Flagship Energy Inc. provides first quarter 2007 activity update and 2006 reserve information



    CALGARY, March 14 /CNW/ - Flagship Energy Inc. ("Flagship" or the
"Company") is pleased to provide an operational update for the first quarter
of 2007 as all planned drilling for the quarter is now complete. During the
first quarter, the strategic Buck Lake sour gas pipeline came on stream and
gas and liquids volumes are now contributing to our current production levels
of 1,975 BOEPD with an additional 50 BOEPD of capability temporarily off
stream as of the last field estimated production report. An additional
150 BOEPD of tested production remains behind pipe awaiting tie-in in the Buck
Lake area (Crystal and Golden Spike). The previously announced Leduc new pool
discovery at Wood River in central Alberta (0.33 net well) is expected to be
producing light oil by the end of the quarter. In addition, pipelining is
currently underway on a well drilled last winter for conventional Mannville
sweet gas in the Corbett area (0.5 net well). The well is expected to be on
stream by the end of the quarter with initial production rates expected of
40 BOEPD net to Flagship.
    Flagship drilled six (5.5 net) wells during the quarter. Two new pool gas
discoveries were made by two wells in the Brightsand area of western
Saskatchewan. One additional new oil pool was discovered in the Buffalo Head
area of southeastern Saskatchewan, which came on production in March. The West
Edam, Battleford and Corbett exploration wells (2.5 net wells) were
unsuccessful. The Brightsand discoveries are significant advances for this
area north of Edam. Pipelining options are currently being finalized.
    During the second quarter of 2007, three exploratory wells (2.75 net
wells) are planned after spring break-up in the Provost, Buck Lake and Alsask
areas of Alberta. Third party drilling of a well on our Pembina lands for
light oil from the Nisku Formation is expected in the third quarter 2007. The
Company retains a significant carried working interest in the well. The
surface lease has been secured and area notification is currently underway.
One additional seismic option has been granted in this area. Forty-seven
sections (13,446 hectares) of Nisku Crown land rights were sold during March
in the immediate area at an average price per hectare of $956.
    During the first quarter, Flagship marketed five industry packages. No
acceptable bids were received and the properties will be retained. As a
result, previous guidance on June 2007 production levels has been revised to
2,000 BOEPD, net of expected declines, reflecting the retention of the
properties. The Medicine Lodge property disposition did close during the first
quarter (60 BOEPD). Taking into account this sale, current debt net of working
capital is approximately $47.5 million. Flagship expects to provide
operational guidance on the second half of the year towards the end of June.

    RESERVES

    The reserves data set forth below is based upon an independent evaluation
by AJM Petroleum Consultants ("AJM") with an effective date of December 31,
2006 (the "AJM Report"). The reserves data summarizes the crude oil, natural
gas liquids and natural gas reserves of the Company and the net present values
of future net revenue for these reserves using forecast prices and costs. The
AJM report has been prepared in accordance with the standards contained in NI
51-101 and the reserve definitions contained in the COGE Handbook. The Company
engaged AJM to provide a complete evaluation of proved and proved plus
probable reserves and no attempt was made to evaluate possible reserves.
    All of the Company's reserves are based in the provinces of Alberta and
Saskatchewan.
    Natural gas and liquids reserves and volumes are converted to a common
unit of measure on a basis of six thousand cubic feet ("Mcf") of gas to one
barrel ("bbl" or "stb") of oil. Disclosure provided herein in respect of BOE
and BOEPD may be misleading, particularly if used in isolation. A BOE
conversion ratio of 6 mcf:1 bbl is based on an energy equivalency conversion
method primarily applicable at the burner tip and does not represent a value
equivalency at the wellhead.
    The Company's total proved plus probable reserves, based upon forecast
prices and costs, were 6,744 MBOE, an increase of 202% in 2006. Total proved
reserves of 4,049 MBOE, based upon forecast prices and costs, comprised 60% of
the total proved plus probable reserves. The following table provides summary
reserve information based upon the AJM Report and using the AJM price
forecast:


