Highpine Oil & Gas Limited announces record production, funds flow and profitability in the second quarter of 2008 and expanded 2008 capital budget



    CALGARY, Aug. 5 /CNW/ - Highpine Oil & Gas Limited (TSX: HPX) ("Highpine"
or the "Company") announces record financial and operational results for the
second quarter ended June 30, 2008. Production of 20,486 boe/d is a 14%
increase over the same period last year and is the first time the Company has
posted a quarter in excess of 20,000 boe/d. Record production combined with
unprecedented commodity prices in the quarter resulted in funds flow from
operations of $112.9 million ($1.64 per diluted share), a 141% increase from
the $46.9 million ($0.68 per diluted share) recorded in the same period in
2007. Earnings in the quarter of $31.5 million ($0.46 per diluted share)
compare to earnings of $1.1 million ($0.02 per diluted share) reported in the
second quarter of 2007. Net debt at the end of the quarter stands at $46.7
million, down from $133.1 million at the end of the first quarter of this
year. The board of directors of Highpine has also approved an increase in the
Company's 2008 capital budget to $175 million.
    "Another strong operational quarter has helped to drive our financial
performance over this period. Never before has Highpine achieved results such
as these for cash flows and profitability", commented Mr. Jonathan Lexier,
President and Chief Executive Officer. "Our debt elimination objective has all
but been achieved that provides unrivalled financial flexibility to pursue
opportunities. We still have an active capital program for the remainder of
the year, with a number of exciting prospects yet to drill. We have augmented
our plans for the later half of the year to include additional Rock Creek
drilling, as well as seismic on a number of new exploration prospects. An
additional $25 million in capital spending in 2008 has been approved for this
purpose. We continue to focus on evaluating new opportunities through
acquisition as well."

    Notable second quarter highlights included:

    
    -  Production averaged 20,486 boe/d in the second quarter of 2008 up 14%
       from 17,933 boe/d in the same period in 2007. This production level
       was achieved despite 765 boe/d lost due to planned and unplanned
       turnaround activity in the quarter.

    -  Liquids prices realized in the quarter increased 75% to $116.70/boe
       compared to $66.57/boe for the second quarter of 2007. Average natural
       gas prices for the quarter increased 38% to $11.30/mcf compared to
       $8.19/mcf for same period in 2007.

    -  In the second quarter, funds flow from operations was $112.9 million
       ($1.64 per diluted share), a 141% increase from the $46.9 million
       ($0.68 per diluted share) recorded in the same period in 2007. This
        was a quarterly record for Highpine.

    -  Operating costs in the quarter averaged $11.18/boe compared to
       $10.16/boe in the same period in 2007 largely due to unexpected
       workovers related to wells with electrical submersible pumps.
       Operating costs through the year are expected to have an average unit
       cost similar to actual costs achieved in the first half of the year
       due to higher power costs and upward industry pressure on general
       service costs.

    -  Operating netbacks were $62.77/boe compared to $32.44/boe for the same
       period in 2007.

    -  Net capital expenditures during the quarter were $27.9 million,
       compared to $24.7 million in the second quarter of 2007. Capital
       expenditures were on budget with lower activity planned due to spring
       beak-up.

    -  Net general and administrative expenses in the second quarter of 2008
       were $1.62/boe a decrease of 22% from $2.08/boe in the same period in
       2007.

    -  At quarter end, net debt of $46.7 million, expressed as a ratio of
       annualized cash flow, was 0.1:1.
    

    OPERATIONS UPDATE

    Production volumes in the second quarter averaged 20,486 boe/d, during a
period in which production was shut-in due to turnaround activity at Easyford,
Blaze Brazeau and Baytex North Battery. Downtime due to maintenance at these
facilities amounted to 765 boe/d for the quarter.
    Second quarter net capital expenditures were $27.9 million, as compared
to $24.7 million for the second quarter in 2007. The lower expenditures in the
quarter as compared to the first quarter of 2008 were related to spring 
break-up where 4 wells (3.3 net) were rig released with drilling resulting in
a 24% success rate. The lower success rate in the second quarter was related
to the abandonment of the 8-10-52-5 W5M and 16-13-50-7 W5M wells. Other
capital expenditures in the quarter were focused on the completion of wells
drilled in the first quarter and facilities projects and tie-ins at Pembina
and Joffre.
    The Board of Directors of Highpine have approved an increase in the 2008
capital budget to $175 million. This additional capital of $25 million will be
used largely to fund an expanded Brazeau area Rock Creek drilling program and
several new exploration projects. Drilling plans for the second half of 2008
amount to 35 gross wells (29.9 net).
    An ERCB hearing of a Highpine 6 well Nisku drilling program was concluded
in June, and a decision is expected by the end of September 2008.
    On July 1, 2008, Highpine assumed operatorship of the Easyford Battery, a
facility 66% owned by the Company. Assuming responsibility of the facility
should provide for several operational efficiencies, better responsiveness and
cost savings.

