TRIOIL ANNOUNCES FIRST QUARTER 2011 CARDIUM DRILLING SUCCESS AT LOCHEND, FOURTH QUARTER AND DECEMBER 31, 2010 YEAR END RESERVES AND FINANCIAL RESULTS

CALGARY, April 26 /CNW/ - TriOil Resources Ltd. ("TriOil" or the "Company") (TSXV: TOL) is pleased to announce that it has filed its audited financial statements and related Management's Discussion and Analysis ("MD&A") for the year ended December 31, 2010 and its Annual Information Form on SEDAR.  Selected financial and operational information is outlined below and should be read in conjunction with TriOil's audited financial statements and related MD&A, available for review at www.trioilresources.com and www.sedar.com.

2010 Corporate Highlights:

2010 was a very busy year for the Company, starting with the recapitalization of One Exploration Inc. followed by the acquisition of Canext Energy Ltd., a name change and share consolidation, two major asset acquisitions at Lochend, as well as four bought deal equity financings. These activities have transformed the Company into an oil focused junior company, with a strong balance sheet and a large land position and development drilling inventory in the Cardium A light oil resource play at Lochend. 2010 was also a time of learning for the company in terms of optimizing drilling, completion and production techniques at Lochend. During the year, the Company:

  • Increased its net asset value to $5.29 per share;
  • Strengthened its balance sheet, ending the year with a working capital surplus of $6.4 million and an undrawn $25 million revolving credit facility;
  • Established a strong operational presence and multi-year growth platform in the emerging Lochend Cardium light oil resource play:
    • Added over 80 sections (56 net) of prospective land through crown land sales, freehold leasing and two key asset acquisitions, providing the company with an inventory of over 150 horizontal oil locations;
    • Acquired operatorship and 99% ownership in key production facilities and infrastructure;
    • Drilled 5 Cardium horizontal oil wells (2.95 net), 4 (2.45 net) targeting the Cardium A and 1 (0.5 net) targeting the Cardium B, completed with 10-13 stage gelled oil fracs;
  • Increased total proved plus probable ("P+P") reserves by 640% to 10.3 million boe and total proved ("TP") reserves by 617% to 6.5 million boe:
    • Lochend Cardium reserves accounted for 1.8 million boe of TP and 2.5 million boe of P+P reserves, representing 28% of P+P and 24% of TP reserves;
  • Achieved finding, development and acquisition ("FD&A") costs, including future development capital, of $32.46 per boe for TP reserve additions and $22.64 per boe for P+P;
  • Increased 2010 average production to 1,230 boe/d (43% oil and ngls) from 565 boe/d in 2009 (28% oil and ngls), an increase of 118 percent;
  • Increased funds from operations to $3,595,016 in 2010 from funds used in operations of $1,457,889 in 2009.

Maintaining Financial Strength:

  • TriOil continues to focus on maintaining a strong balance sheet to ensure the Company is well positioned to exploit its large Cardium resource play at Lochend;
    • The Company exited 2010 with a $6.4 million working capital surplus and an undrawn $25 million credit facility;
    • TriOil estimates that it will exit the first quarter of 2011 with a working capital deficiency of approximately $1.0 million;
  • Closed a disposition of approximately 325 boe/d of non-core natural gas production for $5.91 million (prior to closing adjustments), with the consideration comprised of $3.94 million in cash and 4.1 million freely tradeable shares of the acquirer (post consolidation);
  • Entered into a fixed price contract to sell 250 bbls of oil per day at CDN$95.90 per barrel from February 1, 2011 to December 31, 2011.

Successful Cardium Light Oil Q1 Results at Lochend

Since the inception of TriOil in early 2010, the Company's new management team has been largely focused on assembling a strong land position, operational presence and development drilling inventory on the emerging Cardium A light oil resource play at Lochend in Alberta. We currently own over 80 (56 net) sections of prospective Cardium land, have an inventory exceeding 150 horizontal locations and operate key producing facilities and infrastructure. Through our participation in 10 (5.31 net) horizontal wells in the latter part of 2010 and the early part of 2011 we have confirmed significant light oil resource potential at Lochend.