    
                           Oil                 Natural gas
    RESERVES       Gross(1)     Net(2)     Gross(1)     Net(2)
    CATEGORY        (Mbbl)      (Mbbl)      (Mmcf)      (Mmcf)
    -------------  --------    --------    --------    --------

    PROVED
      Developed
       Producing    1,196.9     1,060.2     8,260.6     6,767.3
      Developed
       Non-
       Producing          -           -     2,863.8     2,444.8
      Undeveloped     412.0       358.7     3,073.1     2,362.9
                   --------    --------    --------    --------
    TOTAL
     PROVED         1,608.9     1,418.9    14,197.5    11,574.9

    PROBABLE        1,031.5       898.8     9,694.6     7,990.9
                   --------    --------    --------    --------

    TOTAL
     PROVED
     PLUS
     PROBABLE       2,640.5     2,317.7    23,892.2    19,565.8
                   --------    --------    --------    --------
                   --------    --------    --------    --------



                      Natural gas             Barrel of oil
                         Liquids                Equivalent
    RESERVES       Gross(1)     Net(2)     Gross(1)     Net(2)
    CATEGORY        (Mstb)      (Mstb)      (MBOE)      (MBOE)
    -------------  --------    --------    --------    --------

    PROVED
      Developed
       Producing       39.5        27.3     2,613.2     2,215.4
      Developed
       Non-
       Producing        0.9         0.6       478.2       408.1
      Undeveloped      33.4        21.2       957.6       773.7
                   --------    --------    --------    --------
    TOTAL
     PROVED            73.7        49.1     4,048.9     3,397.2

    PROBABLE           48.0        31.6     2,695.3     2,262.2
                   --------    --------    --------    --------
    TOTAL
     PROVED
     PLUS
     PROBABLE         121.7        80.7     6,744.2     5,659.4
                   --------    --------    --------    --------
                   --------    --------    --------    --------

    (1)  Gross represents the Company's interest (operating and non-
         operating) share before deduction of royalties and without including
         any royalty interest of the Company.
    (2)  Net represents the Company's interest (operating and non-operating)
         share after deduction of royalties obligations, plus the Company's
         royalty interest in production or reserves.
    (3)  The columns may not add due to rounding.

    RESERVES VALUES

    The estimated before-tax net present value of future net revenues
associated with the Company's reserves effective December 31, 2006 and based
on the AJM future price forecast are as follows:


    RESERVES CATEGORY      0%         5%        10%        15%        20%
     (1)                ($000)     ($000)     ($000)     ($000)     ($000)
    -----------------  ---------  ---------  ---------  ---------  ---------
    PROVED
      Developed
       Producing        75,895.2   64,304.9   56,144.7   50,110.0   45,465.4
      Developed Non-
       Producing        11,825.5    9,254.0    7,549.2    6,342.5    5,444.9
      Undeveloped       20,775.6   17,313.1   14,602.6   12,449.8   10,707.8
                       ---------  ---------  ---------  ---------  ---------
    TOTAL PROVED       108,496.2   90,871.9   78,296.4   68,902.3   61,618.0

    PROBABLE            74,203.3   51,538.9   38,514.4   30,144.7   24,358.4
                       ---------  ---------  ---------  ---------  ---------
    TOTAL PROVED PLUS
     PROBABLE          182,699.6  142,410.8  116,810.8   99,047.0   85,976.5
                       ---------  ---------  ---------  ---------  ---------
                       ---------  ---------  ---------  ---------  ---------

    (1)  The estimated future net revenues are stated before deducting future
         estimated site restoration costs and are reduced for estimated
         future abandonment costs and estimated capital for future
         development associated with the reserves.
    (2)  The columns may not add due to rounding.


