Calvalley Petroleum - 2009 Second Quarter Results



    CALGARY, Aug. 14 /CNW/ - Calvalley Petroleum Inc., (TSX: CVI.A)
    Calvalley Petroleum Inc. (the "Company" or "Calvalley"), an international
junior oil and gas company based in Calgary, Alberta, announces its financial
and operating results for the second quarter ended June 30, 2009.

    
    HIGHLIGHTS

    Financial

    These key financial indicators are discussed in more detail in the
Company's Management's Discussion and Analysis which is filed on SEDAR.


    -------------------------------------------------------------------------
                                       Three months ended   Six months ended
                                            June 30             June 30
                                      ---------------------------------------
    (in thousands of US dollars)         2009      2008      2009      2008
    -------------------------------------------------------------------------
    Revenue (Gross)                     17,252    25,434    24,112    45,544
    -------------------------------------------------------------------------

    Revenue from crude oil sales
     (net of royalties)                 10,686    15,791    14,846    28,247

    EBITDA(1)                            5,548    11,504     5,504    80,813
    Operating income(1)                  1,904     8,727       110    15,259
    Net income (loss)                      765     4,432    (1,280)   10,031
    Capital expenditures                 2,812     9,493     5,211    16,852
    Funds flow from operations(1)        4,644    10,266     4,495    18,667
    Cash flow from operating activities  3,325    34,061     2,363    34,370
    -------------------------------------------------------------------------
    (1) See "Non-GAAP Measures"


    -   Calvalley's revenue from crude oil sales was $17.2 million (gross)
        and $10.7 million (net of royalties) for the quarter ended June 30,
        2009 (2008 - $25.4 million (gross) and $15.8 million (net of
        royalties)). The sales decline was due to soft commodity prices
        partially offset by the timing of lifts.

    -   Net income was $0.8 million for the three months ended June 30, 2009,
        as compared to $4.4 million for the same period of 2008. The decrease
        in net income was largely attributable to the factors noted above
        which reduced revenue.

    -   Funds flow from operations was $4.6 million ($0.05/share) for the
        three months ended June 30, 2009, as compared to $10.3 million
        ($0.10/share) for the same period of 2008.

    -   Operating costs during the second quarter of 2009 were $3.7 million
        ($11.12/bbl) as compared to $2.8 million ($13.81/bbl) for the three
        months ended June 30, 2008.

    -   Calvalley continues to be well financed and capitalized with no
        outstanding debt and working capital of $72.1 million.

    -   Significant progress was made in negotiations relating to marketing
        all of Block 9 crude oil during the quarter. Successful conclusion of
        these negotiations is expected to allow Calvalley to commence
        production from the Al Roidhat field in the fourth quarter of 2009 or
        first quarter of 2010.

    -   Necessary materials were mobilized to the Qarn Qaymah 2 location to
        commence testing. A rig is currently being mobilized to the location
        for the commencement of testing of the fractured basement followed by
        completion and testing of the Kohlan sand.

    -   The 2009 drilling program begins in the third quarter with the
        drilling of two exploration wells and up to six development wells
        during the balance of 2009. The two exploration wells will be drilled
        into Ras Nowman and Salmin prospects with an estimated combined mean
        oil-in-place of approximately 200 million barrels.

    Operating

    -------------------------------------------------------------------------
                                       Three months ended   Six months ended
                                            June 30             June 30,
                                      ---------------------------------------
    (barrels of oil per day)             2009      2008      2009      2008
    -------------------------------------------------------------------------

    Total Block 9 production             4,164     4,759     4,347     4,681
    Calvalley working interest (50.0%)   2,082     2,380     2,174     2,341
    -------------------------------------------------------------------------

    -   Average daily production from the Block 9 for the three months ended
        June 30, 2009 was 4,164 gross barrels per day (Calvalley working
        interest 2,082 bopd), a decrease from the previous quarter's average
        of 4,532 bopd (2,266 bopd working interest share) and also a decrease
        from 2008 second quarter average production of 4,759 bopd (2,380 bopd
        working interest share).

    -   Construction of water and gas injection facilities at Hiswah
        continues with completion targeted for late-2009.

    -   Calvalley is constructing a heavy crude blending facility at the CPF,
        which will enable the Company to produce from the currently shut-in
        Al Roidhat field. Wells at Al Roidhat are being worked over to
        prepare them for production.