We continue to optimize our multistage frac designs. Our 2011 drilling program utilized slick water based frac fluids in place of the oil based frac designs in our 2010 program. The 20 stage slick water frac designs have exhibited better breakdowns, more effective frac half lengths and better performance than our oil based completions and also allow for faster on-stream times than oil systems.

The Cardium trend at Lochend is at an early stage of development. TriOil's initial 4 (2.45 net) wells targeting the Cardium A sand were completed in late 2010 using 10 to 13 stage gelled oil fracs. The results of these fracs were below type curve modeling, as previously announced, however all of the wells are currently on production after recovering load fluid.

Notwithstanding the lower than expected production rates, the Company's independent reserve engineers booked 1.8 million boe of TP and 2.5 million boe of P+P reserves in the Lochend area of Alberta. These reserves represent 28% and 24% of TriOil's TP and P+P corporate reserves. This reserve booking was based on well performance and offset production. The positive independent reserve evaluation of our early stage results is very encouraging and management expects that reserve bookings will increase with the shift to slick water fracs in our 2011 program.

After an extensive study of the results from the gelled oil fracs, core and log analysis and evaluation of competitor slick water results elsewhere in the Cardium, TriOil moved to higher density slick water fracs in early 2011. We believe that this new frac design will yield improved productivity and recoveries as well as lowering completion costs. We will continue to investigate the merits of additional Cardium completion techniques in an effort to further enhance cost efficiencies, production rates and reserve recoveries.

We are very encouraged by the results of our higher density slick water completions in our Q1 2011 program;

  • The first Cardium A horizontal oil well (TriOil 40% working interest, non-operated) was completed with a 20 stage slick water frac (19 of 20 stages successful) and has been on production for approximately 40 days. The well averaged 164 boe/d (85 % oil) over its initial 30 days of production and is currently producing above our type curve at approximately 200 boe/d (87% oil);
  • The second Cardium A horizontal oil well (TriOil 47.5% working interest, non-operated) was completed with a 20 stage slick water frac (all 20 stages successful) and has been on production for a month. The 30 day average production is 190 boe/d (90% oil) and the well is still producing above our type curve at approximately 185 boe/d (90% oil);
  • The third Cardium A horizontal oil well (TriOil 78% working interest, operated) was completed with a 20 stage slick water frac (18 of 20 stages successful). Early flowback rates were comparable to our first two wells and we expect the well to be on production in early May;
  • The fourth Cardium A horizontal well at (TriOil 30% working interest, operated) has been successfully drilled and cased for a planned 20 stage slick water frac. The well is scheduled to be completed after breakup and placed on production in June.

TriOil has gained valuable experience in Cardium horizontal drilling and completion techniques at Lochend. We expect continued evolution and refinement of completion techniques as the Lochend Cardium play matures, further lowering costs and increasing well productivity. We continue to be excited about the Cardium A potential at Lochend as we develop the Corporation's substantial inventory of over 150 potential horizontal oil locations.

Another element of the oil potential in the Lochend area is the presence of the Cardium B sand on some of our land holdings. This was tested last year in the 13-1 horizontal well (TriOil 50% working interest, non-operated). Although the operator experienced mechanical issues and only 4 out of a planned 12 stages were successfully completed using gelled oil, the well has been steadily producing at 40 boe/d. TriOil is encouraged by this initial result and intends to move ahead with a Cardium B horizontal oil well development program. TriOil has 14 (6.3 net) Cardium B horizontal oil locations currently identified on its lands.

Outlook

With the knowledge gained, TriOil is positioned to substantially grow its light oil production and reserves base at Lochend. We believe the effectiveness of slick water fracture stimulations at Lochend has unlocked the Cardium potential over our substantial land holdings, and our first few wells bear this out. We look forward to updating the market further on our ongoing operations at Lochend as the year progresses. We also continue to refine our drilling and completion techniques and intend on being at the forefront of testing completion techniques new to the Lochend area. We continue to strive to lower costs while improving production performance and reserve additions.

We achieved solid reserve growth with our initial Cardium assessment horizontal program at Lochend, adding 2.5 million boe of P+P reserves. With the improvements in multi-stage Cardium completions we have experienced at Lochend in our 2011 horizontal program to date, we believe that the Company is very well positioned to deliver strong production and reserve growth in 2011.