    PRICING

    The AJM price forecast is as follows:

     Year     WTI @ Cushing   Edmonton light crude   Natural gas at AECO-
                                                 oil                 C spot
                     (US$/bbl)               (C$/bbl)               (C$/mcf)

     2007                65.00                  72.85                   7.40
     2008                69.35                  77.75                   8.00
     2009                70.75                  79.35                   7.90
     2010                69.00                  77.30                   8.00
     2011                67.10                  75.15                   8.25
     2012                66.25                  74.15                   8.40
     2013                67.55                  75.60                   8.50
     2014                68.90                  77.15                   8.75
     2015                70.30                  78.70                   8.90
     2016                71.70                  80.25                   9.10
     2017                73.15                  81.85                   9.25
     2018                74.60                  83.50                   9.45
     2019                76.10                  85.15                   9.65
     2020                77.60                  86.85                   9.85
     2021                79.15                  88.60                  10.05
     2022                80.75                  90.40                  10.25
     2023                82.35                  92.20                  10.45
     2024                84.00                  94.05                  10.65
     2025                85.70                  95.90                  10.85
     2026                87.40                  97.85                  11.05
    2026+                 2.0%                   2.0%                   2.0%


    RESERVES RECONCILIATION

    The following reconciliation of the Company's working interest(1) reserves
compares changes in the Company's reserves as at December 31, 2005 to the
reserves at December 31, 2006 based on the AJM future price forecast:


                                Proved       Total Proved  Total Proved Plus
                             Producing                              Probable
                                 (MBOE)             (MBOE)             (MBOE)

    December 31, 2005            845.3            1,294.8            2,232.1
    Production                  (579.3)            (579.3)            (579.3)
    Drilling Activity:
      Discovery                  101.1              391.4              670.5
      Extension                  199.5              538.4            1,034.1
    Transfer                     653.3              146.1                  -
    Acquisitions               2,724.2            4,188.8            6,992.7
    Revision                  (1,323.5)          (1,923.6)          (3,596.3)
    Economic Factors              (7.3)              (7.8)              (9.6)
                              -----------------------------------------------
    December 31, 2006          2,613.2            4,048.9            6,744.2
                              -----------------------------------------------
                              -----------------------------------------------

    (1)  Working interest represents the Company's working interest
         (operating and non-operating) share before deduction of royalties
         and including any royalty interest of the Company.
    (2)  The columns may not add due to rounding.


    The Company added 1.7 MMboe of proved plus probable reserves through
drilling activity in 2006, while incurring total capital expenditures of
approximately $34 million. Total proved plus probable reserve revisions
totaled 3.6 MMboe, with approximately 3.3 MMboe of the downward revision
relating to properties acquired from Hawk Energy Corp. ("Hawk"), whose
independent reserve evaluation effective December 31, 2005 was performed by a
reserve evaluator other than AJM. The heritage Flagship Energy property at
Edam was also revised downward by 188 MBOE proved plus probable due to field
water encroachment in the Spinney Hill Formation.
    The following table details the volume revisions, by area:

    NEGATIVE REVISIONS BY AREA

    Area                                          Total Proved Plus Probable
                                                              Revision (MBoe)

    Lashburn                                                           1,013
    Corbett                                                              495
    Provost                                                              427
    Retlaw                                                               345
    Buffalo Head                                                         266
    Edam                                                                 188
    Three Hills                                                          151
    Redwater                                                             147
    Sherwood                                                             134
    Others                                                             430.3
                                                  --------------------------

    Total                                                            3,596.3
                                                  --------------------------
                                                  --------------------------


    It should not be assumed that the estimates of future net revenues
presented in the tables above represent the fair market value of the reserves.
There is no assurance that the forecast prices and costs assumptions will be
attained and variances could be material. The recovery and reserve estimates
of the Company's crude oil, natural gas liquids and natural gas reserves
provided herein are estimates only and there is no guarantee that the
estimated reserves will be recovered. Actual crude oil, natural gas and
natural gas liquid reserves may be greater than or less than the estimates
provided herein.

