Petroflow Energy Ltd. announces Q2 2008 financial results



    (TSXV Symbol - PEF; AMEX Symbol - PED)

    CALGARY, Aug. 22 /CNW/ - Petroflow Energy Ltd. ("Petroflow" or the
"Company") is pleased to announce that it has filed with Canadian securities
regulatory authorities its unaudited consolidated financial statements for the
quarter ended June 30, 2008, and the accompanying Management's Discussion and
Analysis. These filings are available in their entirety on the SEDAR website
at www.sedar.com and the EDGAR website at www.sec.gov/edgar.shtml. A summary
of these results is given below.

    Q2 2008 Highlights

    
    -   Funds from operations for the three months ended June 30, 2008
        totaled $2.6 million compared to $1.5 million for the same period in
        2007. For the six months ended June 30, 2008 funds from operations
        totaled $5.9 million compared to $1.3 million for the same period in
        2007. Funds from operations for the three and six months ended June
        30, 2008 would have been substantially higher except for certain one
        time expenses incurred in the second quarter and not expected to be
        incurred on an ongoing basis. These one time expenses consisted of a
        provision for doubtful receivables of $1.4 million, employee
        performance bonuses of $1.0 million and professional and other fees
        related to the Company's successful application to list its shares on
        the American Stock Exchange of $0.7 million.

    -   In the Oklahoma Hunton Resource Play, 8 wells were put on production
        for the three months ended June 30, 2008 and 16 wells were put on
        production for the six months ended June 30, 2008, with a 100%
        success rate. As of June 30, 2008 another 5 wells were in various
        stages of drilling or completion.

    -   Production volumes for the three months ended June 30, 2008 averaged
        2,426 barrels of oil equivalent per day (boepd), 12% higher than the
        first quarter of 2008 and 81% higher than the three months ended June
        30, 2007. Production volumes for the six months ended June 30, 2008
        averaged 2,305 boepd, 96% higher than the six months ended June 30,
        2007.

    -   On May 22, 2008, the Company disposed of its San Juan Basin coal bed
        methane property for gross cash proceeds of $US 29 million ("New
        Mexico asset sale").

    -   Gross revenues from oil, natural gas and natural gas liquids totaled
        $15.4 million for the three months ended June 30, 2008, compared to
        $6.0 million for the three months ended June 30, 2007, an increase of
        158%. Gross revenues from oil, natural gas and natural gas liquids
        totaled $25.6 million for the six months ended June 30, 2008,
        compared to $9.9 million for the six months ended June 30, 2007, an
        increase of 159%.

    -   Operating expenses increased on a per boe basis by 8% to $11.73/boe
        from $10.84/boe for the three months ended June 30, 2008. Operating
        expenses remain consistent on a per boe basis to $10.29/boe from
        $10.32/boe for the six months ended June 30, 2008 compared to the
        same period in 2007.
    

    Summary of Results

    Petroflow is pleased to report the results in comparison to the three and
six months ended June 30, 2007, respectively with all amounts in Canadian
dollars.

    
                                Three Months Ended          Six Months Ended
                                      June 30,                  June 30,
                                 2008         2007         2008         2007
    -------------------------------------------------------------------------
                                          Restated                  Restated
    Financial ($000's
     except per share
     amounts)

    Oil and natural gas
     sales, net of
     transportation       $    15,311  $     5,964  $    25,412  $     9,772

    Funds from operations       2,579        1,494        5,896        1,356
      Per share - basic
       & diluted                 0.09         0.06         0.20         0.05

    Net income (loss)
     before other items          (143)        (141)         746       (1,653)

    Net loss                   (8,884)           2      (11,043)      (1,795)
      Per share - basic
       & diluted                (0.30)        0.00        (0.38)       (0.07)

    Total assets                                        111,147       82,686

    Working capital
     deficiency (excluding
     derivative contracts)                              (15,151)     (53,947)

    Total long term debt                                (71,123)      (6.134)

    Capital expenditures       20,040       14,889       35,291       27,304

    Capital dispositions      (28,250)           -      (28,250)           -

    Basic weighted average
     shares outstanding    29,341,315   23,925,056   29,291,630   24,892,162

    Common Shares as at
     August 21, 2008                                              29,423,894

    Operational

    Average daily sales
     volume (boe/d)             2,426        1,341        2,305        1,176
    Average selling price
     ($/boe)                    68.95        48.87        60.97        46.43
    Average operating
     netback ($/boe)            42.73        27.98        37.32        25.09
    

