Storm Cat Energy Corporation Announces Second Quarter 2008 Financial and Operating Results



    DENVER and CALGARY, Alberta, Aug. 11 /CNW/ -- Storm Cat Energy
Corporation (Amex:   SCU; TSX: SME) today reported second quarter 2008 financial
and operating results.
    The second quarter of 2008 was an important step in Storm Cat's
transition towards profitability.  During the quarter we initiated sales from
our Fayetteville Shale acreage, bringing a total of six wells online in the
quarter.  Production from our Fayetteville property along with our Powder
River Basin (PRB) assets produced both record production and revenue results
for the quarter. Our production for the quarter was in excess of one billion
cubic feet of gas, totalling 1,151.4 million cubic feet (MMcf).  Our revenue
for the quarter was $6.6 million, a 78.6% increase from the second quarter of
2007.  Operating Cash Flow(1) from our oil and gas activities increased 39.1%
to $2.8 million for the quarter and 25.8% to $5.6 million for the first six
months of the year.  Adjusted EBITDA(2) for the second quarter was $1.3
million and $2.7 million for the six months ending June 30, 2008.
Reconciliations of non-GAAP financial measures are provided in the financial
schedules accompanying this press release.
    
    Financial Update (all figures in U.S. Dollars)
    
    Natural gas revenue for the quarter ended June 30, 2008 was $6.6 million,
representing a 78.6% increase over second quarter 2007.  This record revenue
growth was accomplished wholly through the drill bit.
    Production sales volume for the second quarter of 2008 was a record
1,151.4 MMcf an increase of 54.4% over second quarter 2007.  This represents
the sixth consecutive quarter of organic sales volume increases and the first
quarter in our history that we have produced in excess of one billion cubic
feet of gas.
    For the quarter, we reported a net loss of $4.7 million, or $0.06 per
share, as compared to a net loss of $4.6 million, or $0.06 per share, for the
second quarter of 2007.  Excluding the impact of hedging, net loss for the
quarter would have been $3.1 million, or $0.04 per share.
    Inclusive of hedging, the average realized gas price for the second
quarter was $5.69 per thousand cubic feet (Mcf), 15.7% higher than the second
quarter 2007 average price of $4.92 per Mcf.  Excluding hedging, the realized
gas price for the second quarter of 2008 was $7.12 per Mcf.
    Gathering and transportation expenses increased approximately $0.9
million from $0.4 million in the second quarter of 2007 to $1.3 million in the
second quarter of 2008.  The increase is primarily related to startup
transportation fees associated with our Fayetteville pipeline which began
shipping gas in early April and increased production volumes.
    Lease operating expenses increased to $2.4 million in the second quarter
of 2008 compared to $1.3 million in the second quarter of 2007.  This increase
resulted primarily from additional wells added through our successful drilling
program, higher per well lease operating costs resulting from fuel and
generator rental costs associated with new wells in our PRB development areas
where the electrical infrastructure has yet to be installed and higher per
well lease operating costs on our Sheridan and Ford Ranch areas resulting from
higher water production.
    Depreciation, depletion and amortization increased by $1.0 million to
$2.9 million in the second quarter of 2008 compared to $1.9 million in the
second quarter of 2007.  This increase resulted from increased production
resulting from our successful drilling activities over the past year.
    Weighted average shares outstanding for the second quarter 2008 increased
to 81.2 million as compared to 81.0 million in the second quarter of 2007. The
increase in average shares outstanding is attributed to the exercise of
outstanding options, the vesting of restricted share units and the issuance of
new restricted share units.
    As of June 30, 2008, we were not in compliance with the financial and
minimum average daily production covenants set forth in our credit agreement.
We are currently discussing a possible waiver or amendment to our credit
agreement with our lenders.  However, absent a waiver or an amendment to the
financial covenants or repayment or refinancing of the credit facility, it is
likely that we will not be in compliance with our covenants for the next
twelve months.  Accordingly, the $64.6 million outstanding under the credit
facility at June 30, 2008 is classified as a current liability in the
accompanying Consolidated Balance Sheet at June 30, 2008.