The previously announced capital budget of $60 million remains in place for 2011. A drilling rig has been contracted for the balance of the year with a plan to drill an additional 9 (5.2 net) wells at Lochend prior to year end for a total of 13 (7.16 net) Lochend Cardium horizontal oil wells. In addition, our capital program includes completing the Cardium A in a number of vertical wellbores that the Company already owns in order to test the effectiveness and performance of additional completion techniques.

Industry activity is accelerating on the Lochend Cardium trend and we continue to evaluate additional non-core asset sales with the goal of expanding our current Cardium development program at Lochend.

Financial and Operating Results (1)          
        Three months ended December 31,    Year ended December 31,
  2010 2009 % Change 2010 2009 % Change
($, except share numbers)            
Financial            
Total revenue       6,429,093     1,340,805             379     19,533,974       6,881,775             184
Funds from (used in operations) (2)       1,646,288       (298,280)                 -         3,595,016     (1,457,889)                -  
  Per share - diluted                  0.06              (0.10)                 -                    0.17               (0.51)                -  
Net (loss)      (2,558,245)    (5,171,421)              (51)   (10,400,373)   (11,455,674)                (9)
  Per share - basic and diluted                (0.09)              (1.81)              (95)                (0.51)               (4.01)             (87)
Working capital        6,432,635         570,957          1,027       6,432,635          570,957         1,027
Total assets   195,509,174   35,618,543             449   195,509,174    35,618,543             449
Capital expenditures(3)     15,374,298    (4,119,776)                 -       58,768,248     (4,722,283)                -  
Weighted average shares outstanding (#) (4)            
Basic     27,437,291     2,855,336             861     20,409,026       2,855,096             615
Diluted     27,594,865     2,855,336             866     20,651,191       2,855,096             623
Operating            
Average daily production            
Crude oil and NGLs (bbls/d)                   687                 127             441                   534                  156             242
Natural gas (mcf/d)               5,192             1,379             277               4,176               2,453               70
Total (boe/d)               1,552                 356             336               1,230                  565             118
Average sales prices            
Crude oil and NGLs ($/bbl) 72.25 63.95                13 68.53 54.60               26
Natural gas ($/mcf) 3.90 4.70              (17) 4.06 4.21                (4)
Total ($/boe) 45.02 40.89                10 43.52 33.37               30
Wells drilled - gross (net)             
Exploration 1(0.5) - - 7(3.6) 2(1.0) -
Development 5(2.7) - - 11(4.7) - -
Total 6(3.2) - - 18(8.3) 2(1.0) -
Drilling success rate (%) 83 - - 72 50 -
Operating netback ($/boe)            
Oil and natural gas sales 45.02 40.89                10 43.52 33.37               30
Royalties (5.66) (2.88)                97 (5.38) (3.09)               74
Operating costs (17.51) (23.69)              (26) (17.92) (20.66)             (13)
Transportation (2.13) (1.66)                28 (1.76) (1.41)               25
Operating netback 19.72 12.66                56 18.46 8.21             125

Notes:

(1)   Results include Canext Energy Ltd. from the closing date of April 12, 2010.
(2)  Funds used in operations is a non-GAAP measure and is calculated as cash flow from operating activities before the change in non-cash working capital and abandonment expenditures.
(3) Capital expenditures include property acquisitions and are presented net of proceeds of disposals, but exclude corporate acquisitions.
(4)  On April 7, 2010, TriOil. consolidated its outstanding class A common shares on a 20 to 1 basis as approved by shareholders.  Comparative figures have been presented as if this share consolidation occurred on January 1, 2009.