    Sales volumes for the three months ended June 30, 2008 increased over the
three months ended June 30, 2007 by 81%, primarily due to the drilling program
in Oklahoma. This activity has resulted in continual volume increases as new
wells are drilled and completed.
    Gross revenues from oil, natural gas and natural gas liquids totaled
$15.4 million for the three months ended June 30, 2008, compared to
$6.0 million for the three months ended June 30, 2007, an increase of 158%.
This increase is mostly attributable to an 81% increase in production related
to the Company's drilling activity in Oklahoma. During the second quarter of
2008, the Company put an additional 8 wells on production in Oklahoma. The
increase in sales was also affected by the increase in sales revenue per
thousand cubic feet (mcf) of natural gas of 36% in 2008 and sales revenue per
barrel (bbl) of oil and natural gas liquids of 75%, both as compared to the
same period in 2007.
    Gross revenues from oil, natural gas and natural gas liquids totaled
$25.6 million for the six months ended June 30, 2008, compared to $9.9 million
for the six months ended June 30, 2007, an increase of 159%. This increase is
attributable to a 96% increase in production due to the Company's drilling
activity on the Oklahoma resource play in 2007. During the first half of 2008,
the Company put 16 wells on production in Oklahoma. The increase in sales was
also affected by the increase in sales revenue per mcf of natural gas of 27%
in 2008 and sales revenue per bbl of oil and natural gas liquids of 63%, both
as compared to the same period in 2007.
    Unrealized loss on derivatives for the three months ended June 30, 2008
was $7.8 million compared to a gain of $0.1 million for the three months ended
June 30, 2007. The unrealized loss on derivatives for the three months ended
June 30, 2008 resulted from the change in the fair value of the derivative
contracts during the quarter. The $7.8 million loss was comprised of
$2.0 million unrealized loss on crude oil contracts, and a $5.7 million
unrealized loss on natural gas contracts. The unrealized loss in the second
quarter is primarily attributable to strong forward natural gas prices
compared to March 31, 2008.
    Unrealized loss on derivatives for the six months ended June 30, 2008 was
$10.8 million compared to a loss of $0.1 million for the six months ended June
30, 2007. The unrealized loss on derivatives for the six months ended June 30,
2008 resulted from the change in the fair value of the derivative contracts
during the first six months of 2008. The $10.8 million loss was comprised of
$2.4 million unrealized loss on crude oil contracts, and an $8.4 million
unrealized loss on natural gas contracts. The unrealized loss in the first
half of 2008 is primarily attributable to strong natural gas forward prices
compared to December 31, 2007 and an increase in derivative instruments held.
    As of August 20, 2008, the Company's risk management liabilities had been
reduced to $1.9 million as a result of commodity price declines. If prices
remain consistent to September 30, 2008, the Company would recognize an
unrealized gain on derivatives of approximately $9.0 million in the third
quarter, which will more than offset the unrealized loss in the second
quarter.
    Operating expenses increased by 96% for the three and six months ended
June 30, 2008 as compared to the same periods in 2007. On a per boe basis,
operating expenses increased 8% to $11.73/boe from $10.84/boe for the three
months ended June 30, 2008 compared to the three months ended June 30, 2007.
For the six months ended June 30, 2008, the operating expenses remained
consistent from $10.32/boe to $10.29/boe in the same period of 2007. The
increase for the three months ended June 30, 2008 is the result of industry
cost pressures, higher fuel and power costs together with workover costs in
Texas in the second quarter of 2008.
    The total DD&A rate decreased to $9.96/boe for the three months ended
June 30, 2008, compared to $12.63/boe for the same period in 2007. For the six
months ended June 30, 2008 the total DD&A rate decreased to $10.44/boe from
$12.62/boe for the same period in 2007. This decrease is the result of the New
Mexico sale and the result of reserve levels increasing significantly in the
Oklahoma area relative to production volumes during 2008. Accretion expense
has decreased for the three and six months ended June 30, 2008, because of the
New Mexico asset sale and an increase in estimated reserve life compared the
three and six months ended June 30, 2007. The estimated reserve life has
increased for the three months ended June 30, 2008 as future production
decline rates are anticipated to be lower than in 2007.
    The Company recorded a write-down of $1.0 million on the Company's
Canadian properties for the three and six months ended June 30, 2008 compared
to no write-down recorded for the same periods in 2007. The carrying value of
the Company's petroleum and natural gas properties is limited to the amount
calculated under the ceiling test on a country by country basis as at the
balance sheet date. At June 30, 2008, the calculation indicated the carrying
amount of the Company's Canadian petroleum and natural gas properties was in
excess of the amount calculated under the ceiling test. There was no
impairment of the Company's US petroleum and natural gas properties.
    Total general and administrative expenses for the three months ended June
30, 2008 were $3.1 million compared to $1.1 million in 2007. General and
administrative expense per boe increased by 65% from $9.83 for the three
months ended June 30, 2007 to $16.20 for the same period in 2008. Total
general and administrative expenses for the six months ended June 30, 2008
were $4.3 million compared to $2.2 million in 2007. General and administrative
expense per boe increased by 2% from $11.89 for the six months ended June 30,
2007 to $12.15 for the same period in 2008. The increases for the three and
six months ended June 30, 2008, are the result of $1.0 million associated with
employee bonuses incurred in June 2008 and one-time expenses of $0.7 million
for non-recurring fees related to the 40-F registration statement of the
Company and its listing on the American Stock Exchange, including legal and
audit fees, consulting services and other related charges.
    Interest expense increased by 73% to $1.4 million for the three months
ended June 30, 2008. Interest expense increased by 66% to $3 million for the
six months ended June 30, 2008. These increases are a result of higher debt
levels for the three and six months ended June 30, 2008, when compared to the
same periods in 2007. Interest expense decreased by 4% on a per boe basis for
the three months ended June 30, 2008, and by 16% for the six months ended June
30, 2008 as compared to the prior periods due to the significant growth in
period-over-period production volumes as well as the reduction in bank debt
due to the New Mexico asset sale.
    On July 22, 2008, SemGroup, L.P. one of the Company's petroleum and
natural gas marketers announced that it and certain of its North American
subsidiaries had filed voluntary petitions for reorganization under Chapter 11
of the U.S. Bankruptcy Code as well as an application for creditor protection
under the Companies' Creditors Arrangement Act in Canada. Petroflow has a
maximum potential exposure of $US 2.8 million as of June 30, 2008 and an
additional $US 1.6 million or a total of $US 4.4 million up to the date of the
SemGroup petition in respect of uncollected revenues. The account receivable
arises from a majority of the oil production volumes and 20% of the natural
gas volumes sold to SemCrude, L.P. and SemGas, L.P., subsidiaries of SemGroup,
L.P.("SemGroup"), for the marketing of a portion of Petroflow's production.
Petroflow's management has retained legal counsel and continues to have
discussions with SemGroup and its Monitor to best manage and resolve this
matter. At this time, the Company's best estimate of the uncollectible amount
of the receivable is $1.4 million, which has been recorded in the financial
statements.
    For the three months ended June 30, 2008, the Company spent a significant
portion of its developmental drilling budget in Oklahoma where 9 wells were
drilled including one salt water disposal well, and 8 wells were put on
production. In the three months ended June 30, 2007, the Company drilled 5
wells in Oklahoma and brought 10 wells on production (5 - Oklahoma; 5 - New
Mexico).
    Capital expenditures had increased 29% for the six months ended June 30,
2008, compared to the same period in 2007. During the first half of 2008, the
Company drilled 17 wells in Oklahoma including one salt water disposal well
and brought 16 wells on production compared to 11 wells that were drilled  (10
- Oklahoma; 1 - New Mexico) and 19 wells brought on production  (9 - Oklahoma;
10 - New Mexico). The increase in 2008 relates to the pace of drilling in
Oklahoma, where the Company was continuously drilling with three rigs as
compared to two rigs in the first half of 2007.

