Shona Energy Company, Inc. Announces Second Quarter 2012 Results

CALGARY, Aug. 29, 2012 /CNW/ - Shona Energy Company, Inc. (TSXV: SHO)("Shona" or the "Company"), today announced its financial results and operational highlights for the quarter ended June 30, 2012.

"In the near term, Shona intends to complete interpretation of the seismic data collected on the Esperanza block, which indicates the presence of prospects with similar seismic characteristics as the prolific Nelson Discovery," said James L. Payne, Chairman and CEO of Shona Energy. "We also are diligently pursuing opportunities to monetize our gas reserves, which remains a priority for the Company."

Operational Highlights

• Averaged gas sales volumes of 13.3 million cubic feet per day (Mmcf/d)in the second quarter of 2012
• Generated $3.6 million in EBITDA, or $0.02 per share
• Completed acquisition and processing of 103 square kilometers of 3-D seismic and 14 kilometers of 2-D seismic on the Esperanza Block
• Announced a normal course issuer bid ("NCIB") to purchase outstanding Class A Common Shares ("Common Shares") on the open market, where Shona intends to purchase up to 15,640,750 Common Shares
• Announced listing on OTCQX International under the symbol "SHOAF"

Outlook

Shona anticipates the following activities to occur in the remainder of 2012:

• Completing interpretation of the seismic survey on the Esperanza Block to help determine potential for additional supply capacity;
• Initiating the fourth exploration period of Block 102 in Peru, by conducting a 3-D seismic program in the Capahuari and Macusari trends;
• Continuing evaluation of options to sell and market additional gas capacity;
• Evaluating new ventures in South America and internationally; and
• Evaluating potential for mergers and acquisitions

The drilling permitting process in Colombia has resumed as security concerns have subsided. Shona now anticipates drilling on its Serrania Block to begin in the third quarter of 2013.

Selected Financial and Operating Information

						Three Months Ended June 30,
								2012			2011
FINANCIAL
	Natural gas revenues					$		6,399,546		$	644,072
	Income (loss) from operations							(1,576,825)			(3,154,889)
	Net income (loss)							(2,916,764)			(3,724,756)
				Per share (basic and diluted)				(0.01)			(0.02)
	Total assets							89,602,292			76,989,662
	Long-Term Debt							20,336,435			16,537,190
	Share Capital
			Common - voting					196,559,639			172,663,966
			Common - non-voting					36,115,644			-
			Series A 10% Convertible Preferred					190,796			175,939
			Warrants					40,145,993			40,145,993
OPERATING
	Production
			Natural Gas - Mcf					1,214,809			161,077
			Natural Gas - Mcf/d					13,349			1,751
	Realized prices - $/Mcf					$		5.27		$	4.00
	Operating Netback ($/Mcf)
			Natural Gas Revenue					5.27			4.00
			Royalties					(0.50)			(0.49)
			Production Expense					(0.37)			(2.02)
			Operating Netback			$		4.40		$	1.49

Financial Review

The increase in revenues in the second quarter of 2012 compared with 2011 is attributable to higher sales volumes from the Nelson field which commenced on December 1, 2011 and higher gas prices received from the gas sold from this field. Higher gas sales price due to the redetermination of the La Guajira price to $5.81 on August 1, 2011 and $5.80 on February 1, 2012 accounted for $1.5 million of incremental natural gas revenue for the three months ended June 30, 2012 compared to 2011. The increased volumes added $4.3 million of additional revenue in the second quarter of 2012 when compared to the same period in 2011. For the first half of 2012, higher realized sales prices added $3.1 million and higher volumes added $8.4 million to revenues over the 2011 period.

The increase in production expense in the second quarter of 2012 compared with 2011 is due to increased production from the Nelson field, which commenced sales in December 2011. The increased royalty expense in the second quarter of 2012 is due to higher sales revenues. Higher operating expense in the second quarter of 2012 is due to the additional costs associated with the higher sales volumes in 2012. The higher sales volumes resulted in an average operating expense of $0.37 per Mcf and $0.45 per Mcf sold in the second quarter and first half of 2012, respectively, compared to $2.02 and $2.18 per Mcf for the same periods of 2012.