    OPERATIONS REPORT

    Production Overview
    

    During the second quarter of 2009, daily production from Block 9 averaged
4,164 barrels of oil per day ("bopd") (2008 - 4,759 bopd), with the Company's
working interest share being 2,082 bopd (2008 - 2,380 bopd). All of our
production came from the partially developed Hiswah oil field, which produces
high-quality, lighter sweet crude oil that is sold at a price comparable to
Dated Brent Crude.
    Despite expected performance from the existing producing wells at the
Hiswah field, production has been constrained due to the limitation of sales
volume that is accepted by the Safer Facilities at Block 18 ("Safer").
Production from the Hiswah field continues to be limited to an average of
sixteen of twenty-three existing horizontal wells due to this limitation. The
Facility Usage Agreement at Block 18 dictates that blended crude at the
facility shall not exceed 0.12% in sulfur content by weight. The sulfur
content of Safer production is 0.09%. After blending Safer production with the
production from Block 9, the sulfur content averages 0.12%. Increases or
decreases in Safer's production impact the sales volume that can be accepted
for blending from Block 9. Safer's production at Block 18 has been
continuously declining and consequently, Block 9 has been forced to reduce its
crude oil volume to keep overall sulfur content at Safer under 0.12%.
Calvalley's crude is sweet and has an average of 0.43% sulfur which is
comparable to 0.42% which is the standard for Dated Brent Crude.
    Calvalley initiated a number of alternative solutions to sell blended
crude oil from all discoveries at Block 9 including production from wells that
are currently shut-in. Based on the evaluation of the various alternatives,
Calvalley has narrowed the focus to deliver Block 9 crude to either Block 14
or Block 51. Negotiations with the operator of these blocks have advanced
significantly and we are optimistic that delivery of the first oil to one of
these blocks could commence by the end of 2009. The Government of Yemen has
formed a "tie-committee" to oversee the progress of these negotiations. Once
an agreement to evacuate all types of crude from Block 9 is finalized,
Calvalley will commence the construction process of the main sales pipeline
which has been approved by the government.
    In anticipation of finalizing an alternative marketing solution for all
kinds of crude discovered at Block 9, Calvalley has substantially completed a
heavy crude blending facility at the CPF. The blending facility will enable
the Company to process production from the currently shut-in Al Roidhat field.
Three additional wells were equipped during the quarter at Al Roidhat,
increasing to seven the number of wells which are fully equipped and ready to
produce at Al Roidhat. An additional well is undergoing completion. Once fully
developed, Al Roidhat is expected to reach peak production of 10,000 bopd
based on the existing reserves. However, the Al Roidhat field will remain
shut-in until a marketing solution is finalized. We expect to commence
production from this field as early as the yearend.

    Hiswah Field Development

    During the second quarter, no development wells were drilled at the
Hiswah field. However, a number of workover programs were carried out to
enhance well performance. The 2009 budget includes the drilling of six
horizontal development wells. Drilling is expected to commence by the end of
August, 2009.

    Facilities

    The CPF, with a 60,000 barrel per day processing capability, is now fully
functional. Construction of key components of water injection and gas
re-injection facilities for the Hiswah field has advanced significantly. Water
injection facilities have been constructed and delivered to Block 9. On-site
construction is expected to be completed during the third quarter with the
first water injection expected to commence late in the year. The gas injection
facilities are currently being constructed in Dubai with expected completion
in October. The Hiswah field currently produces approximately 5.5 mmcfd of
solution gas which is being flared and will be utilized for pressure
maintenance once these facilities are completed.

    Exploration Drilling Program

    No exploration wells were drilled during the second quarter. Testing of
the Qarn Qaymah 2 ("QQ-2") well was halted early in the year due to the lack
of specialized downhole equipment including smaller diameter (2 7/8 inch)
production tubing. All required equipment has now been received and Calvalley
will re-test the fractured granitic basement at QQ-2 commencing in late
August. Upon full evaluation of the fractured basement, we will move up-hole
to perforate and test the Kohlan sand gas condensate discovery. Completion of
QQ-2 will enable us to high-grade and then proceed with drilling a number of
attractive deep well targets in the greater Qarn Qaymah area.
    Calvalley plans to drill two exploration wells at shallower depths (less
than 1500 meters) during 2009. These wells are to be drilled in Ras Nowmah and
Salmin prospects, both of which are on a proven oil fairway. Salmin is
situated approximately five (5) kilometers northwest of the Auqban discovery
targeting a light oil carbonate structure with an estimated mean oil-in-place
volume of 45 million barrels. The Ras Nowmah structure is situated between
Hiswah and Al Roidhat with a potential of 149 million barrel of mean
oil-in-place. Site preparation for Ras Nowmah has commenced and we expect to
start drilling this well in October followed by the Salmin prospect.

    Filing of Reports on SEDAR

    Calvalley's Management's Discussion and Analysis and Unaudited Financial
Statements for the quarter ended June 30, 2009 can be found for viewing by
electronic means on The System for Electronic Document Analysis and Retrieval
at www.sedar.com.

    Calvalley is listed on the Toronto Stock Exchange, trading under the
symbol "CVI.A".

    
    THE TORONTO STOCK EXCHANGE HAS NOT REVIEWED AND DOES NOT ACCEPT
    RESPONSIBILITY FOR THE ADEQUACY OR ACCURACY OF THIS RELEASE.
    

    This press release may contain forward-looking statements including,
without limitation, financial and business prospects and financial outlooks,
and such statements may be forward-looking statements which reflect
management's expectations regarding future plans and intentions, growth,
results of operations, performance and business prospects and opportunities.
Words such as "may", "will", "should", "could", "anticipate", "believe",
"expect", "intend", "plan", "potential", "continue", and similar expressions
have been used to identify these forward-looking statements. These statements
reflect management's current beliefs and are based on information currently
available to management. Forward-looking statements involve significant risk
and uncertainties. A number of factors could cause actual results to differ
materially from the results discussed in the forward-looking statements
including, but not limited to, changes in general economic and market
conditions and other risk factors. Although the forward-looking statements
contained herein are based upon what management believes to be reasonable
assumptions, management cannot assure that actual results will be consistent
with these forward-looking statements. Investors should not place undue
reliance on forward-looking statements. These forward-looking statements are
made as of the date hereof.
    Forward-looking statements and other information contained herein
concerning the oil and gas industry and Calvalley's general expectations
concerning this industry are based on estimates prepared by management using
data from publicly available industry sources as well as from reserve reports,
market research and industry analysis and on assumptions based on data and
knowledge of this industry which Calvalley believes to be reasonable. However,
this data is inherently imprecise, although generally indicative of relative
market positions, market shares and performance characteristics. While
Calvalley is not aware of any misstatements regarding any industry data
presented herein, the industry involves risks and uncertainties and is subject
to change based on various factors.





For further information:

For further information: investorrelations@calvalleypetroleum.com;
Edmund Shimoon, Chairman & CEO, Memet Kont, President & COO, Bill Cummins,
CFO, (403) 297-0490

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