    EXPLORATION UPDATE

    In the second quarter Highpine drilled to depth and cased a Nisku test at
16-14-50-7 W5M. The well encountered 25 meters of Nisku reef with 3 meters of
oil pay. A follow-up location has been identified, up-dip from the well, on
lands currently held by Highpine. There are no plans to complete or test 16-14
at this time. This recent drilling reconfirms Highpine's confidence in its
inventory of more than 50 separate undrilled reef features in the Pembina
Nisku fairway on lands held by Highpine.
    Highpine is currently preparing to drill at Caroline 7-25-34-7 W5M,
targeting the Ostracod formation. This high reserve target is expected to
encounter sweet gas with some natural gas liquids. The well should reach total
depth at the end of August.
    Plans for winter acquisition programs for 3-D seismic have commenced for
4 Devonian target areas within Alberta.
    The first well of the Company's Rock Creek sweet gas program was recently
cased at 4-11-48-11 W5M, where a total of 6 vertical wells and 5 horizontal
wells are planned for 2008. Industry has successfully drilled over 50
horizontal wells in the past 2 years. Highpine plans to apply this technology
to its extensive land holdings in the greater Brazeau-Pembina area. Other
properties in the gas fairway present numerous additional opportunities that
will be pursued for the remainder of 2008.

    FINANCIAL UPDATE

    At the end of the second quarter, net debt was $46.7 million compared to
$133.1 million at the end of the first quarter of 2008. The net debt was
comprised of bank debt of $38.9 million and a working capital deficiency of
$7.8 million at the end of the second quarter. As at August 5, 2008 the
Company has bank debt of approximately $22.0 million.
    Pursuant to the normal course issuer bid the Company purchased and
cancelled 34,400 class A common shares in the second quarter of 2008. To date,
a total of 796,000 million class A common shares have been purchased by the
Company pursuant to the normal course issuer bid at an average price of
$12.40 per share.
    Highpine does not market products through either SemCAMS ULC or the
SemCanada Crude Company, and as a result has no financial exposure to these
entities.

    
    FINANCIAL AND OPERATING RESULTS

    -------------------------------------------------------------------------
    ($000s,
     except
     per share
     and          Three months ended June 30,       Six months ended June 30,
     share                                 %                               %
     numbers)      2008       2007    Change       2008       2007    Change
    -------------------------------------------------------------------------

    Financial
    Total
     revenue(1) 187,563    103,769        81    327,874    189,680        73
    Cash from
     opera-
     tions(2)   112,873     46,869       141    187,113     91,499       104
      Per share
       - diluted   1.64       0.68       141       2.73       1.35       102
    Net earnings
     (loss)      31,533      1,060     2,875     41,988     (5,346)        -
      Per share
       - diluted   0.46       0.02     2,220       0.61      (0.08)        -
    Net
     debt(3)     46,671    178,170       (74)    46,671    178,170       (74)
    Total
     assets   1,020,913  1,415,081       (28) 1,020,913  1,415,081       (28)
    Capital
     expendi-
     tures(4)    27,911     24,670        13     60,399    100,492       (40)
    Total
     shares
     out-
     standing
     (No.)       68,230     67,744         1     68,230     67,744         1
    Weighted
     average
     shares
    Outstanding
     - diluted
     (No.)       68,676     68,489         -     68,541     67,676         1
    -------------------------------------------------------------------------
    Operating
    Average
     daily
     production
      Crude oil
       and NGLs
       (bbls/d)  14,273     11,025        29     13,923     10,888       28
      Natural
       gas
       (mcf/d)   37,281     41,449       (10)    35,913     40,604      (12)
    -------------------------------------------------------------------------
      Total
       (boe/d)   20,486     17,933        14     19,909     17,655       13
    -------------------------------------------------------------------------
    Average
     selling
     prices(5)
      Crude oil
       and NGLs
       ($/bbl)   116.70      66.57        75     105.24      65.01        62
      Natural
       gas
       ($/mcf)    11.30       8.19        38       9.96       8.21        21
    -------------------------------------------------------------------------
      Total
       ($/boe)   101.87      59.86        70      91.56      58.97        55
    -------------------------------------------------------------------------
    Wells
     drilled
     - gross
     (net) (No.)
      Oil         - ( -)     1(0.8)        -      2(2.0)     3(2.2)        -
      Natural
       Gas        1(0.8)    - ( - )        -     15(6.8)     9(5.9)        -
      Abandoned/
       other      3(2.5)     1(0.2)        -      5(3.3)     6(4.4)        -
    -------------------------------------------------------------------------
      Total       4(3.3)     2(1.0)        -    22(12.1)   18(12.5)        -
      Drilling
       success
       rate (%)      24         75         -         73         78         -
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
    ($000s,
     except
     per share
     and          Three months ended June 30,       Six months ended June 30,
     share                                 %                               %
     numbers)      2008       2007    Change       2008       2007    Change
    -------------------------------------------------------------------------