    
    Operations Update (all figures in U.S. Dollars)
    Current total net production is 15.3 million cubic feet per day (MMcf/d).
    Powder River Basin
    
    During the second quarter of 2008 we invested a total of $10.2 million in
the PRB.  These capital dollars were used for acquisitions, drilling and
completion, permitting, staking and water management plans for the 2008 and
2009 drilling programs, infrastructure upgrades and well repairs.  We drilled
15 wells in the PRB during the quarter, bringing total wells drilled in 2008
to 36.  Since the end of the second quarter we have drilled one additional
well in the PRB.
    As previously announced, during the quarter we acquired approximately
14,000 undeveloped net acres in Sheridan County, Wyoming.  The acquisition
acreage is located in and around our current operations in the PRB.
    
    Fayetteville Shale
    
    We invested $6.7 million in capital in our Fayetteville Shale project in
the second quarter of 2008.  During the quarter we drilled two additional
wells, bringing our total operated wells drilled to the Fayetteville in the
first half of 2008 to seven.  Additionally with the commencement of
transportation of gas from our acreage in early April of 2008, we turned our
three 2007 wells to sales as well as three 2008 wells. The three 2008 wells
(the Ballard 1-13H, the Owen 1-18H, and the Roberts 1-13H), had initial
production potential of 1,341 thousand cubic feet per day (Mcf/d), 1,240 Mcf/d
and 1,177 Mcf/d respectively.  Since the end of the quarter we have also
commenced sales from the Vaughan 2-18, a shallow well completed in a
gas-charged zone observed in the Vaughan 1-18H well, with initial production
potential of 500 Mcf/d.  Finally, both the Files 2-12H and the Files 3-12H,
the two wells drilled and completed in the second quarter, are cleaning up
post fracture and are pending sales.
    Since the end of the second quarter we have commenced drilling operations
on five additional Fayetteville wells.  These five wells are in various stages
of drilling and completion.
    
    Elk Valley, B.C.
    
    In Elk Valley we have nine wells on production and continue to progress
in our dewatering efforts.  We remain encouraged by the gas rates we are
observing and continue to have active discussions with third-party pipeline
operators concerning the design and possible installation of a gas sales
pipeline. Final pipeline engineering and cost estimates are anticipated to be
completed within the next few weeks.
    Financial schedules accompany this press release.  Please reference the
Company's Quarterly Report on Form 10-Q filed with the Securities and Exchange
Commission and with Canadian securities regulators on SEDAR for important
notes to the financial statements.
    
    About Storm Cat Energy
    
    Storm Cat Energy is an independent oil and gas company focused on the
exploration, production and development of large unconventional gas reserves
from fractured shales, coal beds and tight sand formations and, secondarily,
from conventional formations. The Company has producing properties in
Wyoming's Powder River Basin and Arkansas' Arkoma Basin and exploration and
development acreage in Canada. The Company's shares trade on the American
Stock Exchange under the symbol "SCU" and in Canada on the Toronto Stock
Exchange under the symbol "SME."
    