    NET ASSET VALUE (AS AT DECEMBER 31, 2006)

    The Company has calculated its net asset value, based on the AJM
evaluation of future net revenue, which does not represent fair market value,
as follows:


                                                               (000's except
                                                                   per share
                                                                      amount)
    Proved Plus Probable reserve value, discounted at 10%          116,810.8
    Land value, as estimated by management - 182,000 net
     undeveloped acres (based on recent sales in the area or
     on similar properties in the same general area)                18,490.8
    10% of tax pools, as estimated by management (based on
     total pools of $100.6 million)                                 10,060.6
    Debt, net of working capital, as estimated by management         (50,003)
    Proceeds from the future exercise of in-the-money stock
     options                                                         1,442.2
                                                              --------------

    Total estimated net asset value                                 96,801.4
    Less value of Class B shares, assuming immediate
     conversion at $10/Class B share (see note below
     regarding terms of conversion). Based on 5,162,990
     diluted Class B shares (after exercise of warrants)           (51,629.9)
                                                              --------------
                                                                    45,171.5
    No. of diluted Class A shares (after exercise of options
     and warrants)                                                  33,163.5
                                                              --------------
    Net Asset Value per Class A share                                  $1.36
                                                              --------------
                                                              --------------
    


    As noted above, the calculated net asset value per Class A share was
based on converting the Class B shares immediately, with a full value of
$10/Class B share assigned. The Class B shares have been trading in the $4.00
per share range during 2007.
    Flagship is an emerging oil and gas company focused on the acquisition,
exploration, exploitation and development of oil and natural gas in Western
Canada. Flagship's business plan is to grow reserves and production to
increase shareholder value through a focused and balanced exploration program,
strategic acquisitions and value-added exploitation.
    The Company has 31,553,495 Class A shares and 5,149,869 Class B shares
issued and outstanding which trade on the TSX Venture Exchange under the
symbols "FG.A" and "FG.B". The Class B shares are convertible, at the option
of the Company, at any time after December 31, 2008 and before December 31,
2010, into Class A shares. The conversion rate is calculated by dividing $10
by the greater of $1 and the then current market price of the Class A shares.
If conversion has not taken place by December 31, 2010, the Class B shares
become convertible, at the option of the shareholder, into Class A shares on
the same basis. Effective February 1, 2011, all remaining Class B shares will
be deemed to be converted to Class A shares on the same basis.
    As of the date hereof, there are share options to purchase an aggregate
of 3,636,000 Class A shares outstanding. In May 2006, Flagship granted share
options to purchase in aggregate 70,000 Class A shares to a director at an
exercise price of $4.25 per share.

    ADVISORY: Certain information regarding Flagship Energy Inc. in this news
release including management's assessment of future plans and operations,
reserve and production estimates, drilling inventory and wells to be drilled,
timing of drilling and tie in of wells, productive capacity of new wells,
capital expenditures and timing thereof, may constitute forward-looking
statements under applicable securities laws and necessarily involve risks
including, without limitation, risks associated with oil and gas exploration,
development, exploitation, production, marketing and transportation, loss of
markets, volatility of commodity prices, currency fluctuations, imprecision of
reserve estimates, environmental risks, competition from other producers,
inability to retain drilling rigs and other services, incorrect assessment of
the value of acquisitions, failure to realize the anticipated benefits of
acquisitions, delays resulting from or inability to obtain required regulatory
approvals and ability to access sufficient capital from internal and external
sources. As a consequence, actual results may differ materially from those
anticipated in the forward-looking statements. Readers are cautioned that the
foregoing list of factors is not exhaustive. Additional information on these
and other factors that could affect Flagship's operations and financial
results are included in reports on file with Canadian securities regulatory
authorities and may be accessed through the SEDAR website (www.sedar.com), or
Flagship's website (www.flagshipenergy.ca).
    Furthermore, the forward looking statements contained in this news
release are made as at the date of this news release and Flagship does not
undertake any obligation to update publicly or to revise any of the included
forward looking statements, whether as a result of new information, future
events or otherwise, except as may be required by applicable securities laws.

    The TSX Venture Exchange does not accept responsibility for the adequacy
    or accuracy of this release.

    %SEDAR: 00003847E




For further information:

For further information: see www.flagshipenergy.ca or contact: Glenn R.
Carley, Executive Chairman, (403) 513-8300, gcarley@flagshipenergy.ca; Bradley
Maynes, President and Chief Operating Officer, (403) 513-8301,
bmaynes@flagshipenergy.ca; Stuart Jaggard, Vice President Finance and Chief
Financial Officer, (403) 513-8302, sjaggard@flagshipenergy.ca

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FLAGSHIP ENERGY INC.

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