    Operating
     netback
     ($/boe)
      Oil and
       natural
       gas sales 101.87      59.86        70      91.56      58.97        55
      Royalties   28.73      16.77        71      26.87      16.92        59
      Operating
       costs      11.18      10.16        10      11.18       9.69        15
      Tran-
       sportation
       costs      (1.13)      1.10      (203)     (0.71)      1.06      (167)
      Realized
       hedging
       gain
      (loss)      (0.32)      0.61      (152)     (0.12)      0.87      (114)
    -------------------------------------------------------------------------
      Operating
       netback    62.77      32.44        94      54.10      32.17        68
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1)  Total revenue includes realized and unrealized hedging losses and
         gains.
    (2)  Cash from operations is calculated as cash flow from operating
         activities before the change in non-cash working capital and
         abandonment expenditures.
    (3)  Net debt includes working capital excluding unrealized financial
         instruments and the current portion of future income taxes.
    (4)  Capital expenditures include property acquisitions and are presented
         net of proceeds of disposals.
    (5)  The average selling prices reported are before hedging activities.
    

    ADDITIONAL INFORMATION

    Highpine's complete results for the period ended June 30, 2008, including
Management's Discussion and Analysis and Unaudited Consolidated Financial
Statements are available on SEDAR at http://www.sedar.com/ and on the
Company's website at http://www.highpineog.com/.

    CONFERENCE CALL

    -------------------------------------------------------------------------
    Highpine will host a conference call for analysts, investors and
    interested parties, to discuss its financial and operational results at
    8:00 a.m. MDT, on Wednesday, August 6, 2008. Jonathan Lexier, President
    and Chief Executive Officer, as well as members of Highpine's executive
    team, will be in attendance.

    The call can be accessed toll free by dialing Canada and USA:
    1-800-319-4610; Outside Canada and USA: 1-604-638-5340. Please phone in
    10-15 minutes prior to the start of the call. The conference call will
    also be broadcast live over the internet on Highpine's website located at
    http://www.highpineog.com/ Digital Playback will be available until
    September 6, 2008 in North America Toll Free: 1-800-319-6413,
    Pin Code: 6639 followed by the number sign.
    -------------------------------------------------------------------------

    Highpine is a Calgary-based oil and natural gas company engaged in
exploration for and the acquisition, development and production of natural gas
and crude oil in western Canada. Highpine's current exploration and
development efforts are focused in the West Pembina Nisku and West Central
Alberta Gas Fairway, both located in Central Alberta. The Company's class A
common shares trade on the Toronto Stock Exchange under the symbol "HPX".

    Reader Advisory

    Certain information regarding Highpine in this news release including
management's assessment of future plans, capital expenditures and operations
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, risks associated with sour hydrocarbons, changes to the
proposed royalty regime prior to implementation and thereafter, 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, capital expenditure
costs, including drilling, completion and facilities costs, unexpected decline
rates in wells, delays in projects and/or operations resulting from surface
conditions, wells not performing as expected, 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 forgoing list of
factors is not exhaustive. Additional information on these and other factors
that could effect Highpine's operations and financial results are included in
reports on file with Canadian securities regulatory authorities and may be
accessed through the SEDAR website (http://www.sedar.com/) and at Highpine's
website (http://www.highpineog.com/). Furthermore, the forward-looking
statements contained in this news release are made as at the date of this news
release and Highpine does not undertake any obligation to update publicly or
to revise any of the forward-looking statements, whether as a result of new
information, future events or otherwise, except as may be required by
applicable securities laws.
    Boes may be misleading, particularly if used in isolation. A boe
conversion ratio of six mcf to one 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 term "funds flow" is not a recognized measure under Canadian
generally accepted accounting principles ("GAAP"). Management believes that in
addition to cash flow from operating activities, funds flow is a useful
supplemental measure. Investors are cautioned, however, that this measure
should not be construed as an alternative to cash flow from operating
activities determined in accordance with GAAP as an indication of Highpine's
performance. Highpine's method of calculating funds flow may differ from other
companies, especially those in other industries and accordingly may not be
comparable to measures used by other companies. Highpine calculates funds from
operations as cash from operating activities before the change in non-cash
working capital related to operating activities and abandonment expenditures.





For further information:

For further information: Jonathan A. Lexier, President and Chief
Executive Officer, Tel: (403) 508-9550, jlexier@highpineog.com; Harry D.
Cupric, Vice President, Finance and Chief Financial Officer, Tel: (403)
508-9595, hcupric@highpineog.com, Fax: (403) 508-9503, Website:
http://www.highpineog.com/

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