    Forward-looking Statements
    
    This press release contains certain "forward-looking statements", as
defined in the United States Private Securities Litigation Reform Act of 1995,
and within the meaning of Canadian securities legislation, relating to
potential future production and growth, proposed new wells and infrastructure
improvements affecting the Company's operations. Forward-looking statements
are statements that are not historical facts; they are generally, but not
always, identified by the words "expects," "plans," "anticipates," "believes,"
"intends, "estimates," "projects," "aims," "potential," "goal," "objective,"
"prospective," and similar expressions, or that events or conditions "will,"
"would," "may," "can," "could" or "should" occur. Forward-looking statements
are based on the beliefs, estimates and opinions of Storm Cat's management on
the date the statements are made and they involve a number of risks and
uncertainties. Consequently, there can be no assurances that such statements
will prove to be accurate and actual results and future events could differ
materially from those anticipated in such statements. Storm Cat undertakes no
obligation to update these forward-looking statements if management's beliefs,
estimates or opinions, or other factors, should change. Factors that could
cause future results to differ materially from those anticipated in these
forward-looking statements include, but are not limited to, noncompliance with
the covenants in our credit agreement and the ability of our lenders to
accelerate our indebtedness under the credit facility, the volatility of
natural gas prices, the possibility that exploration efforts will not yield
economically recoverable quantities of gas, accidents and other risks
associated with gas exploration and development operations, the risk that the
Company will encounter unanticipated geological factors, the Company's need
for and ability to obtain additional financing, the possibility that the
Company may not be able to secure permitting and other governmental clearances
necessary to carry out the Company's exploration and development plans, and
the other risk factors discussed in greater detail in the Company's various
filings on SEDAR (http://www.sedar.com) with Canadian securities regulators
and its filings with the U.S. Securities and Exchange Commission, including
the Company's Form 10-K for the fiscal year ended December 31, 2007.



    
                         CONSOLIDATED BALANCE SHEETS
       (Stated in U.S. Dollars and in thousands, except share amounts)
    

    
                                                    June 30,      December 31,
                                                     2008            2007
                                                  (Unaudited)      (Audited)
    ASSETS
    CURRENT ASSETS:
      Cash and cash equivalents                      $2,068          $1,133
      Accounts receivable:
        Joint interest billing                        3,053           1,701
        Revenue receivable                            3,792           2,444
      Fair value of derivative instruments                -           1,760
      Prepaid costs and other current assets          2,224           2,941
        Total current assets                         11,137           9,979
    PROPERTY AND EQUIPMENT (full cost method),
     at cost:
      Oil and gas properties:
        Unproved properties                          57,043          51,438
        Proved properties                           100,283          78,096
        Less accumulated depreciation, depletion,
         and amortization                           (17,038)        (12,228)
        Oil and gas properties, net                 140,288         117,306
      Other property                                  1,149           1,180
        Less accumulated depreciation                  (926)           (778)
      Total other property, net                         223             402
      Total property and equipment, net             140,511         117,708
    OTHER NON-CURRENT ASSETS:
      Restricted cash                                   168             685
      Debt issuance costs, net of accumulated
       amortization of $2,686 and $1,988,
       respectively                                   2,963           3,435
      Accounts receivable long-term                       -             759
        Total other non-current assets                3,131           4,879
        Total assets                               $154,779        $132,566
    

    
    LIABILITIES AND SHAREHOLDERS' EQUITY
    CURRENT LIABILITIES:
      Accounts payable                              $10,588          $5,825
      Revenue payable                                 3,191           1,678
      Accrued and other liabilities                   8,090           4,131
      Interest payable                                    -              12
      Share-based payments liability                    609             394
      Fair value of derivative instruments           11,708               -
      Bank debt                                      64,625               -
        Total current liabilities                    98,811          12,040
    NON-CURRENT LIABILITIES:
      Bank debt                                           -          43,056
      Ad valorem taxes payable                          852               -
      Asset retirement obligation                     1,844           1,713
      Fair value of derivative instruments            2,839             183
      Convertible notes payable                      50,195          50,195
        Total non-current liabilities                55,730          95,147
        Total liabilities                           154,541         107,187
    

    
    Commitments and Contingencies
    

    
    SHAREHOLDERS' EQUITY:
    Common shares, without par value, unlimited
     authorized, issued and outstanding: 81,278,549
     at June 30, 2008 and 81,087,320 at December 31,
     2007                                            69,834          69,834
      Additional paid-in capital                      6,028           5,640
      Accumulated other comprehensive income
       (loss)                                        (9,709)          7,483
      Accumulated deficit                           (65,915)        (57,578)
        Total shareholders' equity                      238          25,379
        Total liabilities and shareholders'
         equity                                    $154,779        $132,566
    