Financial Results

Q4 2010 Highlights

  • Increased production to 1,552 boe/d from 356 boe/d in the fourth quarter of 2009.
  • Increased funds from operations to $1,646,288 from funds used in operations of $298,280 in the fourth quarter of 2009.
  • Decreased operating costs to $17.51 per boe from $23.69 per boe in the fourth quarter of 2009 through operational initiatives and the acquisition of lower operating cost assets. With the sale of high operating cost properties in the first quarter of 2011 and the continuing shift to higher netback light oil properties, operating costs are expected to reduce further through 2011.
  • Capital expenditures were $15.4 million, with the majority of the funds spent on drilling 6(3.2 net) wells with an 83% success rate:
    • 3 (1.8 net) at Lochend;
    • 1 (0.6 net) at Sweeney;
    • 2 (0.8 net) at Tableland.
  • Closed a $35.1 million bought deal financing

Corporate Reserves Summary

Sproule Associated Limited ("Sproule") was engaged to prepare an evaluation of the Company's reserves as of December 31, 2010. The evaluation of petroleum and natural gas reserves was conducted pursuant to National Instrument 51-101 - Standards of Disclosure for Oil and Gas activities ("NI-51-101") and the Canadian Oil and Gas Evaluation Handbook ("COGEH").

As at December 31, 2010, TriOil's 2P reserves were evaluated at 10,312 mboe, representing a 640% increase from December 31, 2009. Oil and NGL's accounted for 45% of the 2P reserve base. The Company's reserve life indices are 11.1 years based on TP reserves and 17.5 years based on 2P reserves based on estimated 2011 production in the reserves evaluation.

December 31, 2010 Summary Reserves (Company interest before royalties)        
      Total Oil Natural
Gas
Natural
Gas Liquids
Oil
Equivalent
      MBbl Mmcf MBbl Mboe
Proved Developed Producing         785.7      7,209.9         193.5      2,180.9
Proved Developed Non Producing         295.8      2,228.1            43.7         710.9
Total Proved Developed      1,081.5      9,438.0         237.2      2,891.7
Proved Undeveloped        1,509.5    11,621.0         179.0      3,625.3
Total Proved         2,590.9    21,059.0         416.2      6,517.0
Probable          1,363.2    13,135.3         242.6      3,795.0
Total Proved + Probable      3,954.1    34,194.3         658.8    10,312.1
             

Net Present Value of Future Net Revenue

December 31, 2010 Net Present Values "NPV" Summary (Company interest before royalties)          
Reserves Category (numbers may not add due to rounding) 0% 5% 10% 15% 20%
($ 000s)          
Proved Developed Producing         60,969         49,508         42,165         37,023         33,206
Proved Developed Non Producing         21,049         16,217         13,117         10,969            9,399
Total Proved Developed         82,018         65,725         55,282         47,992         42,605
Proved Undeveloped         86,222         45,913         25,213         13,367            6,032
Total Proved        168,241       111,638         80,495         61,358         48,637
Probable       129,045         67,105         41,504         28,437         20,750
Total Proved + Probable       297,285       178,743       121,999         89,796         69,388
           

The above includes undiscounted future development capital of $72,860,000 on a TP basis and $89,809,900 on a P+P basis.

Corporate Working Interest Reserves Reconciliation (Forecast Prices and Costs)

           
Oil Equivalent (Mboe)     Total Proved Total Proved + Probable
           
Opening Balance                 909                             1,393
Extensions/Discoveries   2,023                             2,813
Technical Revisions               (144)                               (194)
Acquisitions             4,178                             6,749
Production                 (449)                               (449)
Closing Balance             6,517                           10,312

The Company's 2010 finding and development ("F&D") costs were $18.66 per boe TP and $13.38 per boe P+P excluding future capital and $43.67 per boe TP and $31.14 per boe P+P including future capital. The Corporation's all in FD&A costs were $20.73 per boe TP and $13.45 per boe P+P excluding future capital and $32.46 per boe TP and $22.64 per boe P+P including future capital. The FD&A costs include both reserve additions and capital expenditures associated with corporate and asset acquisitions and land costs. The F&D cost calculation includes reserve extensions, discoveries and technical revisions as well as drilling, completion and facility costs.