The average DD&A expense rate per Mcf decreased from $2.30 per Mcf in the second quarter of 2011 to $0.98 per Mcf in the second quarter of 2012 due to the commencement of sales from the Nelson field on December 1, 2011, which has larger natural gas reserves, and consequently a lower amortization expense rate per Mcf than the older fields. This factor also contributed to the decreased average DD&A expense rate per Mcf from $2.37 per Mcf in the first half of 2011 to $0.89 per Mcf in the same period of 2012.

General and administrative expense for the three months ended June 30, 2012 decreased $1.3 million from the $3.0 million in the second quarter of 2011 to $1.7 million in 2012, primarily due to higher legal and consulting expenses in 2011 related to the reverse takeover transaction and expense related to the 2011 annual bonus that was paid in July 2011. No bonus plan is in place for 2012. G&A expense for the first half of 2012 of $2.8 million was $2.0 million lower than for the same period in 2011, for the same reasons.

At June 30, 2012, Shona had unrestricted cash of $17.9 million and current working capital of $14.4 million. The Company's total debt at June 30, 2012 of $22.6 million consisted principally of the debt portion of the Preferred shares ($19.0 million) and the balance of the new credit facility ($2.6 million) and the remaining balance on the loan for a seismic contract ($1.0 million).

About Shona

Shona is an international oil and natural gas exploration, development and production company focusing on South America, specifically Colombia and Peru. The Company's assets currently include interests in the Company-operated Esperanza block located in Colombia's Lower Magdalena Basin, the non-operated Serrania, Los Picachos and Macaya Blocks in Colombia's Caguan Basin, and the non-operated Block 102 in Peru's Maranon Basin. The common shares of the Company trade on the TSX Venture Exchange under the stock symbol "SHO". More information on the Company is available at www.shonaenergy.com.

Cautionary Statements

Certain information included in this press release constitutes forward-looking information under applicable securities legislation.  Such forward-looking information is provided for the purpose of providing information about management's current expectations and plans relating to the future. Readers are cautioned that reliance on such information may not be appropriate for other purposes, such as making investment decisions. Forward-looking information typically contains statements with words such as "anticipate", "believe", "expect", "plan", "intend", "estimate", "propose", "project" or similar words suggesting future outcomes or statements regarding an outlook. Forward-looking information in this press release may include, but is not limited to, expectations regarding future oil and gas production from the Company's properties, the production capacity of the Company's properties, the anticipated use of seismic data and exploration and development plans on properties in which the Company holds an interest.  Forward-looking information is based on a number of factors and assumptions which have been used to develop such information but which may prove to be incorrect.  Although Shona believes that the expectations reflected in such forward-looking information is reasonable, undue reliance should not be placed on forward-looking information because Shona can give no assurance that such expectations will prove to be correct. In addition to other factors and assumptions which may be identified in this press release, assumptions have been made regarding and are implicit in, among other things: the ability of Shona to complete transactions described in this press release, the timely receipt of any required regulatory approvals, the performance of existing wells and success obtained in drilling new wells, anticipated expenses, cash flow and capital expenditures, the application of regulatory and royalty regimes and prevailing commodity prices and economic conditions.  Readers are cautioned that the foregoing list is not exhaustive of all factors and assumptions which have been used. Shona undertakes no obligation to update forward-looking statements if circumstances or management's estimates or opinions should change, unless required by law. Actual results could differ materially from those currently anticipated due to a number of factors and risks. These include, but are not limited to, risks associated with the oil and gas industry in general (e.g., operational risks in development, exploration and production; delays or changes in plans with respect to exploration or development projects or capital expenditures; the uncertainty of reserve estimates; the uncertainty of estimates and projections relating to production, costs and expenses, and health, safety and environmental risks), commodity price and exchange rate fluctuations and uncertainties resulting from potential delays or changes in plans with respect to exploration or development projects or capital expenditures.

All dollar references in this press release are to U.S. Dollars.

Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this press release.

SOURCE: Shona Energy Company, Inc.

For further information please contact either of the following individuals:

David Gian, Treasurer & Investor Relations
Shona Energy Company, Inc.
Houston, Texas
713-622-8809

Shetal Mentlewski, VP Admin & Legal
Shona Energy Company, Inc.
Houston, Texas
713-622-8809