    CONSOLIDATED STATEMENTS OF OPERATIONS (Stated in U.S. Dollars and in
thousands, except share and per share amounts)

    
                                 Three Months Ended        Six Months Ended
                                     June 30                    June 30
                                 2008          2007       2008         2007
    NATURAL GAS REVENUE         $6,550        $3,668     $12,567      $7,580
    OPERATING EXPENSES:
      Gathering and
       transportation            1,340           398       2,143         958
      Lease operating expenses   2,407         1,256       4,810       2,159
      General and
       administrative            1,819         3,491       3,536       6,152
      Depreciation, depletion,
       amortization and
       accretion of asset
       retirement obligation     2,856         1,879       5,018       3,513
        Total operating expenses 8,422         7,024      15,507      12,782
      Operating loss            (1,872)       (3,356)     (2,940)     (5,202)
    

    
    OTHER INCOME (EXPENSE):
      Interest expense          (2,462)       (1,519)     (4,731)     (2,148)
      Interest and other
       miscellaneous income         52           101          32         133
      Amortization of deferred
       financing costs
           (411)            -        (698)          -
        Total other income
         (expense)              (2,821)       (1,418)     (5,397)     (2,015)
    

    
        Loss before taxes       (4,693)       (4,774)     (8,337)     (7,217)
    

    
      Recovery of future income
       tax asset from
       flow-through shares           -           182           -       1,278
    

    
    NET LOSS                   $(4,693)      $(4,592)    $(8,337)    $(5,939)
    Basic and diluted loss
     per share                  $(0.06)       $(0.06)     $(0.10)     $(0.07)
    Weighted average number
     of shares outstanding  81,214,884    81,045,122  81,151,150  80,816,505
    



    
                     CONSOLIDATED STATEMENT OF CASH FLOWS
                  (Stated in U.S. Dollars and in thousands)
    

    
                                                        Six Months Ended
                                                             June 30,
                                                        2008         2007
    Cash flows from operating activities:
      Net loss                                        $(8,337)     $(5,939)
      Adjustments to reconcile net loss to net
       cash provided by (used in) operating activities:
        Recovery of future income tax asset from
         flow-through shares
                                                            -       (1,252)
        Share-based payments                              625        1,161
        Depreciation, depletion, amortization and
         accretion of asset retirement obligation       5,018        3,521
        Amortization of debt issuance costs               698            -
        Changes in operating assets and liabilities:
          Accounts receivable                          (2,694)        (761)
          Other current assets                            700          381
          Accounts payable                                257       (2,674)
          Accrued interest and other current
           liabilities                                  5,103       (1,461)
        Net cash provided by (used in) operating
         activities                                     1,370       (7,024)
    Cash flows from investing activities:
      Restricted cash                                   1,264           (8)
      Capital expenditures - oil and gas properties   (22,801)     (32,386)
      Capital expenditures - other assets                  21          (23)
        Net cash used in investing activities         (21,516)     (32,417)
    Cash flows from financing activities:
      Issuance of common stock                              -          914
      Debt issuance costs                                   -       (3,556)
      Proceeds from (repayment of) bank debt           21,569      (13,278)
      Proceeds from convertible notes payable               -       50,194
        Net cash provided by financing activities      21,569       34,274
    Effect of exchange rate changes on cash              (488)         883
    Net decrease in cash and cash equivalents             935       (4,284)
    Cash and cash equivalents at beginning of period    1,133        5,299
    Cash and cash equivalents at end of period         $2,068       $1,015
    

    
    Supplemental disclosure of cash flow
     information:
      Cash paid for interest                           $5,224       $2,449
    Supplemental disclosure of non-cash investing
     and financing activities:
      Capital accruals and asset additions            $13,566       $6,700
      Increase in asset retirement obligation             $89        $(284)
    Change in fair value derivatives                 $(16,123)     $(1,360)
    



    
                RECONCILIATION OF NET LOSS TO ADJUSTED EBITDA
                  (Stated in U.S. Dollars and in thousands)
    