Net Asset Value ("NAV") (1)

           
As at December 31, 2010        
           
P+P reserves (pretax 10% discount rate)                    121,999,000
Undeveloped land (2)                         40,583,677
Working capital                           6,432,635
Stock option  proceeds (3)                         12,678,550
Net asset value estimate, December 31, 2010                  181,693,862
Net asset value estimate per diluted share, December 31, 2010 (4)  $                           5.29

(1) The NAV calculation show what the Corporation's reserves would be produced at forecast future prices and costs.
The value is a snapshot in time and is based on various assumptions, including commodity prices and foerign exchange rates that vary over time. It should not be assumed that the NAV represents the fair market value of TriOil shares.
(2) Independent evaluation using a total net undeveloped acreage number of 138,928 at an average price of $292 per acre. The Lochend portion of the total net undeveloped acreage number is based on Cardium 'A' status only.
(3) Proceeds from 1,849,000 in the money stock options and 1,200,000 warrants based on a closing share price of $4.50 per share.
(4) Based on 34,366,726 outstanding shares on a fully diluted share basis, which includes 1,200,000 performance warrants 

TriOil is a publicly traded junior Canadian energy company involved in the exploration, development and production of oil, natural gas and liquids in Alberta and Saskatchewan. The Company's current focus is on an early stage light oil resource opportunity on the emerging Cardium oil trend at Lochend, Alberta.

TriOil trades on the TSX Venture Exchange under the symbol "TOL". As of April 26, 2011, there were approximately 31.3 million shares issued and outstanding (34.6 million fully diluted).

Forward Looking Statements
This news release contains forward-looking information and forward-looking statements within the meaning of applicable securities laws. The use of any of the words "expect", "anticipate", "continue", "estimate", "believe", "plans", "intends", "confident", "may", "objective", "ongoing", "will", "should", "project", and similar expressions are intended to identify forward-looking information. More particularly, this document contains forward looking statements which include, but are not limited to, expected future drilling and completion plans, expected production and reserves growth, expectations of the effect of drilling and completion programs on productivity, recoveries and costs and the future operations of TriOil.

The forward-looking statements contained in this document are based on certain key expectations and assumptions made by TriOil, including with respect to the anticipated exploration and development opportunities and the outlook for the fiscal year ending December 31, 2011, expectations and assumptions concerning the success of future exploration and development activities, production guidance, the performance of new wells and drilling and completion programs, prevailing commodity prices and the availability of additional capital if and when required by the Corporation.

Any references in this news release to initial and/or final raw test or production rates and/or "flush" production rates or 30, 60 and 90 day production rates are useful in confirming the presence of hydrocarbons, however, such rates are not determinative of the rates at which such wells will continue production and decline thereafter. Additionally, such rates may also include recovered "load oil" fluids used in well completion stimulation. While encouraging, readers are cautioned not to place reliance on such rates in calculating the aggregate production for the Company.

Although TriOil believes that the expectations and assumptions on which the forward-looking statements are based are reasonable, undue reliance should not be placed on the forward-looking statements because TriOil can give no assurance that they will prove to be correct. Since forward-looking statements address future events and conditions, by their very nature they involve inherent risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors and risks. These include, but are not limited to, the failure to satisfy the conditions to closing the transaction, risks associated with the oil and gas industry in general (e.g., operational risks in development, exploration and production; delays or changes in plans with respect to exploration or development projects or capital expenditures; the uncertainty of reserve estimates; the uncertainty of estimates and projections relating to production, costs and expenses, and health, safety and environmental risks), commodity price and exchange rate fluctuations and uncertainties resulting from potential delays or changes in plans with respect to exploration or development projects or capital expenditures. Certain of these risks are set out in more detail in TriOil's Annual Information Form which has been filed on SEDAR and can be accessed at www.sedar.com and TriOil's other public disclosure documents which have been filed on SEDAR and can be accessed at www.sedar.com.

The forward-looking statements contained in this press release are made as of the date hereof and TriOil undertakes no obligation to update publicly or revise any forward-looking statements or information, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws.

Meaning of BOE

The term "boe" may be misleading, particularly if used in isolation. A boe conversion 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.

NEITHER THE TSX VENTURE EXCHANGE NOR ITS REGULATION SERVICES PROVIDER (AS THAT TERM IS DEFINED IN THE POLICIES OF THE TSX VENTURE EXCHANGE) ACCEPTS RESPONSIBILITY FOR THE ADEQUACY OR ACCURACY OF THIS RELEASE.

 

SOURCE TriOil Resources Ltd.

For further information:

Russell J. Tripp, President & CEO, TriOil Resources Ltd., Phone: (403) 265-4115

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