    Forward-Looking Statements

    This news release contains statements about oil and gas production and
operating activities that may constitute "forward-looking statements" or
"forward-looking information" within the meaning of applicable securities
legislation as they involve the implied assessment that the resources
described can be profitably produced in the future, based on certain estimates
and assumptions.
    Forward-looking statements are based on current expectations, estimates
and projections that involve a number of risks, uncertainties and other
factors that could cause actual results to differ materially from those
anticipated by Petroflow and described in the forward-looking statements.
These risks, uncertainties and other factors include, but are not limited to,
adverse general economic conditions, operating hazards, drilling risks,
inherent uncertainties in interpreting engineering and geologic data,
competition, reduced availability of drilling and other well services,
fluctuations in oil and gas prices and prices for drilling and other well
services, government regulation and foreign political risks, fluctuations in
the exchange rate between Canadian and US dollars and other currencies, as
well as other risks commonly associated with the exploration and development
of oil and gas properties. Additional information on these and other factors,
which could affect Petroflow's operations or financial results, are included
in Petroflow's reports on file with Canadian and United States securities
regulatory authorities. We assume no obligation to update forward-looking
statements should circumstances or management's estimates or opinions change
unless otherwise required under securities law.
    BOEs derived by converting gas to oil in the ratio of six thousand cubic
feet of gas to one barrel of oil (6 Mcf: 1 bbl). BOEs 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 TSX Venture Exchange has not reviewed and does not accept
    responsibility for the adequacy or accuracy of this news release.
    

    %SEDAR: 00003294E




For further information:

For further information: Investor Awareness, Inc., Tony Schor or James
Foy, (847) 945-2222, www.investorawareness.com; Macam Investor Relations,
Cameron MacDonald, (403) 695-1006, (866) 264-0743, www.macamgroup.com;
Petroflow Energy Ltd., John Melton, President & CEO, (504) 453-2926; Duncan
Moodie, CFO, (403) 539-4311, www.petroflowenergy.com

Organization Profile

PETROFLOW ENERGY LTD.

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