    
                                                      Three Months Ended
                                                           June 30,
                                                      2008           2007
    Net loss                                       $(4,693)       $(4,774)
    Depreciation, depletion, amortization and
     accretion                                       2,856          1,879
    Interest Expense                                 2,410          1,418
    Income Taxes                                         -           (182)
    Amortization of Debt Issuance Costs                411              -
    EBITDA                                             984         (1,659)
    Stock-based compensation expense                   351            742
    Adjusted EBITDA(1)(3)                           $1,335          $(917)
    

    
                                                       Six Months Ended
                                                           June 30,
                                                      2008           2007
    Net loss                                        $(8,337)       $(5,939)
    Depreciation, depletion, amortization and
     accretion                                        5,018          3,513
    Interest Expense                                  4,699          2,015
    Income Taxes                                          -         (1,278)
    Amortization of Debt Issuance Costs                 698              -
    EBITDA                                            2,078         (1,689)
    Stock-based compensation expense                    617          1,189
    Adjusted EBITDA(1)(3)                            $2,695          $(500)
    



    
           RECONCILIATION OF OPERATING LOSS TO OPERATING CASH FLOW
                  (Stated in U.S. Dollars and in thousands)
    

    
                                                      Three Months Ended
                                                           June 30,
                                                      2008           2007
    Operating loss                                  $(1,872)       $(3,356)
    General and administrative                        1,819          3,491
    Depreciation, depletion, amortization and
     accretion                                        2,856          1,879
    Operating Cash Flow (2)(3)                       $2,803         $2,014
    

    
                                                       Six Months Ended
                                                           June 30,
                                                      2008           2007
    

    
    Operating loss                                  $(2,940)       $(5,202)
    General and administrative                        3,536          6,152
    Depreciation, depletion, amortization and
     accretion                                        5,018          3,513
    Operating Cash Flow (2)(3)                       $5,614         $4,463
    

    
    (1) We have included Adjusted EBITDA (earnings before interest, taxes,
        depreciation and amortization, and share-based compensation expense)
        because we believe it provides investors with a useful industry
        comparative and is a financial measure used by management to assess
        the performance of our Company.
    

    
    (2) We have included Operating Cash Flow (natural gas revenues less lease
        operating expenses, gathering and transportation expenses and
        production taxes) because we believe it provides useful information to
        assess our performance and to measure our cash flows from operations
        for our investors.
    

    
    (3) We believe EBITDA, Adjusted EBITDA and Operating Cash Flow provide
        useful measures of cash flows from operations for our investors
        because EBITDA, Adjusted EBITDA and Operating Cash Flow are industry
        comparative measures of cash flows generated by our operations and
        because they are financial measures used by management to assess the
        performance and liquidity of our Company. EBITDA, Adjusted EBITDA and
        Operating Cash Flow are not measurements of financial performance or
        liquidity under accounting principles generally accepted in the United
        States of America and should not be considered in isolation or
        construed as a substitutes for net income (loss) or other operations
        data or cash flow data prepared in accordance with accounting
        principles generally accepted in the United States of America for
        purposes of analyzing our profitability or liquidity.  In addition,
        not all funds depicted by EBITDA, Adjusted EBITDA and Operating Cash
        Flow are available for management's discretionary use.  For example, a
        portion of such funds are subject to contractual restrictions and
        functional requirements to pay debt service, fund necessary capital
        expenditures and meet other commitments from time to time as described
        in more detail in the Company's 2007 Annual Report on Form 10-K filed
        with the Securities and Exchange Commission on March 17, 2008.
        EBITDA, Adjusted EBITDA and Operating Cash Flow, as calculated, may
        not be comparable to similarly titled measures reported by other
        companies.

    




For further information:

For further information: William Kent, Director, Investor Relations of
Storm Cat Energy Corporation, +1-303-991-5070 Web Site:
http://www.stormcatenergy.com

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STORM CAT ENERGY CORPORATION

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