new North Waterflood area wells and new drilling locations has been completed, allowing all weather access to the new area.

Disposal of produced water from the Central Battery into the Water Disposal Well drilled and completed by Exall during Q1 is now pipelined from the battery, which 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 and installation of distribution systems on the wellsites has been completed with substantial anticipated savings in generator rental and fuel costs, expected to be approximately $100,000 per month